Charity registration revoked even though it helped to prevent poverty
Getting a charity registered for income tax purposes has obvious benefits. A registered charity pays no income tax. Donations to the charity are encouraged through the tax system, as they earn either a tax credit (individuals) or deduction (corporations).
In the recent case of Credit Counselling Services of Atlantic Canada, the stated objects of the charity were to prevent poverty, provide professional financial and debt counselling to the community, develop and promote educational programs for the public on family money management, budgeting and use of credit, and conduct and fund research on credit-related concerns.
The charity was initially registered for income tax purposes. However, the CRA subsequently revoked the registration on the grounds that the charity was not exclusively carrying on charitable activities.
One of the acceptable purposes of a charity is to relieve poverty. The CRA argued that the charity’s activities were not limited to helping poor people. Thus, at most, their activities may have been helping to prevent poverty, but not relieve it.
The Federal Court of Appeal upheld the CRA’s decision. The Court agreed that, based on the case law, merely helping to prevent poverty is not an accepted charitable purpose.
The grounds on which a charity can be formed have basically remained the same as they were in 17th century in England, and the Federal Court of Appeal has been unwilling to expand these grounds.
This letter summarizes recent tax developments and tax planning opportunities; however, we recommend that you consult with an expert before embarking on any of the suggestions contained in this letter, which are appropriate to your own specific requirements.