CRA letters to Christian Economic Assistance Foundation on reasons for revocation

October 18, 2015 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: News, What's New from the Charities Directorate of CRA, Canadian Charity Law

CRA recently revoked the Christian Economic Assistance Foundation.  Here are the revocation letters for Christian Economic Assistance Foundation.

Here are some excerpts from the CRA letters:

"School Support Program

The School Support Program is the main program ·of the Organization. The Organization provides grants to approximately 43 Christian schools, which are qualified donees. Each school wishing to participate in the program applies annually to the Organization for a grant. Funding can be approved by the Organization up to 35% of the school's total operating budget. Each school provides an application to the Organization to be approved. Once approved, the grant money is distributed to the schools on a monthly basis.

On the surface, providing grants to qualified donees by the Organization is a reasonable charitable activity, consistent with work normally performed by a charitable foundation. However, our audit findings have revealed that the whole intent of the School Support Program is to artificially reduce the after tax cost of tuition paid by parents with children attending the Christian schools.

The audit findings show that the source of the Organization's grant money is payments from parents, who have opted to split tuition payments into two streams, with one portion being paid to and retained by the schools, and another portion being remitted to the organization.FN4 (Under this arrangement, a· portion of the tuition fees that would normally be collected and deposited into the school's bank account is collected from the parents by the school's designated "Community Development Officer" and remitted to the Organization.) The donations received by the Organization from parents are then funnelled back to the schools, in the form of a grant (less a 1.5% administration fee retained by the Organization). Parents receive a donation receipt for 100% of the amount paid to the Organization, plus an augmented receipt for the portion of tuition paid directly to the schools. ...

As described in CRA Information Circular IC75-23, a portion of tuition payments to religious schools may be considered a charitable donation. for which donors may receive an official income tax receipt. The calculation of the receipted amount of a tuition payment factors in the operating cost of the school, as well as the cost per pupil. The Organization's grants. to the schools serve to artificially decrease the operating costs of the schools, thereby reducing the cost per pupil amount. This effectively increases the amount of the official donation receipt the parent receives from the school. 

The documents obtained and reviewed during the audit suggest the whole arrangement is merely a scheme to increase the amount of the official donation receipt to which parents are entitled, by manipulating the calculation of donation receipts received from the schools. 

Our audit findings reveal that the Organization will only fund the grant to the school, after the money has been received from the school. Grants are approved based on the school's annual applications however the total amount of the grant is paid out only when the fees are first received by the Organization from the school. The grants are paid back to the schools on a monthly basis. According to the Organization's representations during the audit, if all of the money the school committed to collect during the grant application process is not received in the year, the grant given back to the school is reduced by this amount. 

When a school becomes part of the Organization's School Support Program, they are required to provide their own "Community Development Officer" who is a volunteer to promote and explain the program to parents. An "Information Letter" is provided by the Organization to be distributed by the Community Development Officer to explain the program.  ...

When a school provides a payment to the Organization for tuition fees collected on the Organization's behalf, the school typically provides to the Organization a cover letter stating the total amount of the payment attached, as well as a listing of families making the current payment. ...

As part of the audit, the applications received by the Organization from the schools were reviewed, as well as the correspondence received from the schools when remittances were being made. The listings provided with these payments from the schools can be traced to the donation detail listing of the Organization. Tuition payments collected by the schools and remitted to the Organization as donations were receipted by the Organization for the full amount received. As above, these amounts were subsequently redirected back to the schools in the form of "grants" to artificially lower the cost per pupil calculation of the particular school. ...

The audit findings clearly indicate that the intention of the School Support Program is merely a tax scheme to artificially maximize charitable donation receipts received by parents for private school tuition fees by improperly characterizing tuition payments by parents as grants. This Program is intended to circumvent the requirements of the Act "to offset the impact of unfair Government policies".  Consequently, it is our position that the Organization fails to meet the legal requirement that it devote its resources exclusively to charitable activities in furtherance of charitable purposes. For this reason, it appears there may be grounds for revocation of the charitable status of the Organization under subsections 149.1(1) and paragraph 168(1)(b) of the Act.  ...

Conclusion:

The audit evidence clearly demonstrates that the schools have a set tuition fee. Provided that parents choose to participate in the School Support Program, part of the tuition is sent to the school directly, and the remaining tuition payable is paid to the Organization, which is then paid back to the schools in the form of a grant.

The School Support Program document describing the School Support Program including calculations showing the reduced cost per pupil and larger income tax receipt has been circulated by the Organization since 1996. It was reviewed during the current audit and the Organization confirmed that the program still operated as noted in the document. In addition, several Microsoft PowerPoint presentations describing the School Support Program and its tax effects can be found on the various school websites.

The Organization has operated its School Support Program with the same structure, for over twenty years. The parents do in fact receive a benefit, an additional donation credit for the cost of their child's tuition. In fact, increasing the tuition credit available to parents appears to be the clear intention of the program. In addition, these payments made to the Organization do not meet the definition of a gift, as the amount is not voluntary, but a required portion of the tuition payment. While participation in the program itself is voluntary, the total funds required to be paid by a parent for their child's tuition remains the same whether it is funded directly to the school, or in combination between the Organization and the school through the School Support Program.

The CRA also notes that the Charities Handbook published by the Canadian Council of Christian Charities is not authoritative. In addition, the calculations used by the Organization from this Handbook are not applicable to the Organization as audit evidence demonstrates that the schools being funded by the Organization do in fact have a set tuition fee. The CRA recognizes that the Organization has agreed to cease its School Support Program and Student Loan Programs and is willing·to work with the CRA by taking corrective measures with regards to its remaining non-compliance. However, due to the severity of non-compliance with regards to its programs, our position that the Organization fails to meet the legal requirement that it devote its resources exclusively to charitable activities in furtherance. of charitable purposes remains. For this reason, there are grounds for revocation of the charitable registration of the Organization under paragraph 168(1)(b) of the Act." 

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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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