Link: Case Summary Document
Citation: [2021] FCA 145
Acknowledgement:The Pemsel Case Foundation thanks The Australian Centre for Philanthropy and Nonprofit Studies for its contribution in the drafting of this Case Note.
Summary:
Review of a Ministerial Determination of tax status of a Foundation funding amateur athletes
1. This is an appeal court decision delivered by Webb JA, with Rennie JA and Leblanc JA concurring. The appeal was heard at the same time as Tomorrow’s Champions Foundation v. Canada (National Revenue) 2021 FCA 146 which involved similar issues.
2. Athletes 4 Athletes Foundation (A4A) is a society incorporated under the Societies Act, SBC 2015, c 18 and has an office in Vancouver. The constitutional purposes of A4A were expressed as:
The purposes of the Society are:
a) to develop, fund, promote and carry on activities, programs and facilities for the promotion of amateur athletics in Canada on a nation-wide basis as its exclusive purpose and exclusive function;
b) to solicit and receive gifts, bequests, trusts, funds and property and beneficially, or as a trustee or agent, to hold, invest, develop, manage, accumulate and administer funds and property for the purposes of the Society;
c) to disburse funds and property to, and for the benefit of associations, clubs and societies the primary purpose and primary function of which is the promotion of amateur athletics in Canada and for and to such other purposes and activities as are authorized for registered Canadian amateur athletic associations under the Income Tax Act;
d) to perform other functions as are ancillary and incidental to the attainment of the purposes and the exercise of the powers of the Society.
3. The business model of A4A was to provide “bridging” financial support for those athletes who could not otherwise afford to train and pay for their daily living expenses.
4. A4A applied for registration as a registered Canadian amateur athletic association (RCAAA) under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the Act). A RCAAA is defined in subsection 248(1) of the Act as a CAAA which satisfies the definition as set out in subsection 149.1(1) of the Act and which has applied for and is registered as a RCAAA:
…registered Canadian amateur athletic association means a Canadian amateur athletic association within the meaning assigned by subsection 149.1(1) that has applied to the Minister in prescribed form for registration, that has been registered and whose registration has not been revoked;
5. The definition of CAAA is as follows:
Canadian amateur athletic association means an association that:
(a) was created under any law in force in Canada,
(b) is resident in Canada,
(c) has no part of its income payable to, or otherwise available for the personal benefit of, any proprietor, member or shareholder of the association unless the proprietor, member or shareholder was a club, society or association the primary purpose and primary function of which was the promotion of amateur athletics in Canada,
(d) has the promotion of amateur athletics in Canada on a nationwide basis as its exclusive purpose and exclusive function, and
(e) devotes all its resources to that purpose and function;
6. A4A applied for registration as a RCAAA status to the Canada Revenue Agency (CRA). This application was denied and the Minister issued a Notice of Refusal of Registration (the Notice) that A4A’s activities “are not analogous to the exclusive purposes and functions of a CAAA that can qualify for registered status” (at [11]).
7. A4A then appealed to the Court on the ground that the Minister erred in denying A4A’s application because (at
[15]):
(a) A4A was proposing to provide funding directly to athletes, so it did not satisfy the requirement of promoting amateur athletics as its exclusive purpose and exclusive function; and
(b) A4A did not have offices in every province and territory in Canada, so it did not satisfy the requirement of promoting amateur athletics in Canada on a nationwide basis.
8. As there were extricable questions of law with respect to the proper interpretation of the definition of CAAA, the standard of review was correctness.
9. The Minister’s Notice included a list of qualifying purposes and types of organisations that met the requirements. The only source of the list was the guidance document that had previously been prepared by the CRA. The issue, however, was not whether A4A’s purposes and functions were included in the list prepared by the CRA, or analogous to those that are included in the list, but rather whether such purposes and functions would satisfy the requirements of the definition of CAAA in the Act.
