A. INTRODUCTION
On July 25, 2013, Canada Revenue Agency (CRA) released the
very helpful and practical Guidance on How to Draft Purposes for Charitable
Registration (the Guidance). It updates and replaces various policy statements with one comprehensive document. The Guidance outlines CRA’s recommended
approach to drafting charitable purposes, and will benefit organizations that
are applying for registration as charities, as well as registered charities
wishing to change their existing charitable purposes. It is a companion piece
to the Model Purposes released by CRA at the same time, but will be
particularly helpful to those organizations with charitable purposes that don’t
fit neatly within the Model Purposes.
The Guidance confirms that CRA uses a “two-part test” to
assess an applicant’s eligibility for charitable status: 1) are its purposes
exclusively charitable and do they define the scope of its activities and 2)
subject to limited exceptions, does it devote its resources to charitable
activities that further these purposes? The Guidance also reiterates that the
applicant’s stated purposes must 1) be exclusively charitable in that they must
come within one or more of the four categories of charitable purposes
established by common law i.e. relief of poverty, advancement of education,
advancement of religion, or other purposes that are beneficial to the community
in a way that the law regards as charitable and provide a benefit to the public
or a sufficient segment of the public, and 2) “define the scope” of the
organization’s activities. The Guidance offers specific recommendations on how
charitable purposes should be drafted to meet these general requirements. This
Charity Law Bulletin focuses on the key elements of a charitable purpose, and
the Guidance’s examples of how to include these elements in drafting charitable
purposes.
B. THE THREE KEY ELEMENTS OF A CHARITABLE PURPOSE
The Guidance, in paragraph 9, identifies
the following three key elements that should be included in a charitable
purpose:
1. the charitable purpose category—to establish that the purpose falls within one of the four broad
categories of charity (for example, “to relieve poverty,” “to advance education,” “to advance religion,” or “to promote
health”)
2. the means of providing the charitable benefit—to define the scope of the activities that can be conducted to
directly further the purpose and ensure the provision of a charitable benefit
(for example, “by providing housing,” “by operating a school,” “by conducting
prayer services that advance the teachings of Islam,” or “by operating a
hospital”); and
3. the eligible beneficiary group—to ensure the charitable benefit is provided to the public or a
sufficient section of the public (for example, “for the poor” or “for the
general public”)
1. First Element - The charitable purpose category
If the purpose pertains to the first
three categories of charity, (relief of poverty, advancement of religion and
advancement of religion) this element can be easily met by using the wording of
the particular category e.g. “advancing education”, provided that it falls
within the category as defined below. For the fourth category, it would not be
sufficient to simply say for a purpose that is beneficial to the community in a
way that the law regards as charitable. Instead, it would be necessary to
specify the particular purpose within that broad category e.g. promotion of
health, protection of the environment etc.
The Guidance provides helpful succinct
definitions of the first three categories of charitable purposes which synthesize
a complicated body of case law in each category. This appears to be the first
time that a CRA Guidance has done this with respect to the charitable category
of advancing religion and is a welcome development.
a) Relieving poverty in the charitable sense means providing relief to the poor. The poor are not
only the destitute, but anyone lacking essential amenities available to the
general public. Para.29
b) Advancing education in
the charitable sense means formally training the mind, advancing the knowledge or abilities of the recipient, or improving a
useful branch of human knowledge. Para. 32
c) Advancing religion in
the charitable sense means manifesting, promoting, sustaining, or increasing belief in a religion’s three
key attributes, which are: faith in a higher unseen power such as a God,
Supreme Being, or Entity; worship or reverence; and a particular and
comprehensive system of doctrines and observances. Para.34
2. Second Element – The means of providing the
charitable benefit
It is not sufficient to just recite the
specific charitable purpose category. It is also necessary to set out the means
to achieve the charitable purpose, which in turn defines the scope of the
charitable activities that can be undertaken to further the charitable purpose.
The organization is limited to pursuing these activities with the exception of
a few incidental activities (e.g. political activities, administration,
fundraising). The Guidance provides an example where the charitable
category is promoting health by means of operating a hospital, which
would include activities such as maintaining a facility and training
medical personnel.
The Guidance recognizes that the means
of furthering a purpose in one category can be similar to that of furthering a
purpose in another category. For example, operating a nursing home could be a
means of furthering the charitable purposes of relieving poverty, advancing religion
or the fourth category of reliving conditions associated with the aged.
However, the beneficiaries may differ from one category to the other.
The Guidance introduces for the first
time the term “charitable benefit” and the phrase “charitable benefit to the
public” and uses them interchangeably with the term “public benefit” which is
established in the case law. The addition of the new term of “charitable
benefit” in this area of the law, particularly without explanation of why it is
being used, is potentially confusing in that applicants may wonder if
something more is required than meeting the public benefit test as defined in
the common law. In explaining what is meant by “charitable benefit”, the
Guidance, emphasizes that it must be socially useful, and recognizable either
because it can be objectively proven or because it can be demonstrated that it
is approved by people who are informed about the particular subject. The
benefit must be connected to the organization’s purposes and reasonably achievable
as a result of the organization’s activities. Indirect benefits are acceptable
provided that they are not too remote. Paras. 17-18. It is rather curious that
the Guidance does not mention the long standing rebuttable presumption of
benefit with respect to the first three categories of charitable purposes.
There is a presumption of benefit because, as recognized in CRA’s Policy
Statement on Public Benefit, they “have historically been recognized as
beneficial to the public.” CRA’s omission of the presumption may be an oversight in the interests of
producing a concise guidance but it is an important component of the public
benefit test nonetheless.
