Oct 2022 Charity & NFP Law Update
In instances of public/private partnership where the latter entity is a registered charity, determining what constitutes a gift under the Income Tax Act (“ITA”) can get murky. On October 5, 2022 the Tax Court of Canada heard Leduc Society for Christian Education et al. v The King, a determination under rule 58 of the Tax Court of Canada Rules, wherein the line between a gift to a charity and an enrollment fee for a religious school was considered.
The Appellants are a group of registered Christian education charities based in Alberta, who all operate publicly funded Christian schools (the “Schools”). Under the prior (School Act) and current education regime (Education Act) in Alberta, school boards are permitted to offer alternative education programs (called “education programs” under the School Act). Fees can be charged to the parents of children enrolled in these programs, but only for non-instructional costs.
The Schools collected fees (“Christian program fees”) from the families of students and issued official tax receipts for 100% of the fees. The Minister of National Revenue brought penalties against the Appellants under subsection 188.1(7) of the ITA in relation to this practice.
In this determination, the court considered two questions: were the fees optional, and did the parents expect a benefit in consideration for their payment?
The argument of the Applicants was that the enrolment of children into the program and the paying of the Christian education fees were both optional, and therefore, there was no consideration of benefit to the donor. The Crown argued “that payment of the fees was a contractual condition of enrolment.”
The court found that the payment of the fees was a condition of student enrolment, and therefore could not be found as a gift under the ITA. The fact that fees were often waived for those who had not paid were discretional decisions made by the Appellants. The court said, “I believe that the relationship between the appellants and parents of children enrolled in the alternative Christian program was contractual and non-payment of fees would likely be legally enforceable unless waived by the appellants.”
On the second question, the Appellants argued that the value of a religious education is subjective and cannot be considered objective consideration. The Crown argued that the additional religious curriculum was of clear material benefit to the children and their parents.
The court looked at the enabling education legislation, noting that it allowed public schools to collect fees to support education programs, and determined that this is what the Appellants were doing in their collection of fees. This opinion was supported by examining the registration materials of the Appellant Schools, which stated that the fees were used to support the Schools and their programs. For these reasons, it was determined that there was “a tangible benefit in return for the fees paid”.