The Federal Court of Appeal (FCA) recently dealt with a case called The Millennium Charitable Foundation (The Millennium Charitable Foundation vs. MNR 2008 FCA 414). In The Millennium Charitable Foundation case the law firm of Miller Thomson LLP, which represented the Foundation, apparently stated or inferred that the Foundation was a “legitimate charity”. I am not sure exactly what a “legitimate” charity is, it certainly is not a defined term in the Income Tax Act, but I think it is worth considering whether The Millennium Charitable Foundation is a “legitimate charity”.
The Court noted in its judgement:
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”.
Here is what CRA had to say in their recent press release:
On April 2, 2008, the Minister of National Revenue issued a notice of intent to revoke the charitable registration of The Millennium Charitable Foundation, in accordance with subsection 168(1) of the Income Tax Act. The letter stated, in part, that:
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.
It is our position that the Charity has operated for the non-charitable purpose of promoting a tax shelter arrangement and for the private benefit of the tax shelter promoters. The Charity has issued receipts for transactions that do not qualify as gifts, issued receipts otherwise than in accordance with the Income Tax Act and its Regulations, has failed to maintain sufficient books and records to support its activities and has used its income for the personal benefit of its trustees. For all of these reasons, and for each of these reasons alone, it is the position of the CRA that the Charity’s registration should be revoked.
I looked for a website on The Millennium Charitable Foundation but could not find one. I wanted to know is this a legitimate charity? Is CRA getting this wrong?
Now if a lawyer goes to court and says all sorts of wonderful things about their client I think we have come to think of that as par for the course. Lawyers aggressively defending their clients rights in court is not a new concept.
Then in February 2009 a lawyer from Miller Thomson LLP wrote an article entitled “CHARITABLE REGISTRATION REVOCATION PROCESS: RECENT TRENDS” in the Miller Thomson LLP Charities Newsletter February 2009. The article states:
Over the past year, the Canada Revenue Agency (“CRA”) has adopted an aggressive and quite disconcerting approach to the charitable registration revocation and appeals process. Put simply, where CRA believes that a charity has committed a sufficiently serious violation of its obligations under the Income Tax Act (the “Act”), CRA will now impose sanctions, including revocation, without permitting the charity to exercise its statutory rights of objection and appeal under the Act. Also unfortunate are three recent decisions of the Federal Court of Appeal, all of which have refrained from intervening to prevent CRA from doing this.
The Miller Thomson newsletter also notes:
The result of these decisions is that CRA now appears willing to revoke immediately in “serious cases,” without allowing a charity to exercise its appeal rights, and the Federal Court of Appeal will not prevent this. Thus far, CRA has taken this approach only where the charity in question was involved in tax shelter arrangements which CRA believed were abusive. However, this approach could potentially be taken against any charity, and it remains to be seen whether CRA will broaden this approach. While we are hopeful that future decisions will reverse this trend, pro-active compliance by charities becomes all the more vital in the face of this new aggressive approach by CRA, as it can no longer be assured that a charity will be able to exercise its full appeal rights before being penalized for alleged non-compliance.
The article does not name the cases which I am assuming are Choson Kallah Fund of Toronto v. MNR, International Charity Assn. Network (ICAN) v. MNR, and Millennium Charitable Foundation v. MNR.
Lawyers advocating a position in their newsletter also is not a new concept.
What I found interesting was that the article does not mention to the readers of the newsletter that two of the lawyers from their firm, Andrew J. Roman and Robert Hayhoe, attended on behalf of The Millennium Charitable Foundation in one of the three unsuccessful and “unfortunate” injunction applications? Should a lawyer writing about a case mention that their law firm was involved with arguing the case? Should a reader be made aware of that fact?
Then in April, Miller Thomson reprinted this article or a similar version again in their business newsletter this time. They however added before most of the article “Miller Thomson Analysis” perhaps implying that the analysis is that of Miller Thomson law firm, not just the particular author. The newsletter can be obtained at http://www.millerthomson.com/docs/Recent_Developments_-_Business_Law_in_Ontario_Winter_2009.pdf and the short article is on page 9.
Why should anyone care what Miller Thomson has to say in court or out of court in their newsletters? Well Miller Thomson is one of the largest Canadian law firms, with probably one of the largest charity law sections of any law firm, and one of the most involved in lobbying and government relations of any Canadian firm. Much of that lobbying and government relations takes place on behalf of Canadian non-profits and charities and covers such issues as what regulations of charities and fundraising there should be, what controls should be placed on Canadian charities operating outside of Canada, what is the definition of charity, etc. In addition, Miller Thomson is involved with many boards of directors of charities and governmental committees.
When Miller Thomson goes to court arguing that a charity should not lose its status because it is “legitimate” that is certainly interesting. When it mounts an increasingly public campaign to stop CRA from revoking a few (3 to be exact) very abusive registered charities that are involved with issuing about a billion dollar in receipts that is in my mind even more interesting. When it does so and does not mention its own involvement with the case that causes me some concern. When it tries to enlist non-profits and charities in its ideological fight with the Charities Directorate and tries to attach the goodwill of the charity sector to their client, The Millennium Charitable Foundation, I am very concerned.
If the Millennium Charitable Foundation is a “legitimate” charity then I think that the charity sector is going to be having a lot more problems than anything I could ever imagine. Remember the sector gets about half of its revenue from governments. Earned income/memberships and donations make up the rest. Governments are spending money (going into deficit) but they have many different groups competing for those funds and the very positive reputation of the charitable sector is an important part of the charitable sector getting more resources to deal with the great challenges facing many charities and their beneficiaries and clients. Also, if the public’s perception is that charities think that the Millennium Charitable Foundation is a “legitimate” charity I think many donors may decide to pass next time a charity rings. In these difficult economic times I think it is important that charity sector, charity subsector representatives, and charities, especially those who have close relationships with Miller Thomson, make it crystal clear to the public that the views of Miller Thomson are the views of Miller Thomson.
By the way if you are a donor or volunteer with a charity, and just happen to read this article, I can assure you that there are many wonderful and legitimate charities out there that are deserving of support and assistance. There are probably only a handful of the 83,000 who are, or are very involved with, abusive tax avoidance schemes but unfortunately those handful of really bad charities issue about 10% of the value of tax receipts in Canada. I think it is important to call a spade a spade and the charitable sector will be stronger for it.
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
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.