Millennium Charitable Foundation Case - Federal Court (FCA) not impressed with charity tax shelters

February 21, 2009 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: What's New from the Charities Directorate of CRA, Canadian Charity Law, Global Giving, Ethics and Canadian Charities, Avoiding 'Charity' Scams

The Millennium Charitable Foundation Case deals with abusive charitable gifting schemes.  The Federal Court of Appeal (FCA) sided with CRA in this matter.  It is well worth reading for anyone concerned with the charity sector.

The Millennium Charitable Foundation Case discusses what test needs to be met for a court to issue an injunction to stop the Charities Directorate of CRA from issuing a “Notice of Intent to Revoke” a charity’s registration as a registered charity. 

The Foundation had gone to court, represented by the lawyers of Miller Thomson LLP, asking the court to prohibit CRA from “publishing the Notice of Intent to Revoke in the Canada Gazette until the rights of objection and appeal of the Foundation under the ITA have been fully exercised and exhausted.”  The Foundation had already filed a notice of objection to the Notice of Intent to Revoke, and presumably wanted to object to the CRA contentions that they issued improper official donation receipts.

The case referred to two other similar cases involving charity tax avoidance in which also the court had refused to grant an injunction namely Choson Kallah Fund of Toronto v. Minister of National Revenue (http://decisions.fca-caf.gc.ca/en/2008/2008fca311/2008fca311.html ) and International Charity Assn. Network v. Minister of National Revenue http://decisions.fca-caf.gc.ca/en/2008/2008fca114/2008fca114.html ICAN was represented by A Christina Tari of Richler and Tari and Evelyn R. Schusheim of Cummings, Cooper, Schusheim, Berliner.

Briefly the allegations in each case are:

The Millennium Charitable Foundation
According to the CRA letter on April 2, 2008, about 9 months before the decision, CRA states, “Our audit has concluded that from January 1, 2003 to December 31, 2006 The Millennium Charitable Foundation issued in excess of $169 million in receipts for cash and property received through tax shelter arrangements. The Charity, in turn, directed $114 million of the cash and property to two other registered charities also participating in these arrangements. The audit revealed that the vast majority of the cash sent to the other participant charities was subsequently paid to the promoters. Of the remainder, the Charity itself paid $33 million in fundraising fees to the tax shelter promoters and retained, but did not disburse,  $21 million in net assets. In fact, it appears that beyond these transfers (i.e., those that the Charity is directed to make by the tax shelter promoters), the Charity has only made a single $2,200 gift to another qualified donee.”  If you want to read the actual letters from CRA to the The Millennium Charitable Foundation they are here at The Millennium Charitable Foundation letters

ICAN
From the judgement we learn “The Minister alleges that in 2006, ICAN issued charitable donation receipts totalling approximately $464 million.  ICAN does not dispute that allegation. The Minister alleges that is almost five times the total charitable donation receipts issued by United Way of Greater Toronto in the same year, although ICAN had only 16 employees in Ontario, compared to 165 full-time and 43 part-time employees of United Way of Greater Toronto. The Minister also alleges that ICAN failed to provide the auditor with evidence that it has carried on its charitable activities on the scale on which claims to operate. In addition, the Minister alleges that ICAN has actively participated in tax shelter schemes that resulted in ICAN receiving property for which tax receipts were issued in amounts far in excess of the value of the property.”
The court in ICAN found “The Minister takes the position, properly in my view, that the public has a legitimate interest in the integrity of the charitable sector. It is reasonable for the Minister to attempt to safeguard that integrity by carefully scrutinizing tax shelter schemes involving charitable donations of property and, where there are reasonable grounds to believe that the property has been overvalued, by taking appropriate corrective action. In the circumstances of this case, the Minister’s factual allegations, while untested, are sufficiently serious to outweigh any advantage ICAN might derive from an order deferring the revocation of its registration as a charity.”

Choson Kallah Fund of Toronto
According to the CRA:
“The audit conducted by . . . (the “CRA”), identified that Choson Kallah Fund of Toronto (the “Charity”), based on the activities of the Charity and the level of financial activity and resources devoted to this program, is operating primarily or collaterally for the purpose of furthering a tax shelter donation arrangement. In our view, the Charity’s original purpose, which is to provide funding for relief of poverty to impoverished individuals, has been sidetracked by its participation in this arrangement and has, in effect, become a secondary purpose. . . . Accordingly, it remains our view that the Charity has willingly lent its name and tax receipting privileges to the tax shelter in exchange for monetary compensation. In our view, the Charity has participated in a program designed to abuse the charitable gift incentive provisions of the [Income Tax Act]. The Charity’s participation in this program is to issue receipts for property it neither uses nor sees for values established by the shelter promoters.  The Charity is compensated for its participation for a set fee representing a scant 0.05% of all donation receipts issued (after deducting expenses). The Charity issued tax receipts for amounts in excess of $177 million during the years under review. In our view, the Charity’s participation in this program has become an end in and of itself. Accordingly, it is our view that the Charity has operated for the non-charitable purpose of promoting and participating in a tax shelter arrangement and, accordingly, cannot be considered to be a charitable organization all the resources of which are devoted to charitable activities.”


The first ICAN decision in February 2008 summarized the procedures for a charity to challenge a revocation notice (http://decisions.fca-caf.gc.ca/en/2008/2008fca62/2008fca62.html):

[3] When the Minister concludes that the registration of a charity should be revoked, he issues a notice of intention to revoke the registration pursuant to subsection 168(1) of the Income Tax Act. The revocation itself does not occur until the revocation notice is published in the Canada Gazette.

