In A.Y.S.A Youth Soccer Assn. v. Canada Revenue Agency, the Supreme Court of Canada blocked a long-shot attempt to radically expand the residual head of charitable classification at common law.
The association, a corporation without share capital incorporated under Part II of the former Canada Corporations Act, sought registration as a charitable organization under the Income Tax Act but was refused. The corporation appealed that refusal to the Federal Court of Appeal, which dismissed the appeal. On further appeal, the Supreme Court of Canada unanimously dismissed the appeal. Justice Rothstein, writing for the majority, found that the association was not a charity at common law. Justice Abella also dismissed the appeal for separate reasons, which were narrower than the majority's reasons and will not be dealt with here.
(b) Legislative Scheme
The Act distinguishes between registered charities and non-profit organizations. Both are exempt from paying tax. However, unlike NPOs, registered charities are able to issue charitable tax receipts to contributors to the charities, entitling those contributors to tax credits in respect of the contributions made. Registered charities may, in turn, be divided into charitable organizations (which is the category that the association aspired to) and charitable foundations (which may be either public or private).
The Act defines a charitable organization as an organization, whether or not incorporated, all of the resources of which are devoted to charitable activities carried out by the organization itself and no part of the income of which is payable to, or otherwise available for, the personal benefit of any member, trustee or settlor. If an organization devotes substantially all (that is, at least 90%) of its resources to charitable activities and devotes part of its resources to political activities that are ancillary to its charitable activities, and those political activities do not include the direct or indirect support of, or opposition to, any political party or candidate for public office, the organization is considered to be devoting that part of its resources to charitable activities carried on by it.
The enduring rulings of the Court may be summarized as follows:
● The Act impliedly relies on the common law to define the meaning of charity, which defines charities under one of four heads, namely: (i) relief of poverty; (ii) advancement of education; (iii) advancement of religion; and (iv) other purposes beneficial to the community not falling under the other heads, which the law recognizes as charitable or that are a reasonable extension or analogy to accepted charitable purposes.
● When courts consider expanding the scope of charity, they must consider whether what is being proposed is an incremental change or one with complex ramifications, that would be best left to Parliament.
● Sport, if ancillary to another recognized charitable purpose such as education, can be charitable, but sport in itself is not charitable. For example, Canada Revenue Agency acknowledges as charitable horseback riding for children with disabilities or sports camps for children living in poverty.
● Just because an activity or purpose happens to have a beneficial by-product (such as physical fitness and diversion from anti-social activities) that is insufficient, in and of itself, to make it charitable.
● It is imperative to preserve the distinction that the Act makes between charitable and non-profit organizations. Under the Act, not all non-profit social welfare activities will be charitable. Therefore, the scheme of the Act does not support a wide expansion of the definition of charity.
● Sports and recreation organizations made up 21% of all non-profit organizations in Canada. The Court agreed that the potential recognition of these organizations as charities (able to issue tax receipts) could have a significant effect on the income tax system. The Court stated that this change would be closer to wholesale reform than incremental change, and is best left to Parliament.
3. Key Observations
A.Y.S.A signals that any judicial expansion of the fourth head of recognized charitable purposes, which is the residual category, will continue to be incremental and case-by-case and not a wholesale reform. The potential loss of revenue from an expanded pool of issuers of charitable tax receipts requires a legislative decision, not a judicial fiat.