Modernizing the Definition of Charity in Canada

by Alexander Barnes, winner of the 2022 Charities and Not-for-Profit Law Section's student essay contest.

Introduction

In 2016, the Federal Court of Appeal was tasked with determining whether the “prevention of poverty” was considered charitable at law.¹ The appellant organization had operated as a registered charity since 1993 and had the goal of preventing poverty by offering educational and counselling programs related to finances, debt, and budgeting. However, in 2013, the Minister of National Revenue revoked the organization’s charitable status, claiming that the prevention of poverty was not a charitable purpose. This may come as a surprise to those not familiar with charity law; surely, the Minister made a mistake? And yet, the Federal Court of Appeal confirmed the Minister’s decision, concluding that “the prevention of poverty is not a charitable purpose”.²

How did we get here? Why does the legal meaning of charity differ from how it is understood in its ordinary sense, and should something be done about this divergence? This paper attempts to answer these questions. Part I of this paper provides an explanation for why we should care about the legal definition of charity. Part II establishes how we define charity in Canada, discusses the limiting nature of the current definition, and provides examples of the widespread criticism of the current state of affairs. Lastly, Part III examines options for modernization, using a recent report from the Special Senate Committee on the Charitable Sector as a springboard.

I. Why does the definition of charity matter?

The first question that should be addressed is why the definition of charity matters. As it often does, it all comes down to money. Charities in Canada receive significant tax benefits. So much so, in fact, that tax and charities have been described as “intractably linked”.³ In order to access these benefits, organizations need to fall within the definition of charity. Therefore, how we define what constitutes a charity is of fundamental importance.

One example of a tax advantage is that charities are exempt from paying income tax.⁴ However, this benefit is available to non-profit organizations (NPOs) as well,⁵ so what makes charities so special? The major advantage to being recognized as a charity instead of an NPO is the ability to issue receipts to donors for charitable donations. Individuals can use these receipts to claim a federal tax credit, while corporations can claim a tax deduction.⁶ The tax credit has been described as a “statistically significant incentive for donors”.⁷ Furthermore, provinces and territories also offer charitable donation tax credits.⁸ The tax concessions available in Canada to those who make charitable donations have been described as “among the most generous in the world”.⁹

Since the government forgoes revenue through these tax concessions (the tax not paid by charities and the lessened tax burden of donors), the tax treatment of charities has been referred to as a government subsidy for the sector.¹⁰ Though outside the scope of this paper, this system, which in effect gives donors the ability to select where government funds will be spent, has been criticized.¹¹ Why are charities treated so favourably? The purpose of these tax benefits is to help charities provide services to Canadians.¹² These charitable services are “seen as being of special benefit to the community, or advancing a common good”.¹³

As of March 31, 2018, there were 86,234 registered Canadian charities.¹⁴ In 2018, the Charitable Donation Tax Credit was claimed by approximately 5.2 million individuals and 3,000 trusts, at a cost of over $3 billion to the federal government (and it is projected that this expenditure will increase by more than $300 million for 2022). Approximately 98,400 corporations claimed deductions for charitable donations in 2018, costing the government around $690 million in forgone revenue (which is projected to reach nearly $800 million in 2022).¹⁵ We can therefore see that the definition of charity is not only important for those organizations wishing to be recognized as a charity so that they may take advantage of the tax privileges,¹⁶ but it is also important for the public at large due to the significant amount of forgone tax revenue. It is this “intersection between tax and charities” that makes the definition of charity so important.¹⁷

II. Challenges Presented by the Current Definition of Charity

A. The Current Definition

The tax benefits discussed above are provided for in the Income Tax Act (ITA).¹⁸ However, despite the importance of the ITA’s treatment of charities, the Act does not itself contain a definition of charity. The ITA provides that a charity is “a charitable organization or foundation”.¹⁹ A charitable organization is defined, in part, as an organization “constituted and operated exclusively for charitable purposes”.²⁰ Similarly, a charitable foundation is defined as “a corporation or trust that is constituted and operated exclusively for charitable purposes”.²¹ However, the ITA does not define “charitable purposes”, other than providing that it includes the disbursement of funds to a qualified donee.²²