[4] Paragraph 168(2)(a) of the Income Tax Act provides that the publication of the revocation notice may occur immediately if the revocation was requested by the charity. Where there is no such request (as in this case), the Minister is required by paragraph 168(2)(b) to defer the publication of the revocation notice for a period of time in order to permit the charity to challenge the decision to revoke. There is an automatic deferment period of 30 days, but that may be extended by the Federal Court of Appeal or a judge of the Federal Court of Appeal, provided the order is made before the determination of an appeal under subsection 172(3) of the Income Tax Act.

[5] The right of appeal under subsection 172(3) does not arise unless the charity files a notice of objection under subsection 168(4) of the Income Tax Act challenging the revocation notice. The notice of objection must be served on or before the day that is 90 days after the service of the revocation notice. If the Minister confirms the revocation notice, or does not confirm or vacate the revocation notice within 90 days after service of the notice of objection, the charity may appeal the revocation notice to the Federal Court of Appeal pursuant to paragraph 172(3)(a.1).

[6] The right of the charity under paragraph 168(2)(b) to seek an extension of the deferment period is independent of the right of appeal under subsection 172(3). An extension may be sought before the right of appeal is exercised, or even before the right of appeal arises. The only time constraint is that an order granting an extension of the deferment period must be made before the determination of the appeal.

[7] When a charity wishes to seek an extension of the deferment period before an appeal is filed or before the right to appeal arises, the appropriate procedure is an application under Rule 300(b) of the Federal Courts Rules (the same procedure as an application for judicial review). If a charity wishes to seek an extension of the deferment period after an appeal has been commenced, the appropriate procedure is a notice of motion in the appeal.

In the Millennium Case, the charity was requesting an order from the court prohibiting Minister of National Revenue from publishing notice of intent to revoke registration of charity in Canada Gazette until rights of objection and appeal of charity under Act fully exercised and exhausted.

The Court in Millennium reaffirmed the tripartite test in RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311 (S.C.C.), as the framework within which applications pursuant to paragraph 168(2)(b) of the ITA should be considered as was in the ICAN and Choson Kallah Fund of Toronto.

As the FCA notes:
“Under this test, a registered charity that brings an application pursuant to that provision must demonstrate that there is a serious issue to be tried, it will suffer irreparable harm if the requested order is not granted, and the balance of convenience favours granting the order.”

The court was quite surprised because the charity had argued in its written material that “This Application should be determined in accordance with the RJR—MacDonald Inc. principles for interlocutory injunctions ... Then “Notwithstanding this clear assertion, at the hearing, counsel for the Foundation argued that the application should not be determined under the framework of the tripartite test in RJR-MacDonald.  Counsel for the Foundation urged the Court to characterize the Foundation’s application as a request for an extension of time to pursue its objection and appeal against the Notice of Intent to Revoke, arguing that granting such an extension of time would be a “reasonable exercise of the Court’s discretion” under paragraph 168(2)(b) of the ITA.”

The court did not appreciate this switch in position by Miller Thomson. 

The FCA states “I am unpersuaded that this argument has merit and counsel for the Foundation offered no jurisprudence to support it. In my view, an application under paragraph 168(2)(b) of the ITA is not an application for an “extension of time” within which to pursue objection and appeal rights. In the circumstances under consideration, it is obvious that the Foundation is pursuing its rights in this regard and needs no “extension of time” to do so because there is no legal impediment that prevents it from doing so.”

The FCA then went on and stated:
“Based on the existing record, I am satisfied that the Foundation’s application must be assessed in the context of the tripartite test in RJR-MacDonald.

Serious Issue

16 The Crown has not contested the serious issue to be tried element of the test and I am persuaded that the low threshold with respect to this element has been met.

Irreparable Harm

17 The irreparable harm element of the tripartite test was described by Sopinka and Cory JJ. at page 341 of RJR-MacDonald, as follows:

At this stage the only issue to be decided is whether a refusal to grant relief could so adversely affect the applicants’ own interests that the harm could not be remedied if the eventual decision on the merits does not accord with the result of the interlocutory application. “Irreparable” refers to the nature of the harm suffered rather than its magnitude. It is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other. Examples of the former include instances where one party will be put out of business by the court’s decision (R.L. Crain Inc. v. Hendry (1988), 48 D.L.R. (4th) 228 (Sask. Q.B.)); where one party will suffer permanent market loss or irrevocable damage to its business reputation (American Cyanamid, supra); or where a permanent loss of natural resources will be the result when a challenged activity is not enjoined (MacMillan Bloedel Ltd. v. Mullin , [1985] 3 W.W.R. 577 (B.C.C.A.)). The fact that one party may be impecunious does not automatically determine the application in favour of the other party who will not ultimately be able to collect damages, although it may be a relevant consideration (Hubbard v. Pitt, [1976] Q.B. 142 (C.A.)).”

The FCA noted:
“The Foundation argues that it will suffer irreparable harm because the revocation of its status as a registered charity will harm its reputation. The Foundation asserts, in paragraph 14 of its memorandum of fact and law, that “its reputation as a legitimate charity in good standing with all governmental authorities is essential to its attracting and retaining donors in the long term”. While reputational damage may constitute irreparable harm, in the present circumstances, the evidence falls short of establishing that the Foundation has a reputation with any donor group or community other than those persons who have participated in the two tax shelter gifting programs named above. The Foundation has no “track record” of any charitable activities outside of its participation in those programs. Moreover, the affidavit evidence of Mr. Koger that is referred to above can be reasonably taken as indicating that the Foundation has essentially ceased its fundraising operations, at least until its challenge to the Notice of Intent to Revoke has concluded.”

