On October 5, 2007, the Supreme Court of Canada unanimously upheld a Federal Court of Appeal’s decision by stating that an Ontario amateur youth soccer association did not qualify as a registered charity within the meaning of subsection 248(1) of the ITA. Writing for the majority in A.Y.S.A. Amateur Youth Soccer Association v. Canada (Revenue Agency), Justice Marshall Rothstein concluded that although some sports organizations, other than registered Canadian amateur athletic associations, might be found to be charities under the common law, the appellant did not qualify for charitable registration because its purposes and activities were not charitable. The majority judgment confirms the existing common law with respect to the determination of what is charitable in the context of sports organizations, indicating that recognition of an organization, such as the appellant, would result in a significant change to the common law beyond the incremental changes mandated by the jurisprudence and would be best left to Parliament.

The SCC’s decision does not establish any new principles of law. Instead, it merely confirms the existing common law as it relates to the question of whether particular sports organizations may be recognized as registered charities. Unlike the Federal Court of Appeal decision, the majority decision leaves open the possibility that a sports organization may become registered as a charity, provided that sport is ancillary to another recognized charitable purpose. However, this possibility is nothing more than a statement of what is already clearly recognized in practice, since any activity by a charity will be acceptable if it is a means of achieving a recognized charitable purpose. The real issue is whether sport in and of itself can be seen as a charitable purpose at common law under the fourth head, which the court ruled it cannot.

The Court also reaffirms the view that any significant changes to the definition of charity will need to come from Parliament, a clear indication that the SCC has no interest, particularly in light of the facts before it in this case, to be interventionist in this regard. As such, the issue of reform to the definition of charity will need to change forum from the courts to Parliament, given the limitations of what the SCC is prepared to do.

Promotion of “ethical tourism” not considered charitable

On May 3, 2007, the SCC dismissed the application for leave to appeal by the appellant in Travel Just v. Canada Revenue Agency, 2006 F.C.A. 343. On October 24, 2006, the FCA had released its decision in this case, representing an important decision concerning what is considered to be charitable at common law. This case involved the refusal by CRA to register a charity with the object “to create and develop model tourism development projects that contribute to the realization of international human rights and environmental norms.” The FCA concluded that the organization’s objects were “vague and subjective” and were not sufficiently analogous to purposes already recognized by the Courts under the fourth category of charity: other purposes beneficial to the community. In addition, the language left open the possibility of the organization’s financing and operating luxury holiday resorts, activities with a strong commercial and/or private benefit aspect. The FCA also indicated that there was no evidence of a connection with Québec, noting that the issue of whether an organization is charitable for the purposes of the ITA is likely a public law concept, rendering the private law of Québec irrelevant, thus avoiding a decision on this issue.

Supreme Court of Canada decision permits judicial interference in religious disputes

In a 7-2 decision released on December 14, 2007, the SCC has held that the failure to perform a religious obligation may give rise to civil damages. In Bruker v. Marcovitz, the Court upheld a decision of the Quebec Superior Court ordering a Jewish husband to pay $47,500 in damages to his ex-wife for withholding his consent to a religious divorce, or a get, despite his having contractually agreed to do so 15 years earlier.

Madame Justice Abella, writing for the majority, concluded that the agreement to give a get was a valid and binding contractual obligation under Québec law. Although moral obligations are traditionally not enforceable under contract law, Justice Abella held that “there is nothing in the [Quebec] Civil Code preventing someone from transforming his or her moral obligations into legally valid and binding ones.”

Justice Abella did not accept the husband’s argument that he should not be compelled to provide the get as doing so would violate his freedom of religion. On the contrary, the Court held that “any harm to the husband’s religious freedom in requiring him to pay damages for unilaterally breaching his commitment is significantly outweighed by the harm caused by his unilateral decision not to honour it.” In coming to this conclusion, Justice Abella noted that withholding the get infringed the equality rights and dignity of Jewish women by denying them independence and the ability to divorce and remarry. As a result, the husband could not rely on the Quebec Charter to avoid the consequences of his legal commitment to provide the get, and the wife’s appeal was allowed.

