By Jordyn Allan and Susan M. Manwaring, of Miller Thomson LLP
The Federal Court of Appeal has now overturned two separate decisions of the Minister of National Revenue denying the applications of two sports organizations for registration as registered Canadian amateur athletic associations (“RCAAA”).
One decision involved an appeal by an organization called Athletes 4 Athletes Foundation (“A4A”) and the other by an organization called Tomorrow’s Champions Foundation (“TCF”). Each organization submitted an application to be registered as a RCAAA. Registration as an RCAAA confers two primary benefits: (1) an exemption from income tax; and (2), as a ‘qualified donee’, the ability to issue tax receipts to donors and attract and receive revenue that is dependent on holding status as an RCAAA. Many goods and services provided by an RCAAA are also exempt from GST/HST.
Broadly speaking, an RCAAA is defined in the Income Tax Act (Canada) (the “Act”) as a Canadian amateur athletic association (“CAAA”) which has applied for and is registered as a RCAAA. The definition of a CAAA contains several elements. For the purposes of the decisions, the following portion of the definition is relevant:
Canadian amateur athletic association means an association that: (d) has the promotion of amateur athletics in Canada on a nationwide basis as its exclusive purpose and exclusive function.
Each of A4A and TCF indicated that it would promote amateur athletics by providing financial support in furtherance of amateur athletics on a nation-wide basis. While both organizations proposed to further their purposes by providing financial assistance, A4A was established to provide funding directly to support athletes in need, while TCF was established to assist teams and clubs in need by paying for facilities, equipment and services.
In denying the registration of both entities, Canada Revenue Agency (“CRA”) concluded that:
- Providing financial support was not sufficient to satisfy the requirement that the organizations must have the promotion of amateur athletics as their exclusive purpose and exclusive function; and
- Not having offices in every province and territory in Canada, meant that the organizations did not satisfy the requirement of promoting amateur athletics in Canada on a nationwide basis.
In refusing registration, the Minister relied heavily on a CRA guidance document titled “CPS-011 – Registration of Canadian Amateur Athletic Associations”. Particularly, the Minister relied on a prescribed list of purposes set out in the guidance that are said to enable an organization to qualify for registered status as an RCAAA.
In its decision the Court strongly stated that an administrative policy is not law. While a policy can aid or guide the exercise of discretion under law, it cannot dictate in a binding way how that discretion is to be exercised. This was a welcome statement given the extent to which the CRA produces guidance documents on many issues and treats them as statements of the law. In making this statement, the Court found that the Minister erred by treating the list of acceptable purposes and functions in CPS-011 (as prepared by CRA) as being the only acceptable purposes and functions for an organization to qualify as a CAAA. The issue for consideration by the Minister was not whether the organizations complied with the guidance, but rather whether such purposes and functions would satisfy the definition of a CAAA in the Act. The Act does not contain a prescribed list of acceptable purposes.
The Court also found that the Minister erred in reading into the definition of a CAAA a requirement that the activities of a CAAA must directly support the promotion of amateur athletics in order to qualify for registration. While the promotion of amateur athletics in Canada must be its only purpose and only function, the Court stated that there are no restrictions on whether such functions do so directly or indirectly. The promotion of amateur athletics is the key component and so long as the only purpose and function is the promotion of amateur athletics, it does not matter whether the organization is providing that support directly or indirectly. Given that determining whether a particular activity is direct or indirect can sometimes be difficult, this commentary is very welcome.
The Court further concluded that the provision of funds or financial assistance does not, in and of itself, disqualify an organization from registration as a RCAAA. The Court stated that there was no reason why an organization could not satisfy the exclusivity requirement for purpose and function by providing funding that would assist an amateur athlete to pursue their particular athletic endeavour. Again, this is a welcome conclusion given the unreasonable and narrow interpretation CRA had placed on this requirement.
In a further interesting and welcome twist, the Court scolded the Minister for treating the application process akin to an audit. The Court aptly points out that at the time of the application, it was not clear whether A4A even had any resources or whether any payment had ever even been made to athletes. Whether any particular payment made to an athlete would satisfy the requirement that it promotes amateur athletics in Canada could only be determined once the facts related to such payment are known – which at the time of the application were not. These decisions by the Court will be particularly helpful in the future to applicants for RCAAA status and to applicants for charitable status. It is quite common when filing any such application that CRA asks the applicant to provide extensive detail about its proposed activities. But the difficulty is that a start-up applicant does not have existing activities. CRA explains that this is to demonstrate that the applicant is operated exclusively for charitable purposes. This is consistent with the comment in this case that CRA treats the application process like an audit and this sets a bar for registration that is much more cumbersome and difficult to satisfy. We have long argued that this is incorrect and this decision will hopefully lead to an adjustment of the process.
Finally, the Court found that the Minister erred in placing too narrow of a focus on an organization maintaining a physical presence in each province and territory in order to satisfy the nationwide requirement. The Court confirmed that there is 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.
In all, the Court found that the Minister overstepped by using broad discretion to refuse the registration of a CAAA. The only question that should have been considered was whether proposed purpose and function of each of the entities, when read in light of their stated objects, satisfied the requirement for registration under the Act.
Both appeals were allowed, setting aside the decision and remitting the matter back to the Minister for redetermination in accordance with the rulings. Costs were awarded to both A4A and TCF.
These decisions, as indicated above, are very welcome developments. CRA has in recent years adopted an audit approach to its gatekeeper role in the registration application process which was not supported by the provisions of the Act nor required by case law. We hope that CRA will consider these decisions and adjust its expectations for applicants on registration and its treatment of its guidance to be just that – guidance not statements of the law.