The FCA also noted that:
“21 The Foundation, in essence, asks me to infer that the revocation of its charitable registration will damage its reputation because the inability to issue income tax receipts for donations after such a revocation will no doubt lead to its receiving fewer donations. While that may well be the case, the evidence indicates that apart from its participation in the tax shelter gifting programs, with one minor exception, the Foundation did not receive any donations at all. It follows, in my view, that the reputation of the Foundation is that of a charity that participates in tax shelter gifting programs. If the Foundation is successful on the merits of its challenge to the Notice of Intent to Revoke and is able to participate in tax shelter gifting programs in the future, in all likelihood, donors who participated with the Foundation in the tax shelter gifting programs would be willing to participate with the Foundation in future programs of that type, assuming that such donors are satisfied that they will obtain the tax benefits associated with participating in those types of programs. Accordingly, I am not persuaded that any reputational damage that may be suffered by the Foundation as a consequence of a revocation of its status as a registered charity will constitute irreparable harm to it.”

The FCA also noted that :

“22 The Foundation also argues that its financial position is such that if the revocation of its status as a registered charity is not prohibited, it may not be able to finance the cost of prosecuting its challenge to the Notice of Intent to Revoke. The Foundation contends that this problem is exacerbated by virtue of its potential obligation to dissipate its assets by way of donations or pay the so-called “revocation tax” under Part V of the ITA if the revocation takes place.

23 In my view, this concern is speculative. In paragraph 16 of its memorandum of fact and law, the Foundation states:  16. If the stay [sic] is published, the Foundation may be financially unable to have the revocation [sic] heard on the merits because all of its remaining funds may become payable to the Minister before the appeal is heard.

Indeed, there may be any number of ways in which the Foundation’s future litigation costs could be financed. For example, additional donations might be received, existing funding (which is in the range of $0.5 million to $1.7 million) might be utilized to prepay such costs or the Crown might apply its “administrative policy” of extending the deadline for payment of any Part V tax assessed against the Foundation until all rights of objection and appeal against the proposed revocation have been exhausted. Suffice it to say that the present uncertainty with respect to the financing of the Foundation’s future litigation costs falls well short of the clear and compelling evidence that is required to establish that the Foundation will suffer irreparable harm if its status as a registered charity is revoked.”

The crux of this case appears to be that the Foundation had some funds in the bank and if their registered charity status is revoked then those funds have to be paid to another charity as part of a revocation tax.  However, the Foundation and its lawyers would rather have used those charity’s funds to pay their own legal fees to finance years of litigation, for which taxpayers would have had to subsidize the ‘donation’ and also pay for the litigation costs of CRA.  This decision is a defeat for abusive charitable gifting scams and a victory for CRA, the charitable sector and regular taxpayers.  It is possibly a bigger defeat for law firms and other professional advisors who represent these abusive charity tax schemes and whose gravy train may one day come to an end. 

The FCA concludes that:

“For these reasons, I conclude that the Foundation has failed to demonstrate, on a balance of probabilities, that it will suffer irreparable harm if the requested order is not granted. As a result of the Foundation’s failure to establish this element of the RJR-MacDonald test, the application must be dismissed.”


Is this the sort of “registered charity” we want in Canada?  Do we want CRA to be tied up in a straight-jacket so that an abusive charity tax scheme that started in 2003, is only shut down in 2009, or do we want it to continue until 2011? 

Despite the assertions of Miller Thomson in their written material that Millennium has a “reputation as a legitimate charity”, I think that most Canadians would not consider this sort of abusive tax avoidance scheme to be a legitimate charity. 

Some have criticized these three decisions in that it is theoretically possible that having these three cases could undermine in the future a legitimate charity that is not given the opportunity to fully exercise their rights of appeal before the CRA publishes the notice of intent to revoke.  While there may be some element of truth to that assertion but it is not the Federal Court of Appeal’s fault that three outrageously bad cases were brought to them for determination.  It is the charity’s and their legal counsel who have brought these cases and argued them.  They have created this case law and we should not forget that.  Also it should be pointed out that CRA is acting in what is clearly the best interest of the sector in revoking these charity’s status.  Despite the assertion by counsel that Millennium has a “reputation as a legitimate charity” CRA is only reserving this expedited treatment for the most abusive tax schemes, the most ‘minor’ of which issued over about 169 million in questionable receipts.  These abusive tax avoidance schemes are undercutting the good will of real “legitimate charities”, making it harder for real charities to fundraise especially in this recessionary time, undercutting public and stakeholder trust in the charitable sector, and resulting in a tax burden to be shifted on to other taxpayers.  I don’t think any legitimate, used in the normal sense, charity needs to stay up at night worrying about these cases setting a bad precedent. 

I have compiled a list of recently revoked charities that CRA has issued press releases about and copies of some of the CRA letters which CRA does not publish but these letters are available upon request.  (http://www.globalphilanthropy.ca/index.php/blog/canada_revenue_agency_deregistering_record_number_of_questionable_canadian_/


Mark Blumberg is a lawyer at Blumberg Segal LLP in Toronto, Ontario.  He can be contacted at or at 416-361-1982 x. 237. To find out more about legal services that Blumbergs provides to Canadian charities and non-profits please visit the Blumbergs’ Non-Profit and Charities page at http://www.blumbergs.ca/non_profit.php or http://www.globalphilanthropy.ca


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HERE IS THE MILLENNIUM CHARITABLE FOUNDATION CASE


Here is the original decision at the Federal Court of Appeal website:  http://decisions.fca-caf.gc.ca/en/2008/2008fca414/2008fca414.html


Date: 20081222

Docket: A-196-08

Citation: 2008 FCA 414

Present:      RYER J.A.

