Working with Foreign Charities Requires Proper Records

Donor beware: A charity’s charitable status can be revoked if the charity does not maintain the direction and control of its assets when dealing with another foreign charity intermediary. This requirement was underscored in a recent case at the Federal Court of Appeal (FCA).

In Public Television Association of Quebec v. M.N.R., the Federal Court of Appeal (FCA) dismissed the charity’s appeal. It upheld the Canada Revenue Agency’s (CRA) conclusion that PTAQ, which has held charitable status since 1990, was not devoting all of its resources to its own charitable activities.

Amongst others, one of PTAQ’s objectives, as stated in their letters patent, is to advance education through the production, distribution and promotion of non-commercial television programs and films that are educational in nature, and to produce, distribute, sell and promote educational television programs and films.

PTAQ had agreements with Vermont Public Television (VPT) to broadcast VPT shows in the Quebec market. The CRA took the position that the PTAQ, therefore, did not create or publish television programs but rather served to facilitate broadcasting of programming developed outside its control and direction.

Importantly, the analysis in this case is not limited to the agreements between the charity and the intermediary, which had been in place since 1991. What also mattered was the substance and effect of their relationship when pursuing their shared objectives.

Although PTAQ and VPT had written agreements governing their respective responsibilities in a manner that likely would have been acceptable to the CRA in order to continue as a charity, the FCA held that the agreements were not strictly followed in practice. This had the effect of restraining the actual control of PTAQ’s resources.

The revocation of PTAQ’s charitable status is a good reminder to all charities to ensure that they maintain direction and control of their own resources when working with foreign charitable organizations. That control must, in fact, be exerted by the Canadian charity and records should be kept to clearly establish evidence of that control.

Greer Jacks practices law in Victoria and is a regular contributor to EverGreen Explanatory Notes, and has been a guest instructor to the Distinguished Advisor Workshops.

ADDITIONAL EDUCATIONAL RESOURCE: Investment Strategies in Charitable Giving by Nicola Elkins and MFA Succession and Estate Planning Specialist Designation.