To find the definition of charity, we must resort to the common law. The foundational case in this area is the Pemsel case,²³ an English House of Lords decision from 1891 that, 130 years later, still informs our understanding of charity in Canada.²⁴ In Pemsel, the House of Lords reaches back another 290 years into the recesses of history, citing the preamble to the Charitable Uses Act of 1601²⁵ (also known as the Statute of Elizabeth), in coming to the conclusion that there are four categories (or heads) of charitable purposes: (1) the relief of poverty, (2) the advancement of education, (3) the advancement of religion, and (4) other purposes beneficial to the community not falling under any of the preceding heads. To be recognized as a charitable purpose under the fourth head of charity, courts will consider previous decisions and reason by analogy to determine if the purpose comes “within the ‘spirit and intendment’ of the preamble to the Statute of Elizabeth if not within its letter”.²⁶

Having a charitable purpose as recognized under the Pemsel classification is one requirement to be registered as a charity, but the common law subjects charities to a second requirement: the charity must benefit the community.²⁷ Though often confused with the fourth head of charity, this is a second and distinct requirement. The first requirement ensures that the purpose is legally regarded as charitable, while the second ensures that the charity pursues that purpose by operating to benefit the public and not a private group of individuals.²⁸ I note this second requirement because it is equally as important as the first for any organization seeking to be recognized as a charity, but the focus of this paper is on the first requirement and how we define charitable purposes.

B. Limitations of the Common Law Definition

Now that we understand how charity is defined, let us return to Credit Counselling Services (discussed at the start of this paper) to understand the Federal Court of Appeal’s reasons for upholding the decision of the Minister to revoke the organization’s charitable status. Webb JA, writing for the Court, outlined the four Pemsel heads of charity and explained that for a purpose to be considered as the “relief” of poverty, the people being helped must actually be in poverty; the “prevention” of poverty does not fit under this head of charity.²⁹ He then stated:

In the United Kingdom, Parliament adopted the Charities Act 2011… and in so doing included the prevention of poverty (in addition to the relief of poverty) as a charitable purpose. In effect, the Appellant is asking this Court to do that which required an act of the UK Parliament to do. In my view, just as in the United Kingdom, it will require an act of Parliament to add the prevention of poverty as a charitable purpose.³⁰

The Court also briefly considered the fourth head of charity, but determined that preventing poverty would not benefit the community “in a way that is considered charitable”.³¹ Curiously, Webb JA acknowledged that individuals had benefited from the organization’s services, but that it was “far from clear why this is not a private advantage enjoyed by these individuals or how this would be beneficial to the community in a way that the law regards as charitable”.³² The comment about private advantage seems to indicate that Webb JA was conflating the fourth head of charity with the second, separate requirement that a charity benefit the community. If this was not the case, and he was instead simply dealing with the two requirements together in one statement, he could have been much clearer about it.

It seems rather absurd that we would allow charities to help people who are in poverty, but not allow charities to help prevent them from reaching that point in the first place. This decision is an example of both how limiting it can be relying on the current common law definition of charity, and of the divergence between the popular and legal meanings of charity. This divergence is not a recent phenomenon, in fact it was even addressed by Lord Macnaghten in Pemsel.³³ However, in Canada, where the meaning of charity is so inextricably linked to our tax system and the generous benefits it provides, perhaps it is time to bring the popular and legal meanings of charity closer together.

It was not always clear that the common law would be so limiting. When the Canada Revenue Agency (CRA) refuses to recognize an organization as charitable (or when registration is revoked), appeals are heard, since the early 1970s, by the Federal Court of Appeal (which Phillips describes as Canada’s “charities court”).³⁴ Phillips notes that the Court most often deals with the fourth head of charity because it is the most open-ended and is therefore ideal for novel claims.³⁵ The Court first considered the fourth head in Native Communications Society of British Columbia,³⁶ which is still a leading case in the area.³⁷

In Native Communications, the organization seeking registration as a charity operated to, inter alia, develop communications programs (such as radio and television productions) and publish a newspaper to provide information that was relevant to indigenous people in British Columbia. The Court found that these purposes were beneficial to the community within the “spirit and intendment” of the preamble to the Statute of Elizabeth and therefore the organization was recognized as charitable.³⁸ Phillips notes that while Stone J relied on the preamble, he appeared to qualify that reliance, which indicated that the Court had chosen “a reasonably innovative approach”.³⁹ For example, Stone J cited the famous words of Lord Wilberforce in Scottish Burial Reform and Cremation Society Ltd, including the following:

Lord Macnaghten's grouping of the heads of recognised charity in Pemsel's case is one that has proved to be of value and there are many problems which it solves. But three things may be said about it, which its author would surely not have denied: first that, since it is a classification of convenience, there may well be purposes which do not fit neatly into one or other of the headings; secondly, that the words used must not be given the force of a statute to be construed; and thirdly, that the law of charity is a moving subject which may well have evolved even since 1891.⁴⁰