BETWEEN:

MILLENNIUM CHARITABLE FOUNDATION

Applicant

and

MINISTER OF NATIONAL REVENUE

Respondent

Heard at Toronto, Ontario, on December 8, 2008.

Order delivered at Ottawa, Ontario, on December 22, 2008.

REASONS FOR ORDER BY:                                                            RYER J.A.

Date: 20081222

Docket: A-196-08

Citation: 2008 FCA 414

Present:      RYER J.A.

BETWEEN:

MILLENNIUM CHARITABLE FOUNDATION

Applicant

and

MINISTER OF NATIONAL REVENUE

Respondent

REASONS FOR ORDER

[1]          On April 2, 2008, the Minister of National Revenue (the “Minister”) gave notice (the “Notice of Intent to Revoke”) to the Millennium Charitable Foundation (the “Foundation”), pursuant to subsection 168(1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the “ITA”), that the Minister intends to revoke the registration of the Foundation as a registered charity, within the meaning of subsection 248(1) of the ITA (a “registered charity”). In response, the Foundation applied to this Court, pursuant to paragraph 168(2)(b) of the ITA, for an order prohibiting the Minister from publishing the Notice of Intent to Revoke in the Canada Gazette until the rights of objection and appeal of the Foundation under the ITA have been fully exercised and exhausted. On June 30, 2008, the Foundation filed a notice of objection to the Notice of Intent to Revoke, pursuant to subsection 168(4) of the ITA (the “Notice of Objection”).

BACKGROUND

[2]          The Foundation was registered as a registered charity in 2000 but did not become active until 2003.

[3]          The record indicates that, with one minor exception, almost all of the amounts received by the Foundation as donations during the period from 2003 to the end of 2007 arose out of two tax shelter gifting programs: the Insured Giving Program by Insured Donations Inc. and the Global Learning Gifting Initiative by Global Learning Group Inc. Tax shelter identification numbers were provided to persons who made contributions to the Foundation under these programs. The record also indicates that, with one minor exception, all of the donations that have been made by the Foundation were made to the entities that were participants in the two tax shelter gifting programs.

[4]          The affidavit of Mr. Thomas A. Koger, the former executive director of, and consultant to, the Foundation states:

34.      Given the issue CRA raised regarding receipting tax shelter donations, the Foundation voluntarily ceased receiving donations from donors participating in tax shelter programs in January 2008. The foundation will not use tax shelters to fundraise, pay a tax shelter developer, knowingly gift to another charity receipting tax shelter gifts or issue receipts for gifts from donors participating in tax shelter programs pending the final determination of this issue on the merits in the revocation objection and appeal.

35.      The Foundation is not able to commit to any future fundraising action given that it is faced with possible revocation.

The record also indicates that the sole employee of the Foundation, Mr. Koger, has stepped down from his position as executive director of the Foundation and is providing consulting services to the Foundation, presumably on an “as needed” basis. This evidence indicates that for all practical purposes, the Foundation has ceased to carry on any activities.

THE APPLICATION

[5]          The jurisprudence in this Court affirms the tripartite test in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (S.C.C.), [1994] 1 S.C.R. 311, as the framework within which applications pursuant to paragraph 168(2)(b) of the ITA should be considered (see International Charity Association Network v. The Minister of National Revenue, 2008 FCA 114 (CanLII), 2008 FCA 114, and Choson Kallah Fund of Toronto v. Canada (National Revenue), 2008 FCA 311 (CanLII), 2008 FCA 311). Under this test, a registered charity that brings an application pursuant to that provision must demonstrate that there is a serious issue to be tried, it will suffer irreparable harm if the requested order is not granted, and the balance of convenience favours granting the order.

[6]          In paragraph 8 of its memorandum of fact and law, the Foundation states:

8.  This Application should be determined in accordance with the RJR – MacDonald Inc. principles for interlocutory injunctions, whether:

(a)      there is a serious issue to be determined;

(b)      failure to grant the order is likely to cause irreparable harm; and

(c)      the balance of convenience favours retaining the status quo until the court has disposed of the legal issue.

[Emphasis added.]

[7]          Notwithstanding this clear assertion, at the hearing, counsel for the Foundation argued that the application should not be determined under the framework of the tripartite test in RJR-MacDonald.

[8]          Counsel for the Foundation urged the Court to characterize the Foundation’s application as a request for an extension of time to pursue its objection and appeal against the Notice of Intent to Revoke, arguing that granting such an extension of time would be a “reasonable exercise of the Court’s discretion” under paragraph 168(2)(b) of the ITA.

[9]          Counsel for the Foundation urged the Court to consider the arguments in its memorandum of fact and law, as to why the requisite elements of the tripartite test were met, to be alternative arguments in the event that the Court did not accept its new “extension of time” argument.

[10]        In its Notice of Application, dated May 1, 2008, the Foundation did not request an “extension of time”. In paragraph 2(a) of that document, the Foundation requested:

An order prohibiting the Respondent from publishing in the Canada Gazette any notice of revocation of the charitable registration of the Millennium Charitable Foundation (the “Foundation”) until the Foundation’s rights of objection and appeal under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (“ITA”), have been exercised and all appeal processes are concluded.

Additionally, in paragraph 3(d) of the Notice of Application, the Foundation stated as a supporting ground:

(d)      the Foundation has requested that the CRA postpone publication of the revocation notice in the Canada Gazette until the Foundation’s rights of objection and appeal have been exercised and the appeal process concluded.

[11]        Counsel for the Crown did not consent to this new argument by the Foundation and reaffirmed her position that the application before this Court should be considered in the context of the tripartite test in RJR-MacDonald.

[12]        While I am inclined to the view that this new argument should not have been raised at the hearing, I will nonetheless consider it.

