Authored by Philip Milley, Associate Director of Legal Affairs
The Federal Court of Appeal reaffirms that that “prevention of poverty” is not an accepted charitable purpose.
The “prevention of poverty” is not the “relief of poverty” is what the Federal Court of Appeal (“FCA”) held in the recent case Credit Counselling Services of Atlantic Canada v Minister of National Revenue. This case concerned an appeal by Credit Counselling Services of Atlantic Canada Inc. (“CCSAC”) of a decision of the Minister of National Revenues (the “Minister”) to provide notice of annulment of CCSAC’s charitable registration. The basis of the annulment was that CCSAC’s activities were not exclusively charitable.
CCSAC was registered for the purpose of, among others, the prevention of poverty. CCSAC activities included providing credit counselling, education outreach and debt management services to consumers that were in serious financial difficulty. Specifically, CCSAC provided debt management services, including negotiating repayment of debts with the creditors of clients whom were not impoverished (i.e. they were employed and had assets).
The Minister therefore annulled CCSAC‘s registration because CCSAC‘s purposes and activities could not be considered exclusively charitable. The Minister focused on CCSAC‘s primary objective, namely the prevention of poverty, and determined that prevention of poverty was not a charitable purpose and concluded that CCSAC’s activities could not be characterized as the relief of poverty. While the Minister noted that credit counselling may, in certain situations, contribute to the charitable purpose of relieving poverty, CCSAC‘s services were not limited to individuals who were poor its services could not properly be classified as relating to the relief of poverty.
The court recounted the requirements to satisfy that a purpose is for the relief of poverty at paragraph 16. The court stated:
… To satisfy the requirement that a purpose is for the relief of poverty, the person receiving the assistance must be a person who is then in poverty. Poverty is a relative term. Therefore, it is possible that in some situations providing assistance through counselling or by other means to individuals in serious financial trouble may be considered to be relieving poverty, even if the individuals are not then destitute (Vancouver Society of Immigrant and Visible Minority Women v. Minister of National Revenue,  1 S.C.R. 10, 169 D.L.R. (4th) 34, at paragraph 185) (Vancouver Society).[i]
The court then discussed the activities of CCSAC as they related to the relief of poverty. The court stated:
.. it is clear that [CCSAC] is assisting many consumers who are employed and who have assets and therefore would not necessarily, as of the time of receiving the assistance, be considered to be in poverty. In 2010 [CCSAC] assisted consumers in paying over $10 million to their creditors under the debt management program. There is no indication that the [CCSAC] screened these clients and only offered its services to those individuals who would be considered to be “poor” as determined for the recognized charitable purpose of the relief of poverty. The activities of [CCSAC] can best be described as related to the prevention of poverty.[ii]
What this Means
While this case stands for the principle that “prevention of poverty” is not an accepted charitable purpose and that is not the same as “relief of poverty”. In large part the court has simply applied the law as it currently stands. This case also provides a reminder to charities when drafting or revising their charitable purposes and when considering the activities it will engage in.
It is well known that Canadian courts have identified four categories of charity: relief of poverty, advancement of education, advancement of religion, and other designated purposes that benefit the community. An organization’s purposes must fall within one or more of these categories to be considered for registration as a charity. As was affirmed in this case the charitable purpose of “relieving poverty”, in the charitable sense, means to bring relief to the poor.
Eligibility for registration as a charity under the Income Tax Act[iii] generally requires an applicant to satisfy CRA of a two‑part test. The first part of the test requires an organization to demonstrate that it is constituted for purposes that are exclusively charitable and define the scope of activities that can be engaged in by the organization.
The purposes of an organization are the objectives that it is created to achieve. Each of an organization’s purposes must be clearly stated in its governing document(s). If an organization’s purposes are not exclusively charitable, it is not eligible for registration or may be at risk of revocation. A charity is expected to carry on activities in furtherance of its charitable purpose(s) and are expected to ensure those purposes are exclusively charitable. This case is a reminder for charities to never lose sight of its objects and ensure its activities furthers its stated purposes and are charitable.
As a resource for charities CRA has developed guidance on how to draft purposes of charitable registration.[iv] For further information also see our members resource material on Charitable Objects and Activities.[v]
[i] Credit Counselling Services of Atlantic Canada Inc v The Queen, 2016 FCA 193 at paragraph 16.
[ii] Ibid, paragraph 17.
[iii] Income Tax Act, RSC 1985, c.1 s. 149.1.
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.