In Credit Counselling Services of Atlantic Canada Inc. v. M.N.R. (released June 2016), the Federal Court of Appeal held that, while the relief of poverty is a charitable purpose, this should not be extended to the prevention of poverty without legislative intervention.
Credit Counselling Services of Atlantic Canada Inc. was a non-share capital corporation incorporated under Part II of the Canada Corporations Act in 1993. In the same year, the corporation became designated as a registered charity under the Income Tax Act. Over the next several years, it carried on its activities of providing credit counselling services, an educational outreach program and a debt management program. The corporation's debt management program was available to consumers who were in serious financial difficulties but who were employed and had assets. The corporation negotiated a repayment of debts with the consumer's creditors. It provided assistance to many customers in paying their creditors under debt management programs.
However, in 2013 (that is, 20 years after its original designation), the Minister of National Revenue determined that the purposes and activities of the corporation were not exclusively charitable and annulled its charitable registration.
(b) Legislative Scheme
The Income Tax 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.
The Act does not define "charitable", but rather relies on its meaning at common law. The common law defines charities under one of four heads, namely:
● relief of poverty;
● advancement of education;
● advancement of religion; and
● other purposes beneficial to the community not falling under the other heads.
The Credit Counselling case turned on whether its purpose and activities were exclusively related to the relief of poverty.
The Federal Court of Appeal unanimously held that, to satisfy the requirement that its purpose is for the relief of poverty, the person receiving the assistance must be a person who is then in poverty. Poverty has a relative meaning. Therefore, the court held, it is possible that in some cases providing assistance through counselling or other means to individuals in serious financial trouble may be considered to be relieving poverty. That said, the prevention of poverty is not a charitable purpose and it is not for the courts to add the prevention of poverty as a charitable purpose.
Here, it was clear that the corporation was assisting many consumers who were employed and had assets and, therefore, who would not necessarily be considered to be in poverty at the time of receiving assistance. While certain consumers have benefitted from the corporation's assistance in paying down debts and better managing their finances, the court viewed this as a private advantage enjoyed by these individuals rather than as beneficial to the community in a way that the law regards as charitable.
3. Key Observations
Credit Counselling further illustrates the court's resistance to expand the meaning of charity beyond its traditional boundaries, stating that such expansion is for Parliament and not the courts and citing the United Kingdom as an example.
This case also illustrates the folly of dressing up a non-charitable purpose in charitable clothing. The objects set out in the corporation's letters patent included the prevention of poverty but, at the same time, were silent as to whom the debt counselling services would be provided. In practice, the debt counselling services were provided to persons who were employed and had assets, not to individuals who were in poverty. The corporation's clients were not screened. Nor were its services limited to those individuals who could be considered poor.
In took 20 years, but eventually the MNR caught the situation and annulled Credit Counselling's charitable registration.