10. The CRA guidance could not bind the Minister nor could it alter the provisions of the statutory definition of a CAAA. The question for the Minister to determine was whether A4A satisfied the definition of a CAAA, not whether its purposes were the same as, or analogous to, the purposes of previously registered RCAAAs.
11. The Court found that the Minister erred in treating its list of acceptable purposes and functions as being the only acceptable purposes and functions for an organization to qualify as a CAAA. In interpreting the definition of CAAA, it appeared that the Minister read into this definition a requirement that the activities of a CAAA must directly support the promotion of amateur athletics in order to qualify under paragraph (d) of the definition.
12. On the issue of directness the Court noted that (at [42]):
The definition of CAAA in the Act provides that the exclusive purpose and exclusive function of a CAAA must be the promotion of amateur athletics in Canada on a nationwide basis. Therefore, this can be its only purpose and only function. However, it does not limit the functions to only those functions that directly promote amateur athletics in Canada on a nationwide basis. So long as the only purpose and the only function of an organization is the promotion of amateur athletics in Canada on a nationwide basis, it should not matter whether a particular function directly or indirectly does so. [emphasis added]
13. The Court also dealt with the issue of the Minister’s concern with how athletes would be using any funds that they receive for A4A and whether it would redefine them as “professional” athletes (at [48]). It resolved the issue by concluding (at [52-[53]):
Since the purposes and functions of an organization must exclusively be the promotion of amateur athletics, the function of providing funding to athletes must be considered to be an acceptable function. Otherwise, providing any funding would mean that the organization would have failed to establish that its exclusive purpose and exclusive function is the promotion of amateur athletics. Therefore, providing funding to athletes, in and of itself, is not a valid basis to deny registration.
14. The Court pointed out that the question of “whether any particular payment made to an athlete will satisfy the requirement that it promotes amateur athletics in Canada?” could only be determined once the facts related to such payment are known. A4A had applied to be registered as a RCAAA and this proceeding was not an audit of A4A, but rather a question of whether its proposed payments to athletes, when read in light of its stated objects, satisfied the requirement that its only purpose and function was the promotion of amateur athletics in Canada on a nationwide basis.
15. The Court found that it was only necessary that a CAAA carry on its activities across Canada. It was not necessary that such an organization have a physical presence in each province and territory (at [62]). There was no reason why an organization, with a physical presence in only one province, should not be able to promote amateur athletics in Canada on a nationwide basis, without necessarily having a physical presence in each province and territory.
16. The matter was referred back to the Minister for further consideration for redetermination in accordance with the Court’s reasons.
Implications of the Case:
Many commentators would endorse the Court’s view that regulators should not conduct an “audit” of the proposed future activities of the applicant, seeking possible breaches of the law. There is a fine that line regulators need to tread between proposed activities that in any circumstance would offend the relevant statutory provisions and those contemplated activities that may in certain circumstances offend the law. There is much to recommend that such a review should occur once the facts have been demonstrated after registration.
Those in the sector can never have enough of the Courts referring to the classic test of Iacobucci, J. in Vancouver Society of Immigrant and Visible Minority Women v. Minister of National Revenue, [1999] 1 S.C.R. 10 which the Appeal Court employed in this case to distinguish better activities and purposes. We repeat it here for good measure:
[…] The difficulty is that the character of an activity is at best ambiguous; for example, writing a letter to solicit donations for a dance school might well be considered charitable, but the very same activity might lose its charitable character if the donations were to go to a group disseminating hate literature. In other words, it is really the purpose in furtherance of which an activity is carried out, and not the character of the activity itself, that determines whether or not it is of a charitable nature. Accordingly, this Court held in Guaranty Trust, supra, that the inquiry must focus not only on the activities of an organization but also on its purposes. (Vancouver Society of Immigrant and Visible Minority Women v. Minister of National Revenue, [1999] 1 S.C.R. 10, at para. 152, 169 D.L.R. (4th) 34)
The case may be viewed at:
https://www.canlii.org/en/ca/fca/doc/2021/2021fca145/2021fca145.html