Section 168

Subsection 168(1) - Notice of intention to revoke registration

Cases

Lord's Evangelical Church of Deliverance and Prayer of Toronto v. Canada, 2004 DTC 6746, 2004 FCA 397

The Minister had not denied natural justice and procedural fairness by revoking registration given that lack of procedural fairness was not seriously advanced in the case of three of the four grounds advanced by the Minister for revocation (the adequacy of the appellant's books and records, lack of conformity of official donation receipts with regulatory requirements, and benefits being paid that were not included on T4 slips) and, as to the fourth (a substantial gift to the pastor), the concerns of the Minister had not been met in a meaningful way.

Canadian Committee for the Tel Aviv Foundation v. Canada, 2002 DTC 6843, 2002 FCA 72

Given the detailed exchange of written submissions that had occurred during audit there was no need for either an oral hearing or a cross-examination of the auditor before the Minister determined to revoke the appellant's registration.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 149.1 - Subsection 149.1(1) - Charitable Organization no control of offshore agent 91

Paragraph 168(1)(b)

Cases

Many Mansions Spiritual Center, Inc. v. Canada (National Revenue), 2019 FCA 189

revocation of charity’s registration on the grounds that it let its pastor occasionally use office space in his personal business

After noting (at para. 4) that “it is well established that each of the grounds listed in subsection 168(1) can afford a basis for revocation,” Laskin JA dismissed the appeal of the appellant (Many Mansions) from the Minister’s decision to revoke its charitable registration on grounds that included that “Many Mansions furnished its pastor with an office and permitted him on three occasions during the audit period to use meeting rooms on Many Mansions’ premises in operating a private business” (para. 12). In this regard, he stated (at para. 12):

Many Mansions submits on appeal that its pastor’s use of the office and meeting rooms was permissible because it was merely ancillary or incidental to the fulfilment of Many Mansions’ charitable purposes. While paragraph 149.1(6)(a) permits a charitable organization itself to carry on a related business without contravening the requirement to devote all its resources to charitable activities, the pastor’s private business does not come within this exception.

Although it was unnecessary to decide on the further ground for revocation that Many Mansions was engaging in activities inconsistent with its registered object (of “advanc[ing] and teach[ing] the religious tenets, doctrines, observances and culture associated with the Christian faith”), Laskin JA nonetheless stated (at para. 6):

Many Mansions submits that judgments on matters of religious doctrine or theology have no place in government … . Whether an organization is operating within its registered object is relevant to its continued enjoyment of those privileges. We do not agree that by inquiring into these matters the Minister acted unreasonably or exhibited bias.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 168 - Subsection 168(1) - Paragraph 168(1)(e) failure to record disbursements 73
Tax Topics - Income Tax Act - Section 149.1 - Subsection 149.1(6) - Paragraph 149.1(6)(a) occasional use of charity's office space in personal business was not related business 127

Ark Angel Foundation v. Canada (National Revenue), 2019 FCA 21

failure to demonstrate that consulting fees paid to director were for charitable activities

The appellant (Foundation), a charitable foundation, which was managed by one of its directors (Mr. O.), received most of its revenues of $45,000 over the two years under review from three other registered charities (including the Humane Society of Canada Foundation) which were subject to the day-to-day control of Mr. O and disbursed most of those revenues to those three charities, except that it paid approximately 1/3 of its revenues to Mr. O as consulting fees. After confirming the decision of the Minister to revoke the registration of the Foundation under s. 168(1)(e) on the grounds of essentially no records substantiating the consulting fees (and in finding that the decision of the Minster to revoke under s. 168(1)(b) on the grounds that the consulting fees had not been established to satisfy the requirement for the Foundation to devote all of its resources either to charitable activities or as gifts to qualified donees, Woods JA stated (at paras. 53, 57):

… The Appeals Directorate noted that most of the funds received and disbursed by the Foundation were to registered charities in which …[Mr. O] was a director and therefore it could not be determined that any consulting work could be justified in the circumstances… .

In this case, the question is not whether the Minister ignored gifts to qualified donees, but whether the Foundation used some of its resources to pay [Mr. O] for purposes that were not charitable. As noted above, given the paucity of supporting information, it was reasonable for the Minister to conclude that some of the expenses incurred were not incurred for charitable purposes.

