Challenging Revocation: What to Do When your Charity’s Registration is at Stake
The Income Tax Act grants registered charities numerous tax benefits, not least of which is the ability to issue receipts for donations that entitle the charity’s donors to significant tax deductions. But the Act also sets out strict requirements and rules that each charity must follow, as well as penalties and consequences for those who do not. In the most serious of cases, a charity may receive a Notice of Intention to Revoke Charitable Registration.
What is the CRA’s Process for Revocation?
The Canada Revenue Agency (“CRA”) Charity Directorate audits registered charities periodically, just like how the CRA audits for-profit businesses. During these audits, the charity is required to provide their books and records for review and cooperate with the inquiries of the auditor. If the audit uncovers some area where they believe the charity is not complying with the requirements of the Act, they will propose penalties and corrective measures. For significant alleged breaches, they may issue a Notice of Intent to Revoke Charitable Registration.
After issuing the Notice to the charity, the CRA may then proceed with publishing the Notice in the Canadian Government’s official newspaper, the Canada Gazette. Publication of the Notice is the official means that signifies that a charity’s registration has been revoked. In addition to losing the ability to issue donation receipts, and thus losing a significant source of fundraising, a charity that has their registration revoked is also subject to a tax on 100% of the value of their assets less their debts. In most cases, this tax inevitably leads to the dissolution of the charity.
How to Object to a Notice of Intent to Revoke?
After receiving the Notice, a charity can file an objection with the CRA challenging the Notice and outlining the reasons for the objection along with the underlying facts. The objection must be filed within 90 days of the date the Notice is issued, or a year and 90 days if the charity includes an application for an extension of time along with the objection.
An officer at the CRA’s Appeals Division will review the objection and make a determination regarding whether to proceed with revoking the charity’s registration. Upon receiving a decision that the CRA is proceeding with the initial intent to revoke, the charity has 30 days to appeal the decision in court.
In the past, CRA’s policy was to delay publication until a charity had exhausted all of its rights to challenge and appeal the Notice. However, the CRA clarified in the recent Federal Court case Jewish National Fund of Canada Inc v Minister of National Revenue that since 2019 they have increasingly been revoking registrations without waiting for the conclusion of the appellate process.
Which Court has Jurisdiction?
Unlike a Notice of Reassessment under the Income Tax Act, Notices of Intent to Revoke Registration must be appealed to the Federal Court of Appeal, rather than the Tax Court of Canada.
In Jewish National Fund of Canada Inc v Minister of National Revenue, in addition to appealing the Notice to the Federal Court of Appeal, the charity also applied for judicial review of the CRA’s decision to publish the Notice before the end of the 30-day deadline to file the appeal. This publication both immediately revoked the charity’s registration and brought public attention to the charity’s issues with the CRA. The charity argued that by revoking their status before they had an opportunity to file their appeal the CRA had denied them procedural fairness and barred them from the relief they would otherwise be able to seek at the Federal Court of Appeal.
However, the Federal Court determined that they lacked the necessary jurisdiction to review the CRA decision in this matter. Relying on a prior yet unpublished case, Stewards’ Charitable Foundation v Minister of National Revenue, the court found that the statutory framework established by Parliament for appealing a decision to revoke registration granted exclusive jurisdiction to the Federal Court of Appeal. Since the act of publishing the Notice was not a separate and distinct decision from the decision to revoke the registration, the Federal Court had no authority to intervene. The court noted that while the charity’s case may fall into a potential gap in the existing framework, it would be up to Parliament or the Federal Court of Appeal to decide how to fill any such gap.
Conclusion
Charities audited by the CRA face significant risks regarding their ability to continue their operations. The requirements they must follow are strict, and errors could ultimately result in a loss of registration and the dissolution of the charity. With CRA adopting a more aggressive approach to ensuring compliance, it is more important than ever for charities to ensure they are fully aware of the substantive and procedural law regarding their registration.
If you find yourself confused or uncertain about your organization’s obligations under the Income Tax Act, are facing an audit, or have received a Notice of Intention to Revoke your charity’s registration, it is crucial to seek professional assistance. Scheduling a consult with our experienced team at Rosen & Associates Tax Law can help you understand the finer points of the Income Tax Act’s application to charities, how the law affects your obligations, and help guide any disputes with the CRA to the best possible outcome.
Disclaimer: This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions, you should consult a lawyer.
Elias Zafiridis