[13]        I am unpersuaded that this argument has merit and counsel for the Foundation offered no jurisprudence to support it. In my view, an application under paragraph 168(2)(b) of the ITA is not an application for an “extension of time” within which to pursue objection and appeal rights. In the circumstances under consideration, it is obvious that the Foundation is pursuing its rights in this regard and needs no “extension of time” to do so because there is no legal impediment that prevents it from doing so.

[14]        The application made by the Foundation plainly states that the Foundation is requesting an order to prohibit the Minister from taking an action that the Minister is entitled to take, namely, publication of the Notice of Intent to Revoke in the Canada Gazette after the expiration of 30 days from the day of mailing of such notice. The effect of such publication will be to revoke the registration of the Foundation as a registered charity. However, the revocation of the present status of the Foundation as a registered charity does not provide any legal impediment to the exercise by the Foundation of its objection and appeal rights in respect of the Notice of Intent to Revoke.

[15]        Based on the existing record, I am satisfied that the Foundation’s application must be assessed in the context of the tripartite test in RJR-MacDonald.

Serious Issue

[16]        The Crown has not contested the serious issue to be tried element of the test and I am persuaded that the low threshold with respect to this element has been met.

Irreparable Harm

[17]        The irreparable harm element of the tripartite test was described by Sopinka and Cory JJ. at page 341 of RJR-MacDonald, as follows:

At this stage the only issue to be decided is whether a refusal to grant relief could so adversely affect the applicants’ own interests that the harm could not be remedied if the eventual decision on the merits does not accord with the result of the interlocutory application.

“Irreparable” refers to the nature of the harm suffered rather than its magnitude. It is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other. Examples of the former include instances where one party will be put out of business by the court’s decision (R.L. Crain Inc. v. Hendry reflex, (1988), 48 D.L.R. (4th) 228 (Sask. Q.B.)); where one party will suffer permanent market loss or irrevocable damage to its business reputation (American Cyanamid, supra); or where a permanent loss of natural resources will be the result when a challenged activity is not enjoined (MacMillan Bloedel Ltd. v. Mullin, 1985 CanLII 154 (BC C.A.), [1985] 3 W.W.R. 577 (B.C.C.A.)). The fact that one party may be impecunious does not automatically determine the application in favour of the other party who will not ultimately be able to collect damages, although it may be a relevant consideration (Hubbard v. Pitt, [1976] Q.B. 142 (C.A.)).

[18]        This Court has described the requirements that must be met to establish irreparable harm. In Haché v. Canada, 2006 FCA 424 (CanLII), 2006 FCA 424, Desjardins J.A. stated, at paragraph 11:

The moving parties must demonstrate, on a balance of probabilities, that the harm that they would suffer is irreparable: Halford v. Seed Hawk Inc., 2006 FCA 167 (CanLII), 2006 FCA 167 at paragraph 12. Mere assertions do not suffice. Irreparable harm cannot be inferred. It must be established by clear and compelling evidence: A. Lassonde Inc. v. Island Oasis Canada Inc., 2000 CanLII 16812 (C.A.F.), [2001] 2 F.C. 568 at paragraph 20.

[19]        The Foundation argues that it will suffer irreparable harm because the revocation of its status as a registered charity will harm its reputation. The Foundation asserts, in paragraph 14 of its memorandum of fact and law, that “its reputation as a legitimate charity in good standing with all governmental authorities is essential to its attracting and retaining donors in the long term”.

[20]        While reputational damage may constitute irreparable harm, in the present circumstances, the evidence falls short of establishing that the Foundation has a reputation with any donor group or community other than those persons who have participated in the two tax shelter gifting programs named above. The Foundation has no “track record” of any charitable activities outside of its participation in those programs. Moreover, the affidavit evidence of Mr. Koger that is referred to above can be reasonably taken as indicating that the Foundation has essentially ceased its fundraising operations, at least until its challenge to the Notice of Intent to Revoke has concluded.

[21]        The Foundation, in essence, asks me to infer that the revocation of its charitable registration will damage its reputation because the inability to issue income tax receipts for donations after such a revocation will no doubt lead to its receiving fewer donations. While that may well be the case, the evidence indicates that apart from its participation in the tax shelter gifting programs, with one minor exception, the Foundation did not receive any donations at all. It follows, in my view, that the reputation of the Foundation is that of a charity that participates in tax shelter gifting programs. If the Foundation is successful on the merits of its challenge to the Notice of Intent to Revoke and is able to participate in tax shelter gifting programs in the future, in all likelihood, donors who participated with the Foundation in the tax shelter gifting programs would be willing to participate with the Foundation in future programs of that type, assuming that such donors are satisfied that they will obtain the tax benefits associated with participating in those types of programs. Accordingly, I am not persuaded that any reputational damage that may be suffered by the Foundation as a consequence of a revocation of its status as a registered charity will constitute irreparable harm to it.

[22]        The Foundation also argues that its financial position is such that if the revocation of its status as a registered charity is not prohibited, it may not be able to finance the cost of prosecuting its challenge to the Notice of Intent to Revoke. The Foundation contends that this problem is exacerbated by virtue of its potential obligation to dissipate its assets by way of donations or pay the so-called “revocation tax” under Part V of the ITA if the revocation takes place.

[23]        In my view, this concern is speculative. In paragraph 16 of its memorandum of fact and law, the Foundation states:

16.  If the stay [sic] is published, the Foundation may be financially unable to have the revocation [sic] heard on the merits because all of its remaining funds may become payable to the Minister before the appeal is heard.  [Emphasis added.]