Woods JA further found that there was no breach of natural justice or procedural fairness by the Minister.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 168 - Subsection 168(1) - Paragraph 168(1)(e) revocation for failure to have records substantiating consulting fees paid to director 333
Tax Topics - Income Tax Act - Section 230 - Subsection 230(2) failure to maintain records substantiating director's consulting fees 118

Renaissance International v. MNR, 83 DTC 5024, [1982] CTC 393 (FCA)

The Minister is under the duty to comply with the rules of natural justice and procedural fairness before sending a notice pursuant to s. 168(1), and he accordingly must, before sending the notice, give the persons concerned a reasonable opportunity to answer the allegations made against them. The requirement for procedural fairness follows from the adverse effects of the sending of a notice, notwithstanding that such sending does not constitute a final determination of the charity's status.

Paragraph 168(1)(d)

Cases

Colel Chabad Lubavitch Foundation of Israel v. Canada (National Revenue), 2022 FCA 108

issuance of inflated charitable receipt was supported by the record

The principal argument of a charitable organization in challenging the proposed revocation of its registration was that there was a reasonable apprehension of bias arising from the involvement of Mr. Racine, a Directorate employee, in the first audit and his assignment as the appeals officer in the appeal from the Notice of Intention to Revoke that was issued as a consequence of the second audit. In rejecting this submission, Gleason JA stated (at paras. 41, 44) that “the involvement of Mr. Racine in the first audit was minimal” and that “Mr. Racine cannot be said to have sat in appeal from a decision he made.”

In going on to dismiss the appeal, Gleason JA noted that there was significant support in the record for various of the grounds for revocation, including the organization’s participation in a donation scheme under which it indirectly returned to a donor approximately 80-90% of the $3.5 million for which he had been receipted.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 172 - Subsection 172(3) - Paragraph 172(3)(a.1) there is no reasonable apprehension of bias where an appeals officer only had minor involvement in a prior taxpayer audi 474

Paragraph 168(1)(e)

Cases

Many Mansions Spiritual Center, Inc. v. Canada (National Revenue), 2019 FCA 189

failure to record disbursements

After noting (at para. 4) that “it is well established that each of the grounds listed in subsection 168(1) can afford a basis for revocation,” Laskin JA dismissed the appeal of the appellant (Many Mansions) from the Minister’s decision to revoke its charitable registration, including on the ground that Many Mansions had failed to document expenditures - and “a charitable organization’s obligation to maintain adequate books and records is ‘foundational’" (para. 10).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 168 - Subsection 168(1) - Paragraph 168(1)(b) revocation of charity’s registration on the grounds that it let its pastor occasionally use office space in his personal business 269
Tax Topics - Income Tax Act - Section 149.1 - Subsection 149.1(6) - Paragraph 149.1(6)(a) occasional use of charity's office space in personal business was not related business 127

Ark Angel Foundation v. Canada (National Revenue), 2019 FCA 21

revocation for failure to have records substantiating consulting fees paid to director

The appellant (Foundation), a charitable foundation, which was managed by one of its directors (Mr. O.), received most of its revenues of $45,000 over the two years under review from three other registered charities (including the Humane Society of Canada Foundation) which were subject to the day-to-day control of Mr. O and disbursed most of those revenues to those three charities, except that it paid approximately 1/3 of its revenues to Mr. O as consulting fees. In confirming the decision of the Minister to revoke the registration of the Foundation under s. 168(1)(e) (and before going on to find that the decision of the Minster to revoke under s. 168(1)(b) on the grounds that the consulting fees had not been established to satisfy the requirement for the Foundation to devote all of its resources either to charitable activities or as gifts to qualified donees), Woods JA stated (at paras 37-39, and 43):

Prescient Foundation … pointed out that revocation should be limited to instances of “material or repeated non-compliance” … .

[T]he Foundation failed to provide any records that demonstrated what consulting services …[Mr.O] provided for the fees he received. … [A] bald reference to consulting projects in an invoice that cannot be corroborated with other evidence does not satisfy the records requirement of the Act.

It was reasonable for the Minister to conclude that the failure to maintain supporting documentation to enable verification of the consulting fees paid to … [Mr.O] justified the revocation of the registration, especially since … the Foundation showed no willingness to comply in the future… .

