AYSA: Obfuscation for charity status of amateur athletic associations

Last Friday, the SCC released its decision in AYSA Amateur Youth Soccer Association v Canada (Revenue Agency), [2007] 3 SCR 217. We here at theCourt.ca first looked at this case back during the hearing in May 2007 when Jakki Warkentin discussed the benefits of expanding the common law definition of ‘charitable purpose’ to include associations that promote amateur sport.

The key question on this appeal was whether the A.Y.S.A., whose sole purpose was the promotion of soccer on a provincial level, could qualify for the benefits entitled to a “charity” under the Income Tax Act, RSC 1985, c 1 (5th Supp) [ITA]. Please see the previous post for further background about the arguments advanced by both sides.

The SCC decided unanimously for the respondents. Speaking for 8 members of the court, Rothstein J. disagreed with the Federal Court of Appeal and stated that s. 248(1) of the ITA does not preclude amateur athletic associations from being charities for the sake of the ITA. Instead, organizations can still qualify as ‘charities’ under the common law for tax purposes. Nevertheless, on these facts, the A.Y.S.A. did not fall with the common law definition, and thus their appeal was dismissed.

Though arriving at the same conclusion, Abella J.’s concurring opinion took a vastly different route. She sharply disagreed with the majority, and decided that s. 248(1).

explicitly confer[s] charity-like benefits only on amateur athletic associations with a national focus. Parliament’s intention to exclude all other amateur athletic associations could hardly be clearer. In view of this explicit statutory directive, there is no need to seek clarification from the common law.

Analysis

The majority decision must have been frustrating for the appellants. After going to great pains to carve out a space for the common law definition of ‘charities’ to apply (shooting down a barrage of government arguments in the process and opening the doors for the definition to be expanded), Rothstein J. ends up staying squarely within the confines of what already exists.

Additionally, he placed strict requirements on when the common law definition can be expanded. At para. 31, he wrote,

in determining if an organization is charitable under the fourth head of [Commissioners for Special Purposes of the Income Tax v] Pemsel, [[1891] AC 531 (HL), i.e., purposes beneficial to the community] for purposes of registration under the ITA, it will be necessary to consider the trend of cases to decide if the purposes are for a public benefit which the law regards as charitable. It will also be necessary to consider the scheme of the ITA. Finally, it is necessary to determine whether what is sought is an incremental change or a reform best left to Parliament.

Counter-intuitively, the latter two requirements raised (the scheme of the ITA, and whether it’s a reform best left to Parliament) were arguments that he struck down in getting the common law definition into play. And now, the judgment has gone ahead brought back those ideas in efforts to limit the scope of the expansion of the common law definition. This begs the question of why should the common law recognition of charitable purpose even be introduced, if it is going to be so limited in scope.

Regardless, for amateur athletic associations, there are now 3 categories that they can fall into: the statutory nationwide Registered Canadian Amateur Athletic Association (“RCAAA”) category as per s. 248(1), the non-nationwide non-charitable category (which the A.Y.S.A. fell into), and this newly created, non-nationwide charitable category.

Result

With this decision, a clear area of the law has become muddied. No longer can amateur sport organizations figure out their charity status merely on whether they are ‘nationwide’ or not. Instead, non-nationwide organizations may also have the benefit of charitable status if in addition to promoting sport, they satisfy a charitable purpose as recognized under the common law. But what is and isn’t a ‘charitable purpose’ requires an exercise of judgment. At para. 42, Rothstein J. wrote,

I do not wish to leave the impression that the assessment to be carried out is formalistic in nature. … [T]he government is entitled and indeed obliged to look at the substance of the purposes and activities of an applicant for registered charity status. Rewriting the objects in the Letters Patent or filing a carefully worded application will not be sufficient. The organization, in substance, must have as its main objective a purpose and activities that the common law will recognize as charitable.

With these new provisions, the Canada Revenue Agency (“CRA”) will likely see an increase in applications from various local and provincial athletic organizations seeking charity status. While many of them will fail to meet the strict requirements outlined by the majority in this case, I am sure some of them will indeed gain charitable status under the head that the SCC has created.

Though this undoubtedly is a benefit the SCC intended through this decision, it seems clarity for tax lawyers and accountants may have been sacrificed in this process. This grey area of charitable non-national amateur athletic association is unclear, as the non-‘formalistic’ analysis of what constitutes a ‘charitable purpose’ will undoubtedly take some time to flesh out with the CRA.

This is of course, unless parliament decides this is against their intention, and closes this hole up in a subsequent amendment to the ITA.