Indeed, there may be any number of ways in which the Foundation’s future litigation costs could be financed. For example, additional donations might be received, existing funding (which is in the range of $0.5 million to $1.7 million) might be utilized to prepay such costs or the Crown might apply its “administrative policy” of extending the deadline for payment of any Part V tax assessed against the Foundation until all rights of objection and appeal against the proposed revocation have been exhausted. Suffice it to say that the present uncertainty with respect to the financing of the Foundation’s future litigation costs falls well short of the clear and compelling evidence that is required to establish that the Foundation will suffer irreparable harm if its status as a registered charity is revoked.

[24]        Subsequent to the hearing, counsel for the Foundation wrote to the Registrar of the Court submitting additional written arguments for the Court’s consideration. Counsel for the Crown objected to the additional written submissions, correctly stating that the Court had not requested them. I agree with counsel for the Crown that the post-hearing submissions are improper and accordingly, those submissions will not be considered.

[25]        For these reasons, I conclude that the Foundation has failed to demonstrate, on a balance of probabilities, that it will suffer irreparable harm if the requested order is not granted. As a result of the Foundation’s failure to establish this element of the RJR-MacDonald test, the application must be dismissed.

Balance of Convenience

[26]        The failure of the Foundation to establish the irreparable harm element of the tripartite test makes it unnecessary for me to consider the balance of convenience element of the test.

DISPOSITION

[27]        For the foregoing reasons, I am of the view that all of the elements of the RJR-MacDonald test have not been established and, therefore, the application should be dismissed with costs.

“C. Michael Ryer”

J.A.

 

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                                                    A-196-08

STYLE OF CAUSE:                                          Millennium Charitable Foundation

Applicant

                                                                v.

                                                                Minister of National Revenue

Respondent

PLACE OF HEARING:                                      Toronto, Ontario

DATE OF HEARING:                                      December 8, 2008

REASONS FOR ORDER BY:                              RYER J.A.

DATED:                                                      December 22, 2008

APPEARANCES:

Andrew J. Roman

Robert Hayhoe


FOR THE APPLICANT



Joanna Hill
FOR THE RESPONDENT


SOLICITORS OF RECORD:

Miller Thomson LLP

Toronto, Ontario


FOR THE APPLICANT



John H. Sims, Q.C.

Deputy Attorney General

 


————
HERE IS THE CHOSON KALLAH FUND OF TORONTO CASE
http://decisions.fca-caf.gc.ca/en/2008/2008fca311/2008fca311.html

Date: 20081017
Docket: A-38-08
Citation: 2008 FCA 311

PRESENT:    RYER J.A.

BETWEEN:
CHOSON KALLAH FUND OF TORONTO
Applicant
and
THE MINISTER OF NATIONAL REVENUE
Respondent



Heard at Ottawa, Ontario, on October 7, 2008.
Order delivered at Ottawa, Ontario, on October 17, 2008.

REASONS FOR ORDER BY:                                                            RYER J.A.



Date: 20081017
Docket: A-38-08
Citation: 2008 FCA 311

PRESENT:    RYER J.A.

BETWEEN:
CHOSON KALLAH FUND OF TORONTO
Applicant
and
THE MINISTER OF NATIONAL REVENUE
Respondent


REASONS FOR ORDER
[1]          This is an application by Choson Kallah Fund of Toronto (the “Fund”), pursuant to paragraph 168(2)(b) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the “ITA”), for an order extending the period of time that must expire before the Minister of National Revenue (the “Minister”) is permitted to publish a copy of the notice of intention to revoke the registration of the Fund as a registered charity (the “Notice of Intent to Revoke”), which was given by the Minister on December 21, 2007, in accordance with subsection 168(1) of the ITA, until the conclusion of the process that commenced with the filing by the Fund of a notice of objection (the “Notice of Objection”) to the Notice of Intent to Revoke, pursuant to subsection 168(4) of the ITA.

[2]          To succeed in this application, the Fund must establish that each of the requirements of the tripartite test set forth in RJR?MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311 have been met. (See International Charity Association Network v. Minister of National Revenue, 2008 FCA 114 (“ICAN”).) Thus, the Fund must demonstrate that there is a serious issue to be tried, it will suffer irreparable harm if the requested order is not granted and the balance of convenience favours granting the order.

Serious Issue to be Tried
[3]          The Crown does not dispute that this element of the test is present and I am of the view that the low threshold with respect to this element has been made out.

Irreparable Harm
[4]          With respect to this element of the test, Sopinka and Cory JJ. stated at page 341 of RJR-MacDonald:
At this stage the only issue to be decided is whether a refusal to grant relief could so adversely affect the applicants’ own interests that the harm could not be remedied if the eventual decision on the merits does not accord with the result of the interlocutory application.

“Irreparable” refers to the nature of the harm suffered rather than its magnitude. It is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other. Examples of the former include instances where one party will be put out of business by the court’s decision (R.L. Crain Inc. v. Hendry (1988), 48 D.L.R. (4th) 228 (Sask. Q.B.)); where one party will suffer permanent market loss or irrevocable damage to its business reputation (American Cyanamid, supra); or where a permanent loss of natural resources will be the result when a challenged activity is not enjoined (MacMillan Bloedel Ltd. v. Mullin, [1985] 3 W.W.R. 577 (B.C.C.A.)). The fact that one party may be impecunious does not automatically determine the application in favour of the other party who will not ultimately be able to collect damages, although it may be a relevant consideration (Hubbard v. Pitt, [1976] Q.B. 142 (C.A.)).