… This Court has held that if a charity’s books and records are insufficient for the CRA to assess whether the charity is in compliance with its obligations under the Act, this may be sufficient ground upon which to revoke the charity’s charitable status … .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 168 - Subsection 168(1) - Paragraph 168(1)(b) failure to demonstrate that consulting fees paid to director were for charitable activities 289
Tax Topics - Income Tax Act - Section 230 - Subsection 230(2) failure to maintain records substantiating director's consulting fees 118

Opportunities for the Disabled Foundation v. Canada (National Revenue), 2016 FCA 94

registration can be revoked for inadequate records

Before dismissing the appellant’s appeal under s. 172(3)(a.1) of the revocation of its registration as a charitable organization, and before finding that expending approximately 70% of its revenues on fund-raising was a sufficient basis for revocation of its registration Ryer JA found that revocation also was justified under s. 168(1)(e). He noted an argument of the Appellant (at para. 38) that “under subsection 230(3)… the Minister may require a charitable organization that has failed to keep adequate books and records to keep such books and records as the Minister specifies” and “this is the sole remedy for a failure to comply with the requirement under subsection 230(2) to keep books and records,” and responded (at para. 39):

The Appellant’s submission disregards the clear language of paragraph 168(1)(e), which unambiguously permits the Minister to issue a notice that it proposes to revoke the registration of a charitable organization on the basis of noncompliance with any of sections 230 to 231.5. Moreover, this Court has already determined that non-compliance with subsection 230(2) is a proper basis upon which the Minister may issue such a notice (see Humane Society at paragraph 81).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 149.1 - Subsection 149.1(1) - Charitable Organization expending 70% of revenues on fund-raising and undue benefits inconsistent with wholly-devoted test 267
Tax Topics - Income Tax Act - Section 165 - Subsection 165(3) timeliness issues addressed by appeal right 197

Jaamiah Al Uloom Al Islamiyyah Ontario v. Canada (National Revenue), 2016 DTC 5027 [at 6624], 2016 FCA 49

failure to keep proper books and records is a sufficient basis for revocation

The appellant was issued a Notice of Intention to Revoke on the basis inter alia that it failed to maintain adequate books and records (s. 168(1)(e)) and issued receipts not in accordance with the Act and Regulations (s. 168(1)(d)) It submitted (para. 7) that the sanction of revocation was “too extreme and fails to address the remedial steps that it has undertaken, in particular, the retention of experienced and qualified accountants.”

After noting (at para. 10) that International Pentecostal Ministry Fellowship of Toronto and World Job “concluded that the Minister may choose revocation where the record establishes ‘serious’ non-compliance,” and that under World Job and Food Bank Inc. v. Canada, 2013 FCA 65, the question was whether the record “establishes that the virtually uncontested acts of non-compliance on the part of the Charity can be regarded as ‘serious’ or ‘aggravated’,” Ryer JA agreed with the first ground as a sufficient basis for revocation, stating (at paras. 14 and 15):

[T]he Charity failed to provide the Minister with books and records that would allow the Minister to determine if the appropriate amount of income tax relief was being provided by the Charity to its donors at the expense of the fisc.

In our view, this basic requirement is foundational in the sense that the absence of proper books and records places the Minister in the position of being unable to meet her basic obligation to verify the accuracy and validity of the charitable donation receipts that the Charity has issued. Thus, it is apparent that this non-compliance on the part of the Charity is serious and justifies the Minister’s conclusion that the extreme sanction of revocation is warranted.

Humane Society of Canada for the Protection of Animals and the Environment v. Canada (National Revenue), 2015 FCA 178

personal expenses were intermingled in accounting records

The appellant appealed a CRA decision to revoke its registration, which was made on grounds which focused on the substantial amounts paid for what appeared to be personal expenditures of an officer and director ("O'Sullivan") (with CRA alleging that at least approximately $69,000 of improper reimbursements, whereas the appellant admitted (para. 14) "that approximately $22,000 of Mr. O'Sullivan's personal expenses had been ‘inadvertently' reimbursed by the Appellant and asserted that… comic books had been purchased by the Appellant as ‘investment assets'"), and substantial deficiencies in its books and records.

