Aug 2019 Charity & NFP Law Update
On June 24, 2019, the Federal Court of Appeal released its decision in Many Mansions Spiritual Center, Inc. v MNR, upholding the Minister of National Revenue’s (the “Minister”) decision to revoke the charitable status of Many Mansions Spiritual Centre, Inc. (“Many Mansions”). The Minister’s decision was based on Many Mansions’ failure to comply with various requirements in the ITA, including failing to maintain adequate books and records; conferring a private benefit to its pastor; and engaging in activities inconsistent with its charitable object of “advanc[ing] and teach[ing] the religious tenets, doctrines, observances and culture associated with the Christian faith.”
Many Mansions relied on the Supreme Court of Canada decision in Highwood Congregation of Jehovah’s Witnesses (Judicial Committee) v Wall (reviewed in Church Law Bulletin No. 54) arguing that matters of religious doctrine had no place in government. However, the court pointed out that this decision stands for the principle that court intervention is warranted “where it is necessary to resolve an underlying legal dispute.” Further, the court held that the question of operating within its registered object is a relevant factor to a charity’s continued enjoyment of its charitable privileges, and found that the Minister neither exhibited bias, nor acted unreasonably by inquiring into this matter.
With regard to inadequate recordkeeping, the court agreed that Many Mansions failed to maintain adequate books and records, which is a “foundational” obligation from which flows significant privileges. As such, the court noted the decision in Humane Society of Canada for the Protection of Animals and the Environment v MNR, which held that the Minister “must be able to monitor the continuing entitlement of the charitable organization to those privileges.” The court held that it was open to the Minister in this case to conclude that Many Mansions’ non-compliance was serious and justified revocation, even in light of Many Mansions’ status as a new charity and its subsequent improvement efforts.
The court also held that it was reasonable for the Minister to revoke Many Mansions’ charitable status because it conferred private benefits to its pastor by providing him with an office and allowing the use of meeting rooms for his private business. The court did not agree with the submission by Many Mansions that the use of the office and meeting rooms was permissible because it was ancillary or incidental to the fulfilment of Many Mansions’ charitable purposes. Instead, the court held that while paragraph 149.1(6)(a) of the ITA permits charitable organizations to “carry on a related business without contravening the requirement to devote all its resources to charitable activities, the pastor’s private business does not come within this exception.” The court also noted that the Canada Revenue Agency (“CRA”) had warned Many Mansions when it applied for registration that using charitable funds for personal benefit was grounds for revocation.
Finally, the court did not find that this sanction of revocation was too severe, and the Minister was well within its authority to revoke. It therefore upheld the Minister’s decision to revoke Many Mansions’ charitable status.
This case serves as a reminder to registered charities of the importance of complying with their obligations imposed on them under the ITA. In particular, charities are reminded to ensure that their resources are devoted to charitable activities, no undue private benefits are conferred, and adequate books and records are maintained. The court specifically noted that newly registered charities are not exempt from compliance, in spite of subsequent improvement efforts upon an audit by the CRA. As well, it is also important for charities to pay special attention to the warning issued by the CRA upon charitable registration and failure to heed the warning could become a negative factor in future court reviews.