Decision Date: January 30, 2019
Link: Case Summary Document
Citation: [2019] FCA 21 (CanLII)
Acknowledgement:The Pemsel Case Foundation thanks The Australian Centre for Philanthropy and Nonprofit Studies for its contribution in the drafting of this Case Note.


In this Canadian case, Ark Angel Foundation (the Foundation) appealed with respect to a notice of intention to revoke its charitable registration (Revocation Proposal) under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the Act). The Foundation had been incorporated in 1998 under the Canada Corporations Act, R.S.C. 1970, c. C-32 and received registration under the Act as a charitable foundation in the same year. The Revocation Proposal was issued by the Minister of National Revenue (MNR) on 22 April 2015 following an audit of the Foundation which commenced in 2011 for the period from 1 December 2008 to 30 November 2010. During the audit period, the Foundation’s activities were relatively modest. It received aggregate revenue in the amount of $45,330 and made expenditures in the amount of $44,740. These figures were determined to be accurate.

The main issue in contention was the adequacy of the books and records maintained by the Foundation.  The records did not demonstrate sufficient board oversight or internal controls within the Foundation. In particular, there were concerns that the Foundation and some related charities were being managed by one person who appeared to have absolute authority over the Foundation’s affairs. That person was being paid consultancy fees for somewhat amorphous purposes that were not made clear in any of the Foundation’s records. Therefore, the inadequacy of the books and records also resulted in the Canada Revenue Agency (CRA) being unable to determine whether the resources of the Foundation were only being directed to charitable activities undertaken by itself or for gifting to qualified donees.  When the Foundation did not respond fully to the CRA’s correspondence on the matter, it was issued with the Revocation Proposal. There followed an objection and a notice of confirmation from the MNR.

On appeal, the MNR stated two reasons for issuing the Revocation Proposal: a failure to maintain adequate books and records and a failure to devote all the Foundation’s resources to charitable purposes. The Minister considered that either failure would be sufficient grounds in itself to issue the Revocation Proposal.

The relevant legislative provisions regarding the failure to maintain adequate books and records are paragraphs 168(1)(e) and 230(2)(a) of the Act. These provisions give the Minister the discretionary authority to issue a notice of intention to revoke the registration of a qualified donee, as defined in the Act, if the qualified donee has not kept the required records and books of account. There had been a major failure to comply with the relevant provisions in this case (at [37]-[38]):

It is worth mentioning that paragraph 230(2)(a) of the Act does not explicitly set out the types of books and records that are required. This could lead to a technical failure to comply with this provision, but not one of such significance to justify revoking a registration. This point was made in Prescient Foundation, where Mainville J.A. pointed out that revocation should be limited to instances of “material or repeated non-compliance” (Prescient Foundation at para. 51). In the present appeal, however, the failure was significant. Essentially, the Foundation failed to provide any records that demonstrated what consulting services Mr. O’Sullivan [the director in question] provided for the fees he received. Although one of the invoices appears to give some detailed information by listing names of consulting projects, the Foundation failed to provide any support that the named projects were bona fide. Needless to say, 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.

The Minister’s action was therefore held to be reasonable. The case law clearly showed that if a charity’s books and records were insufficient for the CRA to assess whether the charity was in compliance with its obligations under the Act, this may be sufficient ground upon which to revoke the charity’s charitable status.  Throughout the audit and appeals process, the CRA informed the Foundation of its concerns regarding the books and records, but the Foundation did not meaningfully respond to those concerns. The court made it clear that in order to avoid the imposition of a sanction, a charity ought to do more than provide non-responsive submissions or simply deny that their records are inadequate (at [44]).

On the issue of charitable purposes, the fact that the so-called consultancy fees paid to the controlling director were not properly documented meant that the Foundation was unable to demonstrate that no personal or undue benefits were conferred on the director.  It was held that it was not unreasonable for the MNR to conclude that the fees paid for the director’s services were not incurred for charitable purposes (at [60]).

Additional arguments raised by the Foundation, based on possible breaches of procedural fairness and natural justice, were held to be wholly without merit (at 95]).

Therefore, the Minister’s decision was upheld.

The case may be viewed at:

A list of meetings and submissions to the Senate of Canada Special Committee on the Charity Sector (see comments below) may be found at:

Implications of this case

This case illustrates that when considering books and records compliance, Canadian charities should ensure they are maintaining adequate records for all activities to demonstrate their compliance with the relevant rules.  The CRA has the authority to ask a charity to demonstrate its compliance with the rules and if the information is not available, the Minister is justified in taking action to deregister the charity.

This decision is, arguably, support for the call to move appeals of a similar kind to the Tax Court of Canada: see submissions to the Senate of Canada Special Committee on the Charity Sector. The Ark Angel Foundation was not able to produce the proper records through the audit and administrative appeal. Ultimately, given the nature of a Tax Court hearing, it could not have proceeded with the appeal without producing the books and records required. Changing the jurisdiction in which these sorts of appeals are heard would likely not have made a difference to the decision in this instance.  It could, however, have resulted in a less far-reaching pronouncement on books and records.