In finding that the Appeals Directorate's decision to confirm the decision was reasonable, Ryer JA:

  • it was within a range of justifiable outcomes for the Appeals Directorate to conclude that the provision of personal benefits to Mr. O'Sullivan, of even the lower amount recognized by the Appellant, constituted serious non-compliance…[and] the record shows a considerable number of instances in which Mr. O'Sullivan received personal benefits (paras. 68-69)
  • "the obligation of a charitable organization to maintain adequate books and records is foundational" (para. 80) whereas here the Appellant admitted "it could only directly link its expenditures to 12 of its 42 programs" (para. 76) and there was an "intermingling of Mr. O'Sullivan's personal expenses with the Appellant's expenses in the accounting records" (para. 77)

See summaries under s. 172(3)(a.1) and s. 189(7).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 172 - Subsection 172(3) - Paragraph 172(3)(a.1) no implied procedural rules in s. 172(3)(a.1) 155
Tax Topics - Income Tax Act - Section 189 - Subsection 189(7) availability of s. 188.1(4) penalty did not preclude deregistration 98

Paragraph 168(1)(f)

Administrative Policy

29 November 2022 CTF Roundtable, Q.14

Guidelines on directed donations

S. 168(1)(f) was amended so as to indicate that a registered charity cannot accept a gift of property where the donor, expressly or implicitly, directs the registered charity to transfer the property by way of a gift to a grantee organization. Can a registered charity accept a gift of property from a donor who provides a letter of wishes expressing the hope that the charity will transfer the property to a named grantee organization?

In its written response, CRA referenced the Guidelines released by it on November 30, 2022 (CG-032), which indicated that, to avoid any concerns regarding conditional gifts, a charity should clearly communicate (e.g., on the giving page of its website) that, although donors can indicate preferences as to how their donations were to be applied, the charity will not return the donation if it does not follow this preference. Furthermore, the charity must ensure it retains authority on the use of its resources.

CG-032, Registered charities making grants to non-qualified donees (draft) 30 November 2022

Donors can indicate their preferences, but charity must retain the final say

73. To avoid any concerns regarding conditional gifts, a charity should clearly communicate the following to its donors:

  • Donors can indicate their program preference for how a charity will apply their donation, but ultimate authority on the use of resources must rest with the charity.
  • If the charity does not use the donation the way the donors prefer, the charity will not return the donation to the donors.

74. For example, this message should be included on the giving page of the charity’s website and in any of its fundraising communications.

75. Provided a charity ensures it retains authority on the use of its resources, it will not be considered to be engaged in directed giving.

76. This provision is also intended to prevent a charity from acting as a conduit, which can be implicitly or expressly conditional when a donor makes a gift. For example, it will prevent situations where a charity solely exists as a fundraising arm in Canada of an affiliate organization in another country. In these circumstances, the affiliate would make all decisions around the use of resources, and the Canadian charity would not be in a position to act independently.

Subsection 168(2)

Paragraph 168(2)(b)

Cases

Ahlul-Bayt Centre, Ottawa v. Canada (National Revenue), 2018 FCA 61

order to defer revocation not granted where no compelling evidence of irreparable harm

The Ahlul-Bayt Centre (the “Centre”), Ottawa operated an Islamic school that offered classes from junior kindergarten to grade eight. The Charities Directorate conducted an audit for 2009 and 2010 and concluded that the Centre was in serious non-compliance with statutory requirements, e.g., issuing receipts for tuition, conferring inappropriate benefits and purchasing property for use of an unregistered organization. In September 2017, the Minister advised that she would revoke the Centre’s registration as a charity after 30 days by publishing a copy of a notice of intention to revoke in the Canada Gazette. The Centre promptly commenced this application in the FCA under s. 168(2)(b) of the Act and Rule 300(b) of the Federal Courts Rules for an order prohibiting publication of a copy of the notice of intention to revoke – and thus prohibiting the revocation itself – until a later date based on the timing of when the Minister has disposed of its objection to the notice.

In dismissing the application for this order, Laskin JA stated (at paras 15, 18 - 20):

It is a long-established principle that irreparable harm cannot be inferred, but must be established by clear and compelling evidence …

[T]he evidence … does not meet the required standard [of irreparable harm]. Among other things, the evidence as to the Centre’s financial position is unclear or incomplete. The evidence that significant numbers of parents would withdraw their children from the school within one or two months is also neither clear nor compelling.

… While the Centre asserts that “[t]he loss of tuition revenue and the reduction of the donor base for School related fundraising will make ABCO financially incapable of operating the School, leading to its closure,” it has not …provided its current budget or other supporting financial information. … Its financial statements for 2016 also show an excess of revenues over expenditures of $307,242. …

…[T]he evidence is in our view insufficient to establish irreparable harm. Given this conclusion there is no need to consider the third, balance of convenience part of the test [for granting an injunction].