Canadians Spar Over Who Should Decide What Constitutes a Charity

The question of which organizations qualify for charity status — and who should decide — is a hot topic in Canada’s non-profit world.

Currently, those decisions are made in the Ministry of National Revenue by Revenue Canada, the federal agency (like the Internal Revenue Service) that registers charities and monitors their compliance with tax laws.

But critics complain that the agency relies too heavily on common-law interpretations of criteria dating from Elizabethan England — the Charitable Uses Act of 1601 — and codified a century ago. They say the agency gives far too little weight to the changing composition and evolving social needs of Canadian society. The result: Gaining charity status is generally more difficult in Canada than it is in the United States.

Organizations that focus on civil rights, the environment, or other causes of relatively recent vintage, for example, find it very difficult to register as charities — which would entitle their donors to receive tax credits of up to half the value of their gifts. Instead, many of them can qualify only for non-profit status, which exempts them from taxation but affords no tax benefits to their donors.

The Supreme Court of Canada is expected to render a decision shortly in what some observers hope will be a landmark case that broadens the current narrow definition of charity. At issue is the revenue ministry’s decision to deny charity status to the Vancouver Society of Immigrant and Visible Minority Women, a non-profit group that helps immigrant and minority women in that city polish their job-seeking skills and find employment, as well as offering them information on a variety of other topics.

In denying the application, the agency said that the society’s activities did not fall within one of four qualifying charitable purposes, which it defines as the relief of poverty, the advancement of religion, the advancement of education, and “specific purposes that are beneficial to the community as a whole in a way which the law regards as charitable.”

The society contends that it is advancing the education of its 300 or so members by giving them information about preparing a resume, handling a job interview, and helping them meet potential employers, and that it also offers presentations on topics of more general social interest. It benefits the community, the group argues, by helping its members — many of whom it says face discrimination because of their gender, ethnic background, or limited language skills — find gainful work.

The ministry rejects those arguments. The society’s instructional sessions on starting a small business or acquiring job credentials, as well as the general information it provides about human rights, health care, or violence against women, “although laudable and beneficial to the community in a loose sense, are not beneficial to the community in a way the law regards as charitable,” the ministry declares.

And whatever information the society may provide, the ministry says, “lacks the element of well-rounded, systematic instruction that characterizes education in the charitable sense.”

What’s more, the ministry rejects the argument that minority women constitute a disadvantaged group entitled to special consideration. “The courts have not considered women simply by virtue of their gender or racial origin to be in special need of charitable relief,” the ministry declares.

Parvin Partovi, the society’s executive director, says that because the organization lacks charity status it has been unable to raise money from individual donors, the United Way, or local foundations. “It’s the biggest obstacle to our funding,” she says. “It would make a big difference.”

The society now depends on provincial and some federal grants for most of its revenue, though it also raises some money with annual dinners and similar events. Its budget ranges between about $50,000 and $85,000 a year, depending on the number of projects it operates.

Proponents of a broader definition of charity have rallied to the society’s cause. The Canadian Centre for Philanthropy, which promotes the interests of the voluntary sector, has intervened in the suit, proposing that the court use a less constrained method of determining charitable purposes suggested by the Ontario Law Reform Commission, a provincial government panel. The commission’s method would analyze whether a project “pursues a good for the benefit of strangers in a practically useful way.”

“We felt this had the potential to be a landmark case in terms of the issue of what we understand by the term ‘charity,’ ” says Patrick Johnston, the center’s president, in explaining the decision to intervene.

“We have an ongoing problem with the definition of what is charitable,” says Gordon Floyd, the center’s director of public affairs. “We are constantly running into a situation where organizations that are engaged in public policy or advocacy work are being denied charitable status, including lots of environmental groups and groups that promote racial harmony.

“Many of the organizations are regarded by the public at large as being charitable, but aren’t qualifying under the very narrow definition under the law being applied by the courts and by Revenue Canada.”