Phillips notes that the Court’s decision in Native Communications was seen at the time as “path-breaking”, and yet, in subsequent decisions, “the Court has adhered increasingly strictly” to the Statute of Elizabeth.⁴¹

An example of this strict adherence to the Statute of Elizabeth is the Federal Court of Appeal’s decision in Vancouver Regional FreeNet Association.⁴² In this case, the organization seeking charitable status provided individuals with free access to the internet. The Federal Court of Appeal agreed that this was a purpose beneficial to the community and was therefore charitable under the fourth head of charity.⁴³ On its face, this seems like a progressive interpretation of the fourth head. The internet was certainly not anything that would have been considered as charitable in the time of Queen Elizabeth, but it was becoming a more integral part of everyday life in the 1990s, and the Court recognized its importance and deemed an organization providing access to this new technology as charitable. This is exactly how the more open-ended fourth head of charity is supposed to operate, right? The problem is that the Court still had to ground its decision in the preamble to the Statute of Elizabeth. Phillips notes that instead of justifying the decision on the basis that access to the internet is crucial, Hugessen JA linked it to the preamble, which “speaks of the repair of bridges, ports, causeways and highways”, which were “the essential means of communication” at the time, and therefore the provision of access to information and to a means of communication was found to be a type of purpose within the spirit of the preamble.⁴⁴ The importance of this connection between the internet and “repairs to bridges, ports, causeways and highways” was reaffirmed by the Federal Court of Appeal in 2011.⁴⁵

If you were hoping that the Supreme Court may have stepped in to reverse this trend of self-limiting decisions, you will be disappointed. In Vancouver Society, the majority judgment was written by Iacobucci J, who opened with the following words:

Considering that the law of charity in Canada continues to make reference to an English statute enacted almost 400 years ago, I find it not surprising that there have been numerous calls for its reform, both legislative and judicial. This appeal presents an opportunity to reconsider the matter. Not only is this Court invited to consider, for the first time in more than 25 years, the application of the law as it presently exists, but we also face the interesting questions of whether the time for modernization has come, and if so, what form that modernization might take.⁴⁶

Despite the “boldness” of this opening statement, the Court proceeded to determine that any modernization had to come from Parliament and not the courts, and also confirmed the Federal Court of Appeal’s self-limiting approach.⁴⁷

Iacobucci J does note that “the law of charity has been plagued by a lack of coherent principles on which consistent judgment may be founded” and that the Statute of Elizabeth “was never intended to provide an exhaustive list of charitable purposes”.⁴⁸ In fact, he even states that the court was never bound by the preamble when determining what is charitable.⁴⁹ However, he also notes the connection between the common law definition of charity and its tax consequences, and concludes that because the ITA does not contain a definition of charity, Parliament intended to leave the determination to the common law’s “relatively restrictive” Pemsel classification.⁵⁰ He also states that the adoption of a new definition of charity by the Court could have a “substantial and serious effect on the taxation system”.⁵¹ When discussing the effect of Vancouver Society on the fourth head of charity, Moran and Phillips note that this decision can only have the effect of encouraging the Federal Court of Appeal to continue with its strict approach, since “[i]n effect, the Court is saying that the kinds of purposes previously considered charitable will be so in future – and no others”.⁵²

Before moving on, I should note Gonthier J’s dissenting opinion in Vancouver Society, which has been lauded by many.⁵³ Gonthier J notes that the lack of a definition of charity in the ITA means that Parliament has accepted that the courts “have a continuing role to rationalize and update that definition to keep it in tune with social and economic developments”.⁵⁴ He also states that the preamble is not an exhaustive enumeration of charitable purposes, and it was never intended to be one.⁵⁵ Gonthier J points out that both the preamble to the Statute of Elizabeth and the Pemsel classification fail to explain why these purposes are charitable. However, “the courts must have resort to principle in the development of the law of charity”.⁵⁶ In an attempt to find a principled approach, Gonthier J points to two principles found in case law:

These two principles, namely, (1) voluntariness (or what I shall refer to as altruism, that is, giving to third parties without receiving anything in return other than the pleasure of giving); and (2) public welfare or benefit in an objectively measurable sense, underlie the existing categories of charitable purposes, and should be the touchstones guiding their further development.⁵⁷

Moran and Phillips note that, to their knowledge, this was the first time in Anglo-Canadian jurisprudence that a judge attempted to define charity conceptually by finding a “core of principle”.⁵⁸

