In Public Television Association of Quebec v. M.N.R. (2015 FCA 170), the Federal Court of Appeal dismissed the appeal by the Public Television Association of Quebec ("PTAQ") of the CRA's decision to revoke PTAQ's registered charity status.
PTAQ was constituted to advance education through the production, distribution and promotion of non-commercial, educational television programs and films.
Generally, PTAQ carried out its charitable activities through an intermediary: Vermont ETV Incorporated (aka Vermont PBS) ("VPT") pursuant to a fundraising agreement and a broadcasting agreement.
Under these agreements, PTAQ would purchase a slate of educational programming from VPT, and such programming would then be broadcast on certain television stations. VPT would, in the course of various fundraising activities, raise funds from Canadian donors as an agent of PTAQ, which would issue donation receipts to the Canadian donors.
Generally, a Canadian charity may carry out its charitable activities in two ways: directly, or through the use of an intermediary. If the charity uses an intermediary to carry out charitable activities, the charity must maintain direction and control of its resources (see CG-004 "Using an Intermediary to Carry out a Charity's Activities within Canada" (June 20, 2011)). The CRA's scrutiny of a charity's use of an intermediary is greater where the activities are carried on outside Canada (see CG-002 "Canadian Registered Charities Carrying Out Activities Outside Canada" (July 8, 2010)).
In this case, the CRA reviewed PTAQ's corporate objects and activities and determined that PTAQ had failed to devote all of its resources to its own charitable activities. The CRA issued a Notice of Intention to Revoke pursuant to paragraph 168(1)(b) of the Income Tax Act. PTAQ filed a Notice of Objection under subsection 168(4) of the Act, and the CRA confirmed the proposal to revoke PTAQ's registration.
Pursuant to subsection 172(3) of the Act, an appeal of the CRA's decision to revoke a charity's registration is made directly to the Federal Court of Appeal (rather than the Tax Court).
On appeal of a proposed revocation in respect of a charity that has used an intermediary to carry out charitable activities, the charity must adduce evidence that it was carrying on charitable works on its own behalf and not merely acting as a conduit (i.e., the charity must establish that it maintained direction and control of its resources).
The Court of Appeal dismissed the appeal and held that PTAQ had failed to establish the CRA's conclusion that PTAQ was not devoting all of its resources to its own charitable activities – which was a question of mixed fact and law – was unreasonable.
The Court of Appeal stated:
 Based on the evidence outlined above, I conclude that it was reasonable for the Minister to determine that PTAQ failed to maintain direction and control over its resources as it did not devote all its resources to its own charitable activities. The provisions of the broadcasting and fundraising agreements were not followed or respected. PTAQ has not adduced evidence that it exercised proper control over the activities of its agent by demonstrating how it monitored the cost of the broadcasting activities, the donations received and the fundraising. It has not established how the Minister erred in coming to the conclusion that PTAQ is only used to issue receipts for donations received by VPT from Canadian donors, as the documentation contained in the record does not overturn the factual findings noted above with respect to the broadcasting and fundraising agreements.
The CRA's revocation and the Court of Appeal's decision are stern reminders of the necessity for Canadian charities that are essentially "friends of" foreign charitable organizations to implement measures that will ensure that direction and control of the Canadian charity's resources remain with the Canadian charity.
Further, such direction and control must in fact be exercised by the Canadian charity, and evidence of such direction and control should be recorded in the Canadian charity's corporate documents (i.e., meeting minutes, reports, correspondence, etc.).
For more information, visit our Canadian Tax Litigation blog at www.canadiantaxlitigation.com
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