Also intervening in the case are the Minority Rights and Advocacy Council, Canadian Ethnocultural Council, and Centre for Research Action on Race Relations. Those organizations argue that it is time for the court to create a new class of charitable activity: “the amelioration of conditions of disadvantaged individuals or groups, including those who are disadvantaged because of race, national or ethnic origin, colour, religion, sex, age, or mental or physical disability.”

Another test case that may ultimately be decided in the courts involves the Volunteer Center of Grand Forks, British Columbia, which is appealing the government’s refusal to grant it charity status. The government contends that because the center helps place volunteers with tax-exempt groups that might not be charities, it does not devote substantially all of its activities to charitable purposes, and therefore fails the test for charity status.

“Their sticking point is that volunteer centers not only promote volunteerism to charities but also to non-profits,” says Paddy Bowen, executive director of Volunteer Canada, which coordinates the activities of about 200 such centers across the country. “If they help someone get connected with the local tee-ball association, that’s bad.”

But many volunteer centers do have charity status — and the constitution and bylaws of the Grand Forks center are identical to those of another center that is registered as a charity, Ms. Bowen says. That points to another objection to Revenue Canada’s decisions: their apparent inconsistency.

“It has been tougher since 1975 to get charitable status, and nearly impossible in the 1990s,” says Ms. Bowen, who suspects that as the federal government has increased tax benefits for donors to charity it has been more reluctant to forgo revenue by expanding the pool of charities.

Carl Juneau, assistant director of the Charities Division at Revenue Canada, says the criteria for charity status are not being tightened, and that the number of charities continues to grow by a net of about 1,000 a year.

But to some observers, denying charitable status to centers devoted to increasing volunteer activity defies common sense. “If volunteers are going to donate their time and effort to their community, surely that is in the interests of the country’s and government’s goals and objectives,” says John Binsted, vice-president of the Vancouver Foundation.

The legal interpretations of charity status are a source of frustration to many Canadians.

“The means of determining which organizations get to enjoy the full privileges of the tax system is highly contentious and the rules governing it are neither clear, consistent, nor necessarily compatible with contemporary Canadian values,” says the Panel on Governance and Accountability in the Private Sector, a six-member committee created by a national coalition of non-profit groups to propose ways of strengthening those aspects of Canadian philanthropy.

The committee’s own prescription for modernizing the definition of charity involves putting that decision in the hands of legislators, with a mandate to review the matter every decade. A Parliamentary committee — or alternatively a panel that includes representatives of the federal and provincial governments and the voluntary sector — would recommend a revised definition to Parliament. All applications and decisions about an organization’s status — which now must be kept secret — would be public.

Parliament clearly has the power to make such determination. It already has extended the ability to receive tax-deductible donations to two classes of organizations: “national arts service organizations” and “amateur athletic associations.”

Edward Broadbent, the former member of Parliament who chairs the committee, predicts that the idea of having more such categories endorsed by legislators will win broad support in the non-profit world. But others are not so sure.

“The idea that the definition of charity is better done by elected officials than by the justices of the Supreme Court is a notion that some people would support but that others would vehemently oppose,” Mr. Johnston says.

Part of the dilemma stems from a worry over increased competition. “This is a difficult issue,” says Susan Carter, associate director of the Canadian Council on Social Development. “Organizations inside the tent are concerned about any enlarging of the tent, and what that will mean about resources for everyone.”

No decision is likely to be popular with everyone. “A lot of people would like to maintain the status quo, and a lot of other people would like to start again” by forming a new definition of charitable activity, says Ms. Bowen.

Indeed, suggests David Armour, president of United Way of Canada/Centraide Canada, the very diversity of Canadian society that makes some people feel an acute need to update its definition of charity also makes agreement on the matter difficult.

“People sense that the definition of charity might need to evolve,” Mr. Armour says, “but it may be a lot harder to get consensus on what is charitable in today’s society.”