One further aspect of Gonthier J’s judgment that I will include here (though I could continue to quote ad nauseum), is his attempt to find a balance between the traditional common law approach and a more principled one:

It would be unwise to jettison the vast historical inheritance associated with judicial development of the law of charity, although I do think it appropriate to ensure that the existing common law accords with certain identifiable principles which should guide the development of this area of law as a whole… New social needs arise, and old social problems decline in importance. Consequently, it would be a mistake to make a fetish of the purposes enumerated in preamble. Rather, the Court should adhere to the principles of altruism and public benefit, to which I adverted above, in order to identify new charitable purposes and to ensure that existing ones continue to serve the public good.⁵⁹

Though it was not the majority judgment, Gonthier J’s reasons seem to provide a promising way forward for the common law. Hopefully, those presiding over future cases can reference these reasons to find inspiration, despite the fact that they are not binding authority.

C. Critiques of the Common Law Definition

The common law definition of charity and its treatment by courts in Canada have been heavily criticized by various stakeholders. In this section, I provide a brief overview of some of those criticisms.

Narrow rulings are the norm when it comes to charity law cases, the reasons for which are often inspired by “foreign and archaic” cases, leading to the “glacial” development of the meaning of charity in Canada.⁶⁰ Organizations that find themselves before the Federal Court of Appeal are not often successful. As one particularly scathing review put it, the hesitancy of the Court to add new charitable purposes suggests that the Court has “effectively abdicated any role as modernizer of the law”.⁶¹ The sector has thus become “worn down”, which has led to less and less appeals. This in turn has led to the “near eradication in Canada of the common law method of developing the legal definition of charity by judicial analogy”.⁶² Cases should be thought of as the “lifeblood” of the common law, without which the common law cannot develop and adapt.⁶³

The potential tax consequences of charity law decisions have also caused courts to defer to Parliament when it comes to change, which Broder notes with regret.⁶⁴ We already saw one example of this in Vancouver Society. Another is the Supreme Court’s decision in AYSA, in which an athletic association was seeking registration as a charity. As Buchanan and Gallant note, the Court was concerned about the impact on government revenue that the inclusion of amateur athletics as a charitable purpose would have, because sports and recreation organizations made up 21% of non-profit organizations at that time.⁶⁵ Chevalier-Watts explains that the Supreme Court failed to apply the usual method of determining if the purpose at issue should be recognized as a new purpose under the fourth head of charity. While the Court did note that the promotion of sports had never been recognized as a charitable purpose under the fourth head in the past, it did not consider whether it should now be recognized as charitable due to contemporary contexts (Chevalier-Watts points to rising levels of obesity in Canada as a factor that the Court could have considered).⁶⁶ As Juneau puts it, “the result of [the ITA’s] statutory intrusion into the common law of charity is to entrench the current state of the sector and its capacity to address social problems in a kind of desiccating conservatism”.⁶⁷

Lastly, there are concerns over the original source of our understanding of charity. The Canadian definition of charity is based on values from Victorian England, and is “the product of a ‘homogenous, white male-dominated society.’”⁶⁸ Senator Ratna Omidvar has even called out the legal meaning of charity as an example of systemic racism and colonialism. She uses our understanding of the relief of poverty as an example, which is “grounded in the old-world construct of the rich giving to the poor to alleviate their suffering”.⁶⁹ She notes that many equity-seeking groups do not fall under the traditional Pemsel classification, including those that promote racial or Indigenous justice.⁷⁰

D. The Appeal Process

Until this point, I have described how judicial interpretation has limited the common law meaning of charity. However, there are also problems with the appeal process itself that further stifle the development of the common law.

If an organization’s application for charitable status is refused by the CRA’s Charities Directorate, there is first an internal appeal process within the CRA (which overturns the decision of the Charities Directorate approximately one third of the time). The next step for unsuccessful organizations is to appeal to the Federal Court of Appeal.⁷¹

A significant issue is the fact that these appeals are not subject to judicial appellate principles, but instead are reviewed on administrative law standards. The Court has reviewed the CRA’s decisions based on a standard of reasonableness instead of a standard of correctness.⁷² Additionally, appeals are heard “on the record”, which means no new evidence is introduced and no witnesses are called; the Court only reviews the written record of the CRA. This inability to introduce relevant information prevents the law from evolving.⁷³ Since most organizations applying to the CRA cannot afford legal representation, they do so unaware of the legal requirements for registration.⁷⁴ This lack of legal representation can cause organizations to fail to raise legal issues in their favour with the CRA, which then cannot be argued at the Federal Court of Appeal, due to the nature of the “on the record” appeal. The appellant organization often does not even find out about these evidentiary rules until the first court appearance.⁷⁵

Furthermore, the cost of the appeal can be prohibitive.⁷⁶ An appeal could cost upwards of $100,000.⁷⁷ It has been argued that it is not “fair, or reasonable, to put an impartial hearing beyond the means of organizations seeking to provide some type of public benefit”.⁷⁸ Further adding to the high cost of appeals is the fact that the Federal Court of Appeal sits in limited locations across Canada,⁷⁹ requiring any potential appellant to incur any necessary travel expenses.

