Federal Court of Appeal Hears Case on Direction and Control

On May 26, 2015, the Federal Court of Appeal heard the appeal in Public Television Association of
Québec v Minister of National Revenue. The primary issue in this case is whether the Public Television
Association of Québec (the “Appellant”) retained a sufficient degree of direction and control over its
resources when it transferred funds to Vermont Public Television (“VPT”), an American television station
that broadcasts in southern Québec, or acted as a conduit for Canadian donations to VPT. The decision in
this case has been reserved, but the written arguments (factums) of the parties and the Intervener, Imagine
Canada, are publically available by contacting the court.
The Appellant is a not-for-profit corporation formed for the purpose of advancing education through the
production, distribution, and promotion of non-commercial, educational television programming. It has
been a registered charity since September 21, 1990. On August 23, 2011, the Appellant received a Notice of Intention to Revoke, following an audit for the fiscal period of June 30, 2005 to June 30, 2006. However,
the question of adequate direction and control was not raised until April 4, 2013, in the response to the
Appellant’s Notice of Objection, which had been filed on November 11, 2011.
In its factum, the Appellant submits that it has produced to Canada Revenue Agency (“CRA”) convincing
evidence, including agreements, minutes of directors meetings and bank statements to demonstrate that it has direction and control over the funds it raises, choice of programs broadcast by VPT and that it pays a fair price for the programming it purchases through VPT. The Appellant also presents arguments based on the Canada-US Tax Convention that the transfers to VPT should also be treated as gifts to a registered charity. CRA in its responding factum sets out facts to support its position that the Appellant is simply acting as a conduit for receipting purposes for VPT in Canada.
Charity lawyers will be particularly interested in the factum of the Intervener, Imagine Canada. It reflects a carefully crafted argument that CRA’s Guidance CG-002, Canadian Registered Charities Carrying out Activities Outside Canada and its predecessors misinterpret the law on which they are based. Imagine Canada argues that the Federal Court of Appeal decisions upon which CRA relies do not require written agreements between the Canadian charity and foreign intermediary but only that the charity be able to provide a sufficient account of how its resources are used by the intermediary in light of the particular context and operational realities and that the charity have a “reasonable expectation” that the resources be used only for charitable purposes. Imagine Canada concluded that the CRA Guidance “is so narrowly and erroneously drafted that charities should not reasonably be expected […] to rely on [it].”
Given the arguments presented in the factums, the decision by the Federal Court of Appeal in Public
Television Association will invariably be an interesting decision to read and one that lawyers and charities
that operate outside of Canada will want to carefully study.