In a decision released today, the Supreme Court of Canada (SCC) dismissed an application for leave (a request) to appeal on a case about receipting suspensions. By dismissing the leave to appeal, the SCC affirmed a lower court decision that receipting suspensions will be imposed even if a charity’s objections have not been fully and finally addressed.
Of course, if the facts of another case are sufficiently distinct, it could lead to a different outcome. But the charity would have to prove to the court that it would suffer irreparable harm during the suspension period. In this case, the lower courts did not agree that the charity would suffer that kind of harm.
Following an audit, the Canada Revenue Agency (CRA) imposed a penalty and suspended Human Concern’s receipting privileges for one year. CRA’s position was that the charity made false charitable tax receipts.
That means that sections 188.1 and 188.2 of the Income Tax Act applied.
Section 188.1 lists penalties for various forms of non-compliance. For example, if donation receipts contain incorrect information, section 188.1(7) imposes a monetary penalty of 5% of the value of the incorrect donation receipts. If the donation receipts contain false information, section 188.1(9) imposes a monetary penalty of 125%. If that amount is more than $25,000 for a given tax year, section 188.2(1)(c) automatically triggers a one-year receipting suspension. It is effective 7 days after CRA sends, by registered mail, notice of the financial penalty.
Section 188.2(4) allows a charity to apply to the Tax Court of Canada (Tax Court) to postpone any remaining suspension period if the charity has also filed a notice of objection.
Human Concern filed a notice of objection and made an application to the Tax Court.
Tax Court Decision (August 4, 2021; unreported)
The Tax Court can grant an application to postpone a suspension “only if it would be just and equitable to do so” (ITA s 188.2(5)). For a postponement to be “just and equitable”, the requesting charity has to meet the test for an injunction. That test requires the charity show (1) there is a serious issue; (2) it will suffer irreparable harm without the postponement; and (3) convenience favours postponing.
The Tax Court must decide these applications within 30 days of filing (Tax Court of Canada Rules (Informal Procedure), SOR/90-688b, s 18.3(3)).
The Tax Court dismissed the application, finding that Human Concern would not suffer irreparable harm and that the balance of convenience favoured the government.
The charity appealed to the Federal Court of Appeal (FCA).
Federal Court of Appeal Decision (March 2, 2022)
At the FCA, Human Concern argued that the Tax Court made two main errors.
First, that the Tax Court was wrong to find the suspension of receipting privileges would not result in irreparable harm. The FCA disagreed. It held that Human Concern was asking the court to reweigh the evidence, which was beyond its role. The FCA also held that the Tax Court was “entitled to discount” Human Concern’s assertions about the existence of irreparable harm.
Second, that the Tax Court failed to account for principles of natural justice. The FCA held there was “no merit” to Human Concern’s natural justice arguments. The principles of natural justice ensure that the procedure is fair. What is fair depends on the context of the decision being made, but core elements include an impartial decision-maker, a right to be heard, and knowing the reasons for the decision.
Supreme Court of Canada Decision
The charity asked the SCC to hear a further appeal. As noted at the outset, the SCC decided not to hear the appeal.
Questions about receipting? In addition to our recent post about year-end donations, check out our member Knowledge Base section, Charitable Receipts. You’ll find checklists, tips and topics included split-receipting, services, and what has to be included on official donation receipts.
Noteworthy is provided for general information purposes and does not constitute legal or professional advice. Every organization’s circumstances are unique. Before acting on the basis of information contained in this blog, readers should consult with a qualified lawyer for advice specific to their situation.