There is a lack of understanding regarding this appeal process, and there is a perception of bias in favour of the CRA.⁸⁰ It has been argued that the CRA raises “as many incriminatory issues as possible” during these appeals.⁸¹ Furthermore, the appeal process is “resource intensive, time-intensive and complex”⁸², and the very concept of the appeal process has been described as “illusory”.⁸³ Due to the lack of cases proceeding to the Federal Court of Appeal, charity law has essentially been developed by the CRA through the administrative process, instead of through the courts. This not only places a burden on the CRA, but also “raises questions as to where law reform should originate”.⁸⁴

III. A Path Towards Modernization

There have been calls for a re-examination of the meaning of charity in Canada in the past. For example, the National Advisory Council on Voluntary Action, established by the Secretary of State for Canada, called for a review of the definition of charity in 1977. In 1995, a group of Canadian foundations formed the Voluntary Sector Roundtable to speak for the sector. In 1997, the Roundtable established the Panel on Accountability and Governance in the Voluntary Sector, commonly known as the Broadbent Panel (named after the panel’s chair, Ed Broadbent). The panel released a report in 1999, which also called for a review of the definition of charity.⁸⁵

Those calls have, until now, gone unanswered. However, we may be on the cusp of change. In 2018, the Senate appointed a Special Committee on the Charitable Sector to conduct a wide-ranging inquiry into the state of the charitable and non-profit sector.⁸⁶ The resulting report, released in June 2019, was titled Catalyst for Change: A Roadmap to a Stronger Charitable Sector. The Senate Report made 42 recommendations for the government to consider in order to improve the sector. There are three aspects of the Report that I will focus on in this paper: allowing for de novo appeals to the Tax Court of Canada, implementing a statutory definition of charity, and exploring the option of an expanded list of qualified donees.

A. De novo Appeals to the Tax Court of Canada

Problems with the appeal process were discussed above. To add to those earlier comments, the Senate Report also notes that “no not-for-profit organization has won a charitable registration appeal [at the Federal Court of Appeal] in Canada in over 20 years” and that “stagnation [of the common law] has already taken hold in Canada”.⁸⁷ To address this problem, the Report recommends amending the ITA so that appeals from the CRA regarding charitable registration proceed to the Tax Court of Canada instead of the Federal Court of Appeal, and that these appeals be heard on a de novo basis.⁸⁸ This change was proposed by many members of the legal community as well as sector stakeholders, who claimed that it was the best course of action to allow the common law to continue to evolve.⁸⁹

The de novo nature of the appeal would mean that new evidence could be introduced, addressing the criticisms of the current “on the record” appeals. There are also arguments that appeals to the Tax Court may be more affordable than appealing to the Federal Court of Appeal, but at the same time, if the appeals are heard de novo and evidence is introduced, legal fees could increase.⁹⁰ One factor that could lead to decreased costs is the fact that the Tax Court sits in more locations across Canada than the Federal Court of Appeal,⁹¹ which would lead to lower travel expenditures.

The Report notes that individual and corporate taxpayers can appeal to the Tax Court following a CRA internal review process for other matters, so it would make sense for charity appeals to be dealt with similarly.⁹² In fact, charities already end up before the Tax Court for certain matters under the current system. The Muttart Foundation notes that “[i]ronically, if an existing charity is subject to an intermediate sanction – including suspension of its privilege of writing charitable-donation tax receipts to donors for up to a year, it can appeal to the Tax Court of Canada”.⁹³

Granting the Tax Court jurisdiction to hear charity appeals would not be a radical change and would satisfy those who advocate for continued reliance on the common law as opposed to a statutory definition.⁹⁴ However, there are some unanswered questions as to the effectiveness of this potential change. As noted above, it is not certain that hearings before the Tax Court will be more affordable than those before the Federal Court of Appeal. Furthermore, any decision of the Tax Court could still be appealed to the Federal Court of Appeal anyway, adding further costs. It should be noted that due to the cost concern, stakeholders proposed the implementation of a “charities challenge program” that would help organizations with the financial aspect of their appeals, leading to the Report’s recommendation that the government consider such a program.⁹⁵

