In Ark Angel Foundation v. Canada (National Revenue) ( 2019 FCA 21), the minister's decision to revoke the charitable status of the Ark Angel Foundation was upheld, apparently on the basis that the foundation had insufficient control and oversight over the use of its funds. The interesting aspect of the decision is that the FCA commented on the standard of review for appeals of charitable status revocations, which it based on the SCC's decision in Canada (Minister of Citizenship and Immigration) v. Vavilov ( 2019 SCC 65). The take-away is that such appeals are now less likely to succeed where the appeal turns on questions of fact alone but perhaps more likely to succeed where a question of law can be raised. It will be up to charities to present their objections and appeals accordingly.
The FCA held that the appellate standard of review in Vavilov applies to appeals of charitable status revocations. The minister's decision in Ark Angel appears to have been confirmed solely on the basis of a finding of fact. However, since the decision does not contain much analysis, it does not directly illustrate how the application of the appellate standard could potentially advance charity case law. Nevertheless, some reasonable inferences may be made.
Questions of Fact
In the past, the FCA has generally required the appellant charity to demonstrate that the minister acted unreasonably in respect of each ground raised in support of revoking the charity's status. The Vavilov-affirmed appellate standard requires, in the case of appeals that turn on pure questions of fact (or on questions of mixed fact and law where the legal principle is not readily extricable), that the charity demonstrate that the minister has made a palpable and overriding error in applying the law to the facts of the case. In theory, the previous standard of reasonableness had a greater scope of possible outcomes. Thus, for such appeals, the new standard provides less opportunity for the taxpayer to prevail.
The practical effect of the court's decision on charitable status revocations may be limited. One reason is that where the charity's facts are problematic (as in Ark Angel), it is difficult for charities to succeed regardless of the standard applied. The more important reason is the presumption in favour of the original decision maker (in this situation, the minister) regarding determinations on questions of fact. This deference stems from Housen v. Nikolaisen ( 2002 SCC 33), which dealt with the negligence of a municipality. In such civil litigation cases, there is a judge of first instance who is an impartial adjudicator. While deference to finders of fact who are impartial judges makes eminent sense, deference to the minister is perhaps unfair to a charity, given that she is both the initial decision maker and the litigant. Perhaps one reason that this situation has developed is that the review of charitable status revocations lies within the jurisdiction of the FCA, rather than a tax-specialized court that may be more accustomed to dealing with the respondent as both litigant (respondent in the appeal) and decision maker (assessor of taxes).
Questions of Law
For questions of pure law, Housen established that the standard of review is correctness. Ark Angel does not change this, but by highlighting the division between the two types of questions and noting that questions of law may arise, Ark Angel and Vavilov are potentially helpful to charities. Correctness is a higher standard than the absence of a palpable and overriding error, and thus is perhaps harder for the CRA to attain.
Most scenarios in which charitable status is revoked deal with one or more questions of law, but part of the challenge charities face is establishing that these questions exist when dealing with the CRA or when presenting arguments before the FCA. Additionally, since the body of Canadian case law dealing with charity issues is not particularly well developed, it has become easier for the CRA to emphasize the facts as opposed to exploring and understanding the full breadth of charity law. Thus, it is hoped that these decisions will make both the CRA and the FCA more attuned and receptive to legal arguments.
Originally published Canadian Tax Focus Volume 10, Number 3, August 2020.
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