By Ryan M. Prendergast

The Federal Court of Appeal dismissed an appeal by Human Concern International (HCI) from a decision of the Tax Court of Canada, in which HCI was asking for a postponement of its one-year suspension of receipting privileges. In the March 2, 2022 decision of Human Concern International v Canada, the Federal Court of Appeal issued a brief, 11-paragraph decision dismissing the appeal and upholding the Tax Court of Canada’s original decision.

The CRA initiated an audit of HCI in 2014 for the two fiscal years from April 1, 2011 to March 31, 2013. Following the audit, the CRA sent a letter to HCI proposing to revoke its charitable registration. HCI responded to the audit findings in 2018. Three years passed, with the CRA ultimately deciding to impose a penalty and suspend HCI’s ability to issue charitable receipts for one year, after concluding that HCI was involved in making false charitable tax receipts.

In response, HCI filed a notice of objection with the CRA regarding the conclusions drawn in the audit and applied to the Tax Court of Canada for a postponement of the suspension pursuant to subsection 188.2(4) of the Income Tax Act. According to subsection 188.2(5) of the Act, the Tax Court of Canada may only grant an application for postponement where “it would be just and equitable to do so.” The court applied the principles set out in RJR-Macdonald Inc. v. Canada and found that HCI failed to establish that irreparable harm would result if their application were not granted or that the balance of convenience favoured granting the application. As a result, the court dismissed HCI’s application.

HCI then appealed to the Federal Court of Appeal. The court briefly commented that there was a threshold question of whether it actually had any jurisdiction to hear the appeal since section 27 of the Federal Courts Act does not provide it with authority to hear appeals from certain types of interlocutory proceedings. However, the court made no determination on the matter since it dismissed the appeal on other grounds, namely that HCI had “not raised any error that would warrant this Court’s intervention.”

This case, while brief, highlights that one of the most important stages in challenging the results of a CRA audit is to robustly respond to the CRA’s initial audit findings. Charities may face an uphill battle in requesting a court, either through the Tax Court of Canada or the Federal Court of Appeal depending upon the penalties or sanctions imposed, to postpone the application of a penalty, given the high threshold of proving that it would be “just and equitable.” While registered charities have rights to file a notice of objection from decisions of the CRA with respect to an audit, they may find themselves in a situation where the ability to issue receipts has been suspended or they are facing a large monetary penalty. As such, charities should ensure to respond to all of the CRA’s audit findings upon receipt of the CRA’s audit report.

​Read the March 2022 Charity & NFP Law Update