To my mind, the most significant hurdle would be overcoming the previous strict and limiting decisions of both the Federal Court of Appeal and the Supreme Court, which would be binding on the Tax Court. Even with more cases, it is hard to imagine how the Tax Court could effectively expand and develop the common law while working within the confines of the current jurisprudence. It is true that the Federal Court of Appeal and Supreme Court could overturn their previous decisions if the right case came before them. However, even putting aside the fact that courts do not tend to reverse recent precedents,⁹⁶ there is no reason to think that these higher courts would abandon their hesitancy to expand the definition of charity, especially due to the potential tax implications.

However, despite these concerns, I believe allowing for appeals to the Tax Court is the least we can do to attempt to modernize the definition of charity in Canada. If cases are the “lifeblood” of the common law, perhaps this would provide the transfusion that is so badly needed.

B. A Statutory Definition of Charity

Given the problems with the common law definition of charity, one might ask why we don’t just enact a statutory definition. After all, “[i]t is somewhat unorthodox for tax statute to leave a significant piece, one upon which important concessions rely, to the common law”.⁹⁷ A statutory definition has been implemented in other jurisdictions (for example, England, Australia, Scotland, Ireland, and New Zealand),⁹⁸ and the Senate Report recommends that a review of the common law meaning of charity be undertaken to determine if Canada should follow suit.⁹⁹ This approach to modernization, while promising, also comes along with its own challenges.

If we determined that the prevention of poverty should be considered a charitable purpose, and I have argued that it should, Credit Counselling Services tells us that this can only be achieved through legislative action. A statutory definition could consist of “an inclusive list of charitable purposes reflecting contemporary social and environmental issues and values”¹⁰⁰ and would allow for public debate regarding what should be included on that list.¹⁰¹

One potential problem of a statutory definition is that, unlike the common law, it would be “static” and would require legislative amendments to be changed.¹⁰² The Pemsel Case Foundation notes that “the statute would require frequent amendment to be responsive”.¹⁰³ However, this does not seem to be a significant problem as long as the provision includes a “residuary category” that permits the courts to continue to reason by analogy.¹⁰⁴ Another concern is that the definition of charity could become politicized and fraught with uncertainty, with new governments constantly amending the definition. The Senate Report notes that there were even concerns expressed about the sector experiencing a “culture war”.¹⁰⁵

If we did decide to proceed with a statutory definition, we could look to provisions in other jurisdictions for inspiration. In England and Wales, the legal definition of charity is found in the Charities Act 2011.¹⁰⁶ That Act lists 13 categories of charitable purposes, including the traditional categories of the advancement of education and religion. The category relating to poverty has been modified to include the prevention of poverty in addition to relief. Other categories include: the advancement of health or the saving of lives; the advancement of citizenship or community development; the advancement of the arts, culture, heritage or science; the advancement of environmental protection or improvement; and the advancement of animal welfare.¹⁰⁷ The last of the listed categories is the residuary clause that allows for reasoning by analogy.¹⁰⁸ The Act also provides further clarification regarding what is included in some of the listed categories.¹⁰⁹ Lastly, this Act maintains the requirement that a charitable purpose also benefit the public.¹¹⁰

In Australia, the statutory definition can be found in the Charities Act 2013.¹¹¹ The preamble notes that the statutory definition will provide clarity and certainty, while using familiar common law concepts to ensure continuity. Similar to the English legislation, the Charities Act 2013 provides a list of charitable purposes, including a residuary clause.¹¹² These purposes include: advancing culture; promoting reconciliation;¹¹³ promoting or protecting human rights; and advancing the security or safety of Australia or the Australian public. Also similar to the English legislation, the Act provides greater clarification regarding certain listed purposes,¹¹⁴ and maintains the public benefit requirement.¹¹⁵

We do not necessarily have to look abroad, as we have a potential source of homegrown inspiration as well. Ontario has a statutory definition for certain provincial purposes contained in the Charities Accounting Act.¹¹⁶ Section 7 of the Act simply codifies the four Pemsel heads of charitable purposes: (a) the relief of poverty; (b) education; (c) the advancement of religion, and (d) any purpose beneficial to the community, not falling under clause (a), (b), or (c).¹¹⁷ However, the Supreme Court noted in AYSA that this provision only adopted part of the common law test, because the fourth category did not include the common law requirement that the purpose benefit the community in a way that the law regards as charitable. Therefore, there is no requirement to determine whether the purpose comes within the “spirit and intendment” of the preamble to the Statute of Elizabeth, which allows for a more liberal approach to be taken.¹¹⁸