[5]          In Haché v. Canada (Minister of Fisheries and Oceans), 2006 FCA 424, [2006] F.C.J. No. 1886 (QL), this Court described the requirements that must be established with respect to this element of the test. At paragraph 11 of that decision, Desjardins J.A. stated:
  The moving parties must demonstrate, on a balance of probabilities, that the harm that they would suffer is irreparable: Halford v. Seed Hawk Inc., 2006 FCA 167 at paragraph 12. Mere assertions do not suffice. Irreparable harm cannot be inferred. It must be established by clear and compelling evidence: A. Lassonde Inc. v. Island Oasis Canada Inc., [2001] 2 F.C. 568 at paragraph 20.


[6]          The Fund argues that the revocation of its status as a registered charity, which is expected to occur if the requested order is not granted, will cause it to suffer irreparable harm. This is so, according to the Fund, because the inability to issue income tax receipts for donations, which will result from the revocation of its charitable registration, will lead to its receiving fewer donations. As a result, the Fund contends that its ability to engage in ongoing charitable works will diminish.

[7]          The Fund provided no direct evidence to support these contentions. Instead, the Fund referred to various portions of the transcript of the cross-examination of Ms. Holly Brant of the Canada Revenue Agency on her affidavit that is included in the Crown’s record. The Fund argued that these passages establish that in each of the years in which the Fund had no involvement with the Canadian Humanitarian Trust donation program, the Fund typically received donations of several millions of dollars and that those donations were distributed in amounts of a few thousand dollars to a number of needy recipients.

[8]          I am prepared to accept that the evidence establishes these assertions as facts. However, these facts are largely historical and, in and of themselves, do not establish that the Fund will suffer irreparable harm if the Crown is permitted to proceed with the revocation of the registration of the Fund as a registered charity.

[9]          The Fund further contends that the inability to issue official donation receipts that will flow from such a revocation will, of necessity, result in it receiving fewer donations. While this proposition appears sensible, accepting it as a proven fact does not necessitate the conclusion that the Fund will suffer any harm at all from the receipt of a smaller amount of donated funds. In my view, the record before the Court contains nothing that would indicate how or why the receipt of donations smaller in amount than those previously received by the Fund would cause any harm to the Fund that could be considered to be irreparable.

[10]        The pattern of the Fund is to disburse the funds it receives from donations in relatively small amounts, presumably to a relatively large number of recipients. If the Fund receives less money from donations, it would appear that the Fund would only be able to disburse the smaller amounts received, presumably to a smaller number of recipients. In my view, these circumstances, even if they were established, would not constitute compelling evidence of irreparable harm to the Fund.

[11]        I note that the record contains no evidence of the current financial position of the Fund. Such evidence might have disclosed the presence or absence of liquid and fixed assets, as well as obligations to provide funding for on-going charitable programs of a size that might be affected by the receipt of smaller amounts of donations. In the absence of any evidence as to the current financial position of the Fund, I am unable to conclude that the receipt of donations at levels lower than those received by the Fund in prior years would have any impact upon the Fund, other than enabling it to distribute a smaller amount of money to needy persons.

[12]        For these reasons, I conclude that the Fund has failed to establish that it will suffer irreparable harm if the requested order is not granted. It follows, in my view, that the failure of the Fund to establish this element of the RJR-MacDonald test leads to the conclusion that the application must be dismissed.

Balance of Convenience
[13]        Because the Fund has failed to persuade me that the irreparable harm element of the test has been met, I am not required to consider this element of the test.

DISPOSITION
[14]        For the foregoing reasons, I am of the view that all of the elements in the RJR-MacDonald test have not been satisfied and, accordingly, the application for the requested order should be dismissed, with costs.


“C. Michael Ryer”
J.A.

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD


DOCKET:                                                    A-38-08

STYLE OF CAUSE:                                          Choson Kallah Fund of Toronto
                                                                                              Applicant
                                                                v.

                                                                The Minister of National Revenue
                                                                                            Respondent

PLACE OF HEARING:                                      Ottawa

DATE OF HEARING:                                      October 7, 2008

REASONS FOR ORDER BY:                              Ryer J.A.

DATED:                                                      October 17, 2008


APPEARANCES:

Robert McMechan FOR THE APPLICANT

Joanna Hill
Wendy Burnham FOR THE RESPONDENT



SOLICITORS OF RECORD:

Robert McMechan
Ottawa, Ontario
FOR THE APPLICANT

John H. Sims, Q.C.
Deputy Attorney General of Canada FOR THE RESPONDENT

———

HERE IS THE INTERNATIONAL CHARITY ASSOCIATION NETWORK CASE


Date: 20080402

Docket: A-574-07

Citation: 2008 FCA 114

Present:      SHARLOW J.A.


BETWEEN:

INTERNATIONAL CHARITY ASSOCIATION NETWORK

Appellant

and

THE MINISTER OF NATIONAL REVENUE

Respondent

Dealt with in writing without appearance of parties.

Order delivered at Ottawa, Ontario, on April 2, 2008.

REASONS FOR ORDER BY:                                                      SHARLOW J.A.

 

Date: 20080402

Docket: A-574-07

Citation: 2008 FCA 114

Present:      SHARLOW J.A.

BETWEEN:

INTERNATIONAL CHARITY ASSOCIATION NETWORK

Appellant

and

THE MINISTER OF NATIONAL REVENUE

Respondent

REASONS FOR ORDER

SHARLOW J.A.

[1]          International Charity Association Network (ICAN) is registered as a charity under the Income Tax Act, R.S.C. 1985, c. 1 (5th supp.). The Minister of National Revenue has given ICAN a notice dated December 3, 2007 pursuant to subsection 168(1) of the Income Tax Act of his intention to revoke ICAN’s registration as a charity. That revocation will be completed if the Minister publishes a revocation notice in the Canada Gazette. ICAN has filed a notice of objection to the notice of intention to revoke ICAN’s registration. Before me is a motion by ICAN under paragraph 168(2)(b) of the Income Tax Act for an order requiring the Minister to defer publication of the revocation notice until the determination of ICAN’s pending objection and any subsequent appeal under subsection 172(3) of the Income Tax Act.

