Ethical Tourism may be laudable but not charitable according to the Canadian Federal Court of Appeal

November 23, 2007 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: Canadian Charity Law, Ethical Issues and Canadian Charities, Canadian Charities Operating Abroad, Foreign Charities Operating in Canada

In the Travel Just case CRA had refused to register an organizations whose objects were very broad.  The Federal Court of Appeal agreed with CRA.  [Subsequently the Supreme Court of Canada refused an application for leave to appeal.]

Travel Just v. Canada Revenue Agency.

In this recent Federal Court of Appeal’s case the importance of properly drafting object clauses in the letters patent of a non-share capital corporation that will apply to become registered Canadian charities is discussed. 

The company “Travel Just” is a federal non-share capital corporation that applied for charitable status and was deemed to be refused by CRA as CRA did not dispose of the application within the required time period under the Income Tax Act (Canada).

The objects of Travel Just provide

  1. to work with key governmental authorities and grassroots communities of various tourism destination markets to create and develop model tourism development projects that contribute to the realization of international human rights and environmental norms and that achieve social and conservation aims that are in harmony with economic development aims for the particular region;
  2. to develop, fund, administer, operate and carry on activities, programs and facilities to produce and disseminate materials on a regular basis that will provide travelers and tourists with information on socially and environmentally responsible tourism in order to establish normative discourse around traveling with a social conscience.

According to the decision, Mr. Blake Bromley, legal counsel for Travel Just, argued that Travel Just should be registered as a charity because the objects fall within the fourth leg of the test in Pemsel v. Special Commissioners of Income Tax, [1891] A.C. 531 (Eng. H.L.), in that it is “other purposes beneficial to the community”.

The court was sympathetic to the idea of “ethical tourism”, however, the court was concerned with two very important elements - namely the “vague and subjective” object provisions and secondly what the court described as the “strong flavour of private benefit” that could flow from model tourist projects such as luxury resorts in the developing world. 

The case illustrates the importance of properly drafting object clauses to ensure that the objects are completely charitable. 

Secondly, this decision highlights the Federal Court of Appeal’s concern that registered charities can be used as vehicles for private benefit more than actually conducting charitable activities. 

The objects in this case were quite broad.  In some people’s mind a “model tourism development project” could be one in which the owners are running a ultra luxury resort only available to the very affluent that makes a very large profit for its owners and has occasional workshops on “international human rights and environmental norms” and will provide travelers and tourists with information on socially and environmentally responsible tourism such as little signs in the bathroom encouraging reuse of towels and conservation of water.

While “economic development aims for the particular region” could be charitable it could also be anything but charitable depending on the region and what it’s economic development aims are. 

If you are interested in other Canadian Federal Court of Appeal Cases dealing with charities that operate in foreign jurisdictions see Canadian FCA Cases on Charities operating outside of Canada.
The case can be seen at http://decisions.fca-caf.gc.ca/en/2006/2006fca343/2006fca343.html  Here is also a PDF copy of the Travel Just decision.
 
As well the full text of the Federal Court of Appeal Decision is below:

——————————————
Date: 20061024

Docket: A-271-05

Citation: 2006 FCA 343

CORAM:    NOËL J.A.
            EVANS J.A.
            MALONE J.A.

BETWEEN:

TRAVEL JUST

Appellant

and


CANADA REVENUE AGENCY

Respondent


Heard at Vancouver, British Columbia, on October 23, 2006.

Judgment delivered at Vancouver, British Columbia, on October 24, 2006.

REASONS FOR JUDGMENT BY:                                                        EVANS J.A.

CONCURRED IN BY:                                                                  NOËL J.A.

REASONS FOR JUDGMENT

EVANS J.A.

[1]          On March 29, 2004, Travel Just, a corporation incorporated under the Canada Corporations Act, R.S.C. 1970, c. C-32, applied to the Minister of National Revenue to be registered as a charitable organization under subsection 248(1) of the Income Tax Act, R.S.C. 1985, 1985, c.1 (5th Supp.) (“ITA”). Since the Minister did not dispose of the application within 180 days, the Minister is deemed to have refused the application. Travel Just appeals to this Court under subsection 172(4) of the ITA against the Minister’s deemed refusal.

[2]          While Travel Just submitted to the Minister a description of activities that it proposes to undertake, this appeal turns on whether Travel Just’s corporate objects, which are set out in its Letters Patent, are exclusively charitable for the purpose of the ITA. As Iacobucci J. said in Vancouver Society of Immigrant and Visible Minority Women v. Canada (Minister of National Revenue), [1999] 1 S.C.R. 10 at para. 152, (“Vancouver Society”), it is the purpose, in furtherance of which an activity is carried out, that determines if the activity is charitable.

[3]          If, as a matter of construction, Travel Just’s corporate objects permit it to spend its funds on activities that are not legally charitable, it may not be registered as a charity: Earth Fund/Fond pour la Terre v. Canada (Minister of National Revenue), 2002 FCA 498 at para. 20. This principle is subject to the limited statutory exception for ancillary political purposes (ITA, subsection 149.1(6.1)), and (6.2)), and the common law’s incidental purposes doctrine: Vancouver Society at paras. 156-58. If, on the other hand, the objects confine it to charitable activities, Travel Just will be entitled to be registered. As a registered charity, it could issue charitable receipts to donors, who may use their donations to reduce their income tax liability.