There are other considerations that would have to be dealt with for any statutory definition to be enacted. We would have to determine how any statutory definition would interact with the previous common law jurisprudence. The statutory definition could “cover the whole field”, entirely replacing the common law and rendering previous caselaw irrelevant.¹¹⁹ Another option is to “restate the law with additions or deletions to the common law”, allowing continued reliance on the common law so long as it does not conflict with the statute. This latter approach is generally the one taken in other jurisdictions.¹²⁰

An additional concern is that, although Parliament has the ability to regulate charities through the ITA, the federal definition of charity must co-exist with the definition used for matters under provincial jurisdiction, such as wills and trusts.¹²¹ This split jurisdiction has been put forth as an argument against a federally legislated definition of charity, because it would no longer be consistent with provincial definitions.¹²² However, as discussed above, Ontario already has a statutory definition that differs from the common law; we are already in a state of conflict. If Ontario wasn’t concerned by this problem when it enacted its definition of charity, why should the same concern prevent the federal government from bringing its definition of charity into the 21^st century?

Another area that requires consideration is how the Canadian Charter of Rights and Freedoms¹²³ interacts with the meaning of charity (both at common law and under any statutory definition). Moran argues that the Charter “may require us to rethink charity in the light of the importance of alleviating the forms of disadvantage outlined in section 15”.¹²⁴ However, there is a limited amount of jurisprudence in this area,¹²⁵ and that which does exist leads to conflicting conclusions. Broder notes that the recent Ontario Superior Court decision in Canada Without Poverty¹²⁶ suggests that Charter jurisprudence could have a “transformative impact”. However, he also points out the potential counterargument that “federal charitable tax status is a privilege, not a right, and that this is a full answer to a Charter challenge with respect to achieving that status”.¹²⁷ The Federal Court of Appeal is in favour of this view that charitable registration is a privilege and not a right.¹²⁸ Pending further clarification from the courts, Broder suggests accounting for the Charter with regard to any statutory changes.¹²⁹

Lastly, if any statutory definition were to be enacted, Parliament would without doubt consider the implications for government revenue, just as the courts have done. While it is true that any expansion of the definition of charity could lead to greater government expenditures on the sector through its subsidizing tax treatment,¹³⁰ a statutory definition will not necessarily lead to expansion. While some new purposes may be added, others may be removed. Buchanan and Gallant provide the hypothetical example of eliminating the advancement of religion as a charitable purpose and note that this could lead to less government expenditures.¹³¹ This would certainly be the case, as charities for the advancement of religion made up almost 40% of all registered charities as of 2018.¹³²

What can we take from all of this? A list of specific charitable purposes would provide greater clarity to the courts. As a society, we could determine which purposes we want to add, and also if there are any current charitable purposes that we want to remove.¹³³ Any statutory definition should contain a residuary clause to prevent the definition from being frozen in time. Based on the Supreme Court’s comments in AYSA regarding Ontario’s provision, courts would no longer be fettered to the preamble to the Statute of Elizabeth when recognizing new charitable purposes (unless this requirement was explicitly included in the legislation, which would defeat the whole point). We should also ensure to include a provision that maintains the requirement that charitable purposes benefit the public. Despite the challenges and complications that would come along with a statutory definition of charity, I believe it is the most promising method of modernization and would allow for the legal and popular meanings of charity to be more in line.

C. Qualified Donees

Certain entities are listed in the ITA that are considered “qualified donees”.¹³⁴ The largest group included on the list is registered charities,¹³⁵ but the list also includes others such as registered amateur athletic associations, registered Canadian municipalities, and the United Nations. These other organizations are “charity-like”.¹³⁶ In addition to being able to issue donation receipts to individuals and corporations, qualified donees can also receive gifts from registered charities.¹³⁷ The Senate Report notes that expanding the list of qualified donees might be an alternative to expanding the meaning of charity, and recommends that a review of policy considerations related to qualified donees be undertaken.¹³⁸

One of the potential problems with this approach is that, currently, “Canada does not have an over-arching policy framework to guide the development of new sub-categories of qualified donee”.¹³⁹ Therefore, developing a principle-based framework is part of the Report’s recommendation.¹⁴⁰ Another concern is that qualified donees do not all have to adhere to the same set of rules and obligations as charities (for example, having to file an annual return).¹⁴¹ Charities are subject to these strict requirements to prevent the system from being abused.¹⁴² In their Submission to the Senate Committee responsible for the Report, the Muttart Foundation warned against creating potential tax loopholes and stated the following:

If the Committee believes that there should be tax advantages for organizations that are neither charities nor not-for-profits, then we would encourage the Committee to recommend that those provisions be placed in some other part of the Income Tax Act, not simply placed on top of the existing rules regarding charities. Those could require consequential amendments to the sections dealing with charities, but that is a “cleaner” method than trying to mix the concepts of charity with other concepts that may, or may not, withstand the test of time.¹⁴³

The idea of an expanded list of qualified donees is certainly an area worth investigating. However, the implementation of such a policy would require careful consideration to prevent abuse. As discussed earlier, Canada’s tax treatment of charities and charitable donations is extremely generous and constitutes a significant public expense. I question the wisdom of allowing certain entities access to these privileges without subjecting them to the same oversight.

D. Government Response the Senate Report

On March 30, 2021, the Honourable Diane Lebouthillier, Minister of National Revenue issued a response to the Senate Report on behalf of the Government of Canada.¹⁴⁴ I will briefly discuss the aspects of this response that relate to the points raised throughout this paper.

In response to the Report’s recommendation that appeals go to the Tax Court of Canada instead of the Federal Court of Appeal, and also the recommendation that some sort of litigation fund be established to assist organizations with their appeals, Lebouthillier states that “[t]he Government is committed to ensuring that the tax system is fair and equitable, and recognizes the importance of having effective and accessible appeal processes for charities. In this respect, the Government will review the framework for appeals relating to registered charity status and determine whether improvements could be made to this process”.¹⁴⁵

The Government supported the recommendation to review the common law meaning of charity, including whether a statutory definition should be enacted, and indicated that it will take any recommendations that come out of that review under advisement.¹⁴⁶ The Government also committed to a review of the policy considerations relating to qualified donees to establish a principle-based framework for new categories.¹⁴⁷ Both of these reviews will be conducted by the Advisory Committee on the Charitable Sector, which was established in 2019 to promote dialogue between the government and charitable sector.¹⁴⁸

This response seems to indicate that the Government has taken the recommendations from the Senate Report seriously and will take steps moving forward. However, actions speak louder than words, and we will have to see if anything comes of these recommendations in the end. As it stands, the Government has basically said “we’ll look into it” – a very safe and non-committal response. Furthermore, we must remember that a federal election was held just under six months following the release of this response. The same party is in power, but priorities may have changed. A promising sign is that following the cabinet shuffle at the end of October, Diane Lebouthillier remains the Minister of National Revenue.¹⁴⁹

Conclusion

Canada provides generous tax benefits to charities through a combination of tax exemptions and the ability to issue receipts for charitable donations. However, the lack of a definition of charity in the Income Tax Act means that courts are required to turn to the common law. This fact alone may not have been cause for concern; Gonthier J’s dissent in Vancouver Society provided a promising path forward for the common law. Furthermore, as demonstrated in Native Communications, the fourth head of charity provides the opportunity for courts to reason by analogy and respond to the changing needs of society. However, partly due to concerns related to any tax implications stemming from their decisions, both the Federal Court of Appeal and Supreme Court have failed to develop the meaning of charity in a progressive manner. Our legal definition of charity is thus tethered to the preamble of a statute that is more than 400 years old.

Action should be taken to ensure that the legal definition of charity more closely resembles how it is understood by the public. We have multiple options for modernization. At the very least, we should grant the Tax Court of Canada jurisdiction to hear appeals de novo and implement changes to make it easier and more affordable to bring these appeals. Yet, while this may alleviate some issues, the Tax Court will still be bound by previous caselaw. A more radical change may be required, which could come in the form of a statutory definition of charity. The Supreme Court said itself in Vancouver Society that any modernization would have to come from Parliament and not the courts. While there are numerous challenges posed by such a course of action, they can be overcome through careful consideration and public debate. A statutory provision that includes a residuary clause would constitute a balanced approach, providing clarification and guidance to the courts while allowing the development of the common law meaning of charity in a progressive manner. An alternative solution for modernization could be expanding the list of qualified donees, though this option comes along with its own set of concerns.

One thing is clear, and that is that the current system no longer provides an adequate method for developing the meaning of charity to meet the needs of an ever-changing society. We shouldn’t restrict progress simply in the name of maintaining the status quo, when the status quo no longer works.

Bibliography

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Endnotes