[2]          The notice of intention to revoke ICAN’s registration followed an audit of ICAN covering the years 2001 to 2006. Part of the factual basis for the notice is set out in an affidavit filed on behalf of the Minister in this motion. Although ICAN disputes some of the Minister’s factual allegations, it did not cross-examine the deponent of the affidavit submitted on behalf of the Minister.

[3]          I have reached no conclusion as whether the Minister’s allegations are true, except those that are undisputed. However, if they are true, it is arguable that they provide a prima facie justification for the Minister’s decision to revoke ICAN’s registration. I will mention some of the Minister’s allegations to illustrate this point.

[4]          The Minister alleges that in 2006, ICAN issued charitable donation receipts totalling approximately $464 million.  ICAN does not dispute that allegation. The Minister alleges that is almost five times the total charitable donation receipts issued by United Way of Greater Toronto in the same year, although ICAN had only 16 employees in Ontario, compared to 165 full-time and 43 part-time employees of United Way of Greater Toronto. The Minister also alleges that ICAN failed to provide the auditor with evidence that it has carried on its charitable activities on the scale on which claims to operate. In addition, the Minister alleges that ICAN has actively participated in tax shelter schemes that resulted in ICAN receiving property for which tax receipts were issued in amounts far in excess of the value of the property.

Test to be applied

[5]          I accept the submission of ICAN that the determination of a motion to defer the revocation of a charity pending an objection or appeal should be determined on the basis of the principles that have been developed for interlocutory stays or injunctions: RJR – MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311.

Arguable case

[6]          The material filed by ICAN in support of its motion sets out a number of issues it has raised or will raise in its objection and appeal. The Minister properly concedes that ICAN’s arguments are not frivolous or vexatious. As I read RJR – MacDonald, the Minister’s concession is sufficient to establish the existence of an arguable case.

Irreparable harm

[7]          ICAN argues that the immediate revocation of its status as a registered charity would stop it from continuing its charitable programs. However, the factual basis for that argument is not clear. It is not and cannot be suggested that the revocation will deprive ICAN of its assets or its legal right to continue with its charitable programs.

[8]          ICAN’s submissions are based on the premise that the revocation of ICAN’s registration as a charity would have the result of precluding it from issuing further charitable donation receipts and therefore will make its fundraising efforts ineffective. However, in the absence of financial information about ICAN, it is impossible to determine whether ICAN has resources available to it to carry out its charitable programs. There is no evidence, for example, that ICAN has fully utilized the $464 million in donations it claims to have received in 2006.

[9]          ICAN’s submission on irreparable harm is weakened by the fact that it does not now have the right to issue charitable donation receipts. That right was suspended by the Minister on November 21, 2007 pursuant to paragraph 188.2(2)(a) of the Income Tax Act. ICAN applied to the Tax Court of Canada for a postponement of the suspension, but without success (2008 TCC 3). ICAN’s appeal from that decision is unlikely to be heard before the fall of 2008. Therefore, even if the revocation of ICAN’s registration is deferred, the Minister’s suspension of ICAN’s right to issue charitable donation receipts will remain in effect until at least the fall of 2008 or, at the latest, November 28, 2008. Therefore, the most that ICAN can achieve by obtaining the order it now seeks is to regain the right to issue charitable donation receipts some months from now. However, the information provided by ICAN in support of its motion does not address any proposal or plan for future fund raising activities to be undertaken by ICAN. Therefore, there is no basis for concluding that ICAN will suffer irreparable harm at that time if the revocation of its registration is not deferred.

[10]        In summary, my review of the record discloses no basis for concluding that ICAN will suffer irreparable harm from the loss of receipting privileges after the termination of the Minister’s suspension. For that reason, I will dismiss the motion to defer publication of the revocation notice.

Balance of convenience

[11]        Even if I had found irreparable harm, I would have concluded that the balance of convenience in this case favours the Minister.

[12]        The Minister takes the position, properly in my view, that the public has a legitimate interest in the integrity of the charitable sector. It is reasonable for the Minister to attempt to safeguard that integrity by carefully scrutinizing tax shelter schemes involving charitable donations of property and, where there are reasonable grounds to believe that the property has been overvalued, by taking appropriate corrective action. In the circumstances of this case, the Minister’s factual allegations, while untested, are sufficiently serious to outweigh any advantage ICAN might derive from an order deferring the revocation of its registration as a charity.


“K. Sharlow”

J.A.
FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD


DOCKET:                                                    A-574-07

STYLE OF CAUSE:                                        INTERNATIONAL CHARITY ASSOCIATION NETWORK v. THE MINISTER OF NATIONAL REVENUE    

MOTION DEALT WITH IN WRITING WITHOUT APPEARANCE OF PARTIES

REASONS FOR ORDER BY:                              SHARLOW J.A.

DATED:                                                      APRIL 2, 2008

WRITTEN REPRESENTATIONS BY:

A Christina Tari

Evelyn R. Schusheim
FOR THE APPELLANT

Justine Malone
FOR THE RESPONDENT

SOLICITORS OF RECORD:

Richler and Tari

Toronto, Ontario

Cummings, Cooper, Schusheim, Berliner

Toronto, Ontario

FOR THE APPELLANT


John H. Sims, Q.C.

Deputy Attorney General of Canada

Ottawa, Ontario


FOR THE RESPONDENT


 

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