Although the outcome was equitable in the circumstances, the Court’s analysis of religious freedom issues in the case raises a number of challenging and troubling issues for religious institutions and their members. Of particular concern was the Court’s statement that its role under the Canadian Charter of Rights and Freedoms is to “ensure that members of the Canadian public are not arbitrarily disadvantaged by their religion.” This foray into the forum of religious doctrine and practice is alarming and represents a significant shift from the Court’s traditional role of remaining neutral towards such matters. In the words of Justice Deschamps, who wrote for the two dissenting justices in this case, such interference was improper and “it is not up to the state to promote a religious norm”; that is a role that should be “left to religious authorities.”

It remains to be seen how this decision will be interpreted in future cases. It may be limited in application to its own facts, and may only be employed to impose liability where a party contracts to fulfil a religious obligation. On the other end of the spectrum, it may be interpreted more broadly to justify further judicial interference with religious practices. It would seem that the majority’s reasons would certainly grant lower courts the flexibility to employ the latter approach, a development which should be of concern to people and communities of faith in Canada.

Non-compliance results in court-ordered windup of not-for-profit corporation under the Corporations Act (Ontario)

In a judgment released on October 3, 2007, the Ontario Superior Court of Justice ordered that a church, incorporated by letters patent pursuant to the Corporations Act (Ontario), be wound up for various statutory breaches. The decision in Warriors of the Cross Asian Church v. Masih assists in explaining the application of the Act with respect to not-for-profit corporations. Specifically, this decision attempted to clarify some confusion, which was borne out in the case law, as to the level of deference afforded to not-for-profit corporations with respect to the technical corporate procedure requirements for meetings as set out under the Act. Where an error is technical in nature and does not affect the results of an election of directors or some other serious corporate matter, some leniency may be afforded to the not-for-profit corporation. However, where the error goes to the heart of an important corporate matter, such as the election of directors in this case, then it appears that the courts will demand that the internal workings of the not-for-profit corporation strictly adhere to the requirements of the Act. Where this cannot be, or has not been, achieved, particularly where the original incorporators are no longer part of the said not-for-profit corporation, the courts will invoke their discretion to dissolve a non-share capital corporation outright.

What constitutes a service available to the public under BC human rights legislation

On January 11, 2007, the British Columbia Court of Appeal released its decision in Buntain et al. v. Marine Drive Golf Club. Marine Drive Golf Club and a group of its members and their guests were in dispute with respect to a resolution passed by the Golf Club’s board of directors preventing females from having the ability to enter or use the "men's lounge" located in the golf club. The members filed a complaint to the British Columbia Human Rights Coalition alleging that the golf club, a private club and nonprofit society for the purposes of the ITA, and its board of directors had discriminated against them, contrary to the British Columbia Human Rights Code, on the basis of their sex and sexual orientation. The court was asked to determine whether this discrimination fell under the jurisdiction of the Service Provision in the Code, section 8, which prohibits discrimination against a person or class of persons regarding any “accommodation, service or facility that is customarily available to the public”. The Human Rights Tribunal found that the commercial service of providing food and beverage and access to the men's lounge were customarily available to the public of the golf club and thus it was within the jurisdiction of the Tribunal to find that discrimination had taken place.

The Supreme Court of British Columbia and subsequently the British Columbia Court of Appeal disagreed with the Tribunal and held that those services were not customarily available to the public. The Supreme Court of British Columbia held that while the golf club may lack control over all of the users of its service, as a private club, with a formal membership selection process, the relationship between the golf club and those users remains a private relationship and thus, the golf club and the men's lounge were not services customarily available to the public and accordingly were not subject to the scrutiny of the Service Provision in the Code. The members were denied leave to the SCC on June 28, 2007 without reason.

