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| Ryan Prendergast |
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| Urshita Grover |
The Canada Revenue Agency (CRA) audited the appellant’s activities in 2010 and 2011, discovering several areas of noncompliance, such as the appellant’s failure to devote its resources to charitable activities and providing private benefits to its members. The appellant entered into a compliance agreement with the CRA, but a further audit in 2017 found the appellant’s noncompliance with the aforementioned issues, in addition to new areas, which included making gifts to nonqualified donees and transferring funds to an American organization without direction and control.
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First, the court found no palpable and overriding error in the minister’s finding that the appellant provided private benefits to its members through scholarships, which were not available to the public. While the organization argued that the scholarships were “open to all male university students eligible to apply for Sigma Chi membership,” they were only awarded to recipients who joined the fraternal organization. Further, at the time of registration, the appellant’s stated purpose of funding education initiatives did not mention restrictions to those within the organization but, as of May 2023, its website indicated that these funds were “primarily for the benefit of Active Chapters and Active brothers.”
Second, the court found no reviewable error in the minister’s finding that the appellant provided funds to nonqualified donees by making loans to Sigma Chi fraternity housing corporations, which exist to provide housing to the organization’s members. The appellant also breached the compliance agreement by failing to obtain security for its loans to London Sigma Chi Properties and making a further advance to London Sigma Chi Properties.
Third, there was also no reviewable error in the minister’s conclusion that the appellant failed to maintain direction and control over a scholarship program, which it partially funded, but was administered in the United States The organization did not have direction and control over the funds it contributed, given, among other things, that the appellant only had one of the eight seats on the governing board and only two of 16 seats on the selection committee.
Finally, the court did not find any reasonable apprehension of bias or deprivation of procedural fairness in the minister’s decision. The appellant alleged that the minister’s actions suggested bias because she treated the appellant differently from other organizations with similar scholarship practices, including the University of Toronto, which limited eligibility to particular colleges at that institution, as an example. However, the court held that precedent indicates that the benefits others receive from an exemption are not pertinent, and the evidence presented did not sufficiently support meaningful comparisons.
Furthermore, the court rejected the appellant’s claim that the minister’s refusal to consider its offers to implement corrective measures had raised a reasonable apprehension of bias. The appellant had been given three formal chances to address the issues raised, which were taken seriously and thoroughly reviewed by the minister before concluding that the appellant was not entitled to continue negotiating further corrective measures, particularly due to the organization’s failure to fulfill its obligations under the compliance agreement.
As such, this case underscores the importance for registered charities that have entered into a compliance agreement to be very careful to ensure they are compliant, as CRA is likely to conduct a followup audit. In addition, given the highly deferential standard of review granted to the minister’s decisions by the FCA, registered charities face a significant challenge in convincing the court that the CRA has made a palpable and overriding error in relation to audit decisions. Therefore, registered charities should take proactive measures to ensure compliance with the statutory requirements of the ITA to mitigate the need for appeals of decisions made by CRA to the FCA where the registered charities are likely to lose.
Ryan Prendergast is a partner and Urshita Grover is an associate at Carters Professional Corporation.
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