3. Third Element – the eligible beneficiary group
It is important to define the eligible
beneficiary group to ensure that the purpose benefits the public or a
sufficient section of the public. This definition can differ from one
charitable category to another. For example, the beneficiaries of a purpose for
the relief of poverty must be restricted to those who are poor. While a public
hospital must be open to the public, a health clinic focused on treating and
preventing a particular disease can be restricted to patients with that
disease. More information about public benefit can be found in the CRA Policy on
Public Benefit noted above.
4. Elements may be inferred
The Guidance notes that an element of a
purpose may be inferred from the context and gives the example of a stated
purpose “to operate a soup kitchen for the poor.” While the example doesn’t
expressly state the charitable category of “relieving poverty”, it can be
inferred from the context. The Guidance does, however, encourage applicants to
be more, rather than less, precise in drafting purposes to avoid uncertainty.
C. EXAMPLES OF PURPOSES FOR THE FOUR CATEGORIES OF CHARITY
The Guidance provides examples of
purposes for the four categories of charities in paragraphs 29-37. These
examples are reproduced below in their entirety because they are so helpful.
The examples, though, are merely illustrative and not exhaustive and readers
could think of many more examples in each charitable category. In this regard,
the examples given for the advancement of religion are narrower than one would
expect given the definition of this category set out above.
1. Examples of purposes that relieve poverty include:
¨ relieving poverty of persons of low income by
providing food and basic healthcare;
¨ relieving poverty of persons who are poor by
operating a micro lending program for start-up businesses; or
¨ relieving poverty of persons who are in need by
providing tuition subsidies directly to learning institutions.
2. Examples of purposes that advance education include:
¨ advancing education by operating a public secondary
school in the geographic location of (specify location);
¨ advancing education by conducting research into
(specify topic) and making the results publicly available; or
¨ advancing education by providing scholarships based
on academic merit to allow high school graduates to attend first‑year
university.
3. Examples of purposes that advance religion include:
¨ advancing religion to adherents of the faith or the
public by preaching and advancing the teachings of the (specify faith or
religion) faith;
¨ advancing religion to adherents of the faith or the
public by establishing, maintaining, and supporting a house of worship with
services held in accordance with the tenets and doctrines of the (specify faith
or religion) faith; or
¨ advancing religion to adherents of the faith or the
public by supporting and maintaining missions and missionaries to propagate the
(specify faith or religion) faith.
4. Examples of purposes that are beneficial to the
community in a way the law regards as charitable include:
¨ Promoting health by providing the public with:
- medical diagnostic services, or
- in-patient or out-patient medical care and nursing services;
¨ Relieving conditions associated with aging to
individuals affected by these conditions by providing:
- personal care,
- shopping assistance, and
- transportation to medical appointments; or
¨ Advancing the public’s appreciation of the arts by
providing the public with:
- high-quality performances of classical choral works, or
- free, high-quality theatrical performances.
D. OTHER ISSUES
1. Broad or vague purposes
A charitable purpose should be clear and
not too broad or vague so that CRA can access whether it is exclusively
charitable and the purpose is not open to interpretation. The Guidance provides
a series of very helpful examples of purposes that would be too vague for
registration and those that would be eligible for registration. See paras
26-28.
2. Unstated purposes
In determining eligibility for registration or for
maintaining registration, CRA examines both the stated purposes and their
related activities. The type and amount of activities in a particular area may
indicate that the organization is pursuing an unstated purpose. If the purpose
is charitable, the organization’s governing document may be amended to include
it as a stated purpose. If the unstated purpose is not charitable, the
organization would not be eligible for charitable registration or maintaining
charitable registration if subject to an audit. With respect to a charitable
unstated purpose, the Guidance provides the example of a hospital, which has
the stated purpose of relieving poverty, but provides health care to the
public. Its governing documents could be amended to provide for the charitable
purpose of promoting health. By contrast, an organization that has a stated
purpose of relieving poverty but which spends most of its resources on political
activities would not be eligible for charitable registration and its charitable
registration could be revoked.
3. Review of proposed purposes and activities by CRA
The Guidance sets out three occasions
when CRA may review an organization’s proposed purposes and activities.
a) The Guidance reiterates CRA’s long standing
offer to review on a one-time basis proposed purposes in draft governing
documents when submitted with a complete application for registration and a
detailed statement of activities. CRA will usually identify issues and suggest
possible revisions. The final decision, however, depends on the organization’s
final governing documents.
b) If a registered charity wishes to adopt new
purposes, the proposed amendments to its governing document and a detailed
statement of activities may be provided to CRA for approval before the
governing document is formally amended.
c) CRA recommends that new activities that were not
described in the application for registration be reviewed by CRA before being
undertaken. CRA would review the governing document to ensure that the new
activity furthers one or more of its stated charitable purposes. A detailed
description of the new activities would be expected. If the charitable purpose
correctly defines the scope of the activities, it is not completely clear why
CRA would be better placed than the organization to assess whether the activity
furthers the charitable purpose. In any event, there is not legal requirement
that a charity must have a new activity reviewed by CRA and no negative
inference should therefore be drawn by CRA if a charity chooses not to do so.
E. CONCLUSION
The Guidance cautions that using the
model purposes or the recommended approach to drafting charitable purposes will
not guarantee charitable registration and also acknowledges that other
approaches may be used and satisfy the requirements for charitable
registration. However, CRA has provided a very clear, readable and helpful
Guidance on how to draft charitable purposes that, with its many concrete examples,
will be an excellent reference tool for applicants and practitioners and
facilitate the process of obtaining and maintaining charitable registration.