[4]          Travel Just’s principal objects are as follows:

a.            to work with key governmental authorities and grassroots communities of various tourism destination markets to create and develop model tourism development projects that contribute to the realization of international human rights and environmental norms and that achieve social and conservation aims that are in harmony with economic development aims for the particular region;

b.            to develop, fund, administer, operate and carry on activities, programs and facilities to produce and disseminate materials on a regular basis that will provide travelers and tourists with information on socially and environmentally responsible tourism in order to establish normative discourse around traveling with a social conscience.

[5]          Counsel argues that Travel Just is eligible to be registered a charity because its objects fall within the fourth, and residual, “other purposes beneficial to the community”, head of the test in Pemsel v. Special Commissioners of Income Tax, [1891] A.C. 531 (Eng. H.L.), as elaborated in subsequent jurisprudence.

[6]          He says that object (a) of Travel Just’s objects authorizes it, in effect, to promote “ethical tourism” in developing countries and, as such, is within the line of cases holding that the general promotion of an industry or trade constitutes a public benefit for the purpose of the Pemsel test: see Commissioners of Inland Revenue v. Yorkshire Agricultural Society [1927] 1 K.B. 611 (Eng. C.A.).

[7]          I do not agree. Even if the promotion of tourism is a charitable purpose, Travel Just’s object is not to promote tourism in general, but only those tourist projects which meet the undefined goals of contributing to the “realization of international human rights and environmental norms” and “achieve social and conservation aims that are in harmony with economic development aims for the particular region”.

[8]          This object, which is limited to a particular, but vague and subjective, view of what kinds of tourism are beneficial to the community, is not, in my opinion, sufficiently analogous to a purpose already recognized as charitable to qualify under the fourth Pemsel head of charity.

[9]          In addition, the creation and development of “model tourism development projects” with the characteristics described above could include the financing and operation of luxury holiday resorts in developing countries. Promoting commercial activity of this kind, with a strong flavour of private benefit, is not a purpose beneficial to the public which would make Travel Just eligible for a subvention from Canadian taxpayers as a charity.

[10]        In a word, laudable as the objects listed in (a) may be, they are too broad and vague. It cannot be said that they restrict Travel Just’s expenditures to purposes that are in law charitable.

[11]        In view of this conclusion, it is not necessary to go further. However, I doubt whether the dissemination of information described in object (b) would qualify as either the publication of research, or an educational purpose: see Vancouver Society at para. 169.

[12]        Finally, and in the alternative, Travel Just says that, since it is incorporated under a federal statute and its Letters Patent authorize it to operate throughout Canada, the law of Québec must be examined to see if it recognizes a wider concept of charity than the common law. Counsel submitted that it does, and that, accordingly, Travel Just should be registered as a charitable organization to the extent that it operates in Québec.

[13]        I disagree. Travel Just currently conducts no activities anywhere. The applicants for the incorporation of Travel Just, who were also its first directors, had addresses in British Columbia. In its application for registration as a charity, Travel Just gave a Vancouver address as its mailing address. Of the home addresses given for the four directors at that time, two were in British Columbia, one was in Alaska, and one was in California. Travel Just’s legal counsel, Mr Bromley, is in Vancouver.

[14]        In contrast, there is no indication in the material before us that Travel Just has any connection with Québec or has plans to operate there. The applicability of the law of Québec to Travel Just’s activities is thus hypothetical and speculative. In these circumstances, resort to the law of Québec is not necessary and, accordingly, section 8.1 of the Interpretation Act, R.S.C. 1985, c. I-21, is not triggered: compare Canada 3000 Inc., Re; Inter-Canadian (1991) Inc. (Trustee of), 2006 SCC 24 at para. 78-81. 

[15]        In addition, like the ITA, the Taxation Act, R.S.Q. c. I-3, defines charity as a charitable organization or foundation, without defining the term “charitable”: see sections 1, 985.1 and 985.1.2. The Taxation Act contains no reference to the “social trust” described in Article 1270 of the Civil Code of Québec, S.Q. 1991, c. 64. That the private law of Québec may permit the creation of trusts for social purposes which would not qualify as valid purpose trusts at common law because they are not charitable does not, in my opinion, materially advance Travel Just’s claim to the tax advantages of a charity if it were to operate in Québec.

[16]        There is considerable force in the submission of the Minister that whether an organization is charitable for the purpose of the ITA is a question of public law, and not one of property and civil rights to which the private law of Québec is relevant. In this context, it is significant that Revenu Québec registers an organization as a charity only after confirmation of its registration by the Canada Revenue Agency: Revenu Québec, General Information at www.revenu.gouv.qc/enterprise/impot/organismes/info.asp

[17]        For these reasons, I would dismiss the appeal with costs. 


“John M. Evans”J.A.

“I agree.
        Marc Noël, J.A”

“I agree.

        J. Brian D. Malone, J.A.”

———————

[Note that subsequently the unsuccesful appellants attempted to appeal to the SCC but leave to appeal was denied]  Here is a copy of the arguments of CRA put forward by the Department of Justice opposing leave to appeal which were succesful. 

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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.

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