CRA audits of registered charities

The SCC granted the appellant’s application for leave to appeal in Redeemer Foundation v. Minister of National Revenue, 2006 D.T.C. 6712 on May 10, 2007 and agreed to hear it early in 2008. In this case, the FCA considered the process CRA must follow to obtain the names of donors during the course of an audit of a registered charity. Initially, the Federal Court declared that the actions of the CRA, in verbally requesting donor information from a charity being audited and using that information to contact donors and advise them that their donation tax credits were being disallowed and that they would be reassessed, were unlawful. The FC ordered that the reassessments of the donors be vacated. This decision was overturned by the FCA on the basis that there were other provisions, in addition to the process provided for in subsection 231.2(2) of the ITA requiring prior judicial authorization, which allowed the auditor to make the request that he did and to use that information for the purposes of subsequent tax assessments. Specifically, subsection 231(2) of the ITA requires charitable organizations to maintain certain records, including duplicates of all receipts, and section 231.1 of the ITA authorizes an auditor to examine the organization’s books and records. The FCA concluded that if an auditor is entitled to obtain the information and compile the list of donors by his own examination of the books and records of the organization, there is no reason for the auditor to have to resort to the process established in subsection 231.2(2) of the ITA.

Non-share capital corporations must interpret bylaws fairly, reasonably and in good faith

On July 7, 2007, the Ontario Divisional Court dismissed an appeal from the Ontario Superior Court’s judgement in Chu v. Scarborough Hospital Corp. This case involved a dispute between an annual member of the Scarborough Hospital, and the Hospital’s board of directors. The trial decision canvassed a number of provisions of the OCA pertaining to the interpretation of bylaws, the calling of special meetings, classes and terms of membership, and the Hospital’s governance structure.

The trial and appeal decisions echo the growing trend in case law which insists that charitable and not-for-profit organizations comply with corporate governance procedures as set out in their governing statutes, constating documents and bylaws. It is essential that such compliance be conducted in a manner which is reasonable, fair and in good faith. Furthermore, the court decisions indicate that control over such governance procedures is to be shared among the directors, officers and voting members, not centred in the hands of a few people acting on their own accord. The Divisional Court has reaffirmed earlier case law that a corporation, as well as the individuals who become members, which would include directors, have entered into an implicit contractual obligation to comply with the constating documents and bylaws of the corporation.

Corporations’ right to regulate qualifications of directors

Although courts have traditionally expressed reluctance to interfere in the internal affairs of associations and clubs, in Rakowski v. Malagerio (2007), 84 O.R. (3d) 696 (Sup. C.J.), a judge of the Ontario Superior Court of Justice concluded, in a decision released on February 1, 2007, that the court has jurisdiction to intervene in the affairs of an incorporated student federation in order to determine if a policy prohibiting members of other student associations or student advocacy groups from serving on the board of directors was unreasonable, discriminatory, inconsistent with the objects of the corporation, contrary to the Canadian Charter of Rights and Freedoms and the OCA, and passed in bad faith. The court concluded that since the impugned policy was enacted to prevent conflicts of interest, it was neither objectionable on its face, nor was it discriminatory, contrary to public policy or public interest and did not interfere with Charter rights.

Concluding comments

2007 brought a number of significant changes to the area of charity law which will be of particular concern for the directors and officers of charities, as well as for their legal counsel. The number of legislative changes, CRA policy initiatives and CRA rulings that have occurred during 2007, as well as the release of numerous significant decisions from the courts, underscore how complicated the law pertaining to charitable organizations has become in Canada. It is therefore important for practitioners in this area to keep abreast of developments in the law as they occur.


This bulletin was written by Terrance Carter of Carters Professional Corporation, tcarter@carters.ca, and M. Elena Hoffstein of Fasken Martineau DuMoulin, ehoffstein@fasken.com, and can be found at www.carters.ca/pub/bulletin/charity/2008/chylb131.pdf.