Acorn Foundation ("Acorn") is a private foundation which Blake Bromley has represented since it was incorporated in 1995. It primarily funds missions, Bible education and other Christian causes. One of the mechanisms for funding it has been for the founder to loan a substantial amount of capital to the foundation on an interest free basis and have the charity keep all the income earned. No receipts were taken for the loans or income earned. Acorn had done this since its inception and was audited in late 2004.

On February 7, 2005, CRA sent Acorn a letter saying that if in 30 days Acorn agreed with CRA's position that these debts were improper and promised to have the loans repaid by the end of the year, CRA would not proceed with revocation proceedings. Benefic responded within 30 days and made arguments as to why we believed our interpretation of the law was correct and invited CRA to immediately begin revocation proceedings against Acorn so that the Federal Court of Appeal could rule on the legality of the gift planning. When we did not get a substantive reply within 30 days, we sent a registered letter to the Director General of Charities Directorate demanding an apology on behalf of Acorn.
 
Neither Benefic nor Acorn received an acceptable apology and CRA still could not cite any legal authority other than "it is our position" or "in our opinion". Given the intransigence of CRA on issues of administrative fairness, Benefic sought the expertise of Rob Grant of Heenan Blaikie LLP to advise Acorn on the administrative law issues since our expertise is primarily in tax and gift law. On 13 October 2005, Acorn filed a judicial review application in federal court seeking an order quashing the 7 February 2005 letter from CRA on the basis that:

1. CRA went beyond its powers in directing Acorn to eliminate its loan obligations and in threatening revocation;
2. CRA failed to observe established principles of procedural fairness by not providing Acorn with an opportunity to respond to the letter
3. CRA misinterpreted the Income Tax Act provisions on the types of debt charities are allowed to incur,
4. CRA made a factual finding about the nature of Acorn's debt on the basis of no evidence

On 14 November 2005, CRA asked the court to strike Acorn's application on the basis that the 7 February 2005 letter was not a "decision" or matter over which the Court has jurisdiction, but simply an "undertaking letter" that was intended to be addressed by negotiation and agreement, and that did not affect the rights or interests of Acorn. CRA was obviously extremely unhappy with Benefic's strategy of seeking a Federal Court review on the basis of administrative fairness rather than letting this matter proceed through the normal channels preferred by CRA.

On 25 November 2005, Rob Grant filed submissions on behalf of Acorn in response to CRA's motion.   The submissions note that the 7 February 2005 letter did not contain a "hint" of any willingness on CRA's part to negotiate, that it clearly threatened revocation of Acorn's charitable status, and that it has affected the interests of both Acorn and its director who had made the impugned loan.  Rob Grant requested that the court dismiss CRA's motion, arguing that judicial review is available for decisions that determine or affect a party's rights, even if the decision is not the "ultimate decision" taken by the agency. CRA had a right to reply to any new points raised in Acorn's submissions.  However, it did not file a reply.

On December 16, 2005 Russell J. ruled decisively in Acorn's favour. The fact that costs are "payable forthwith" is very unusual and is a slap on the wrist for CRA. Benefic was pleased that CRA tried to have everything thrown out at the outset because it isolated the issue of whether the 7 February 2005 letter was a reviewable "decision" in a preliminary motion context. The value of this decision on a precedent basis is stronger because of the fact that it did not deal with the merits of the issue.

Prior to the Federal Court decision, the tax services released the text of the Department of Finance's reply to Charities Directorate on his question on loans to private foundations which almost certainly refers to Acorn. This letter is attached and cites (without acknowledgement) arguments made in our submission and says that incurring such debt is not grounds for revocation. It is indicative of the bullying nature of CRA that this letter was written on October 21 and was not communicated to Acorn. More significantly, CRA did not communicate to the Federal Court that it had absolutely no legal grounds for its position in demanding Acorn repay the loan or have its registration revoked. We could not communicate it to the Federal Court because CRA did not advise us and we only learned of it after our submissions were complete when the letter was released by the tax services.

Acorn is to be commended for its courage in authorizing this challenge to CRA in the courts and it is good that the court has spoken so decisively. We think that charities and donors must be made aware of this so that others can begin to demand that CRA treat them fairly. Acorn has authorized Benefic to publicize this information so please also see an article written by Blake Bromley and published in Gift Planning in Canada as well as the judgment. Since CRA is publishing court decisions which it likes on its website and in its newsletters, it will be interesting to see if CRA will publish comments on the Acorn case.

For Further information, refer to the following documents:

Article: A Christmas Gift from the Courts
Blake Bromley's article about Acorn Foundation's experience vis a vis CRA, written for Gift Planning in Canada

Federal Court Order: Acorn Foundation vs. CRA
Justice Russell's ruling on Acorn Foundation vs. CRA on Dec. 16, 2005

CRA views on debts incurred by charitable foundations
CRA release announcing their revised position with regards to allowing charitable foundations to incur debt

Acorn Foundation ("Acorn") is a private foundation which Blake Bromley has represented since it was incorporated in 1995. It primarily funds missions, Bible education and other Christian causes. One of the mechanisms for funding it has been for the founder to loan a substantial amount of capital to the foundation on an interest free basis and have the charity keep all the income earned. No receipts were taken for the loans or income earned. Acorn had done this since its inception and was audited in late 2004.

On February 7, 2005, CRA sent Acorn a letter saying that if in 30 days Acorn agreed with CRA's position that these debts were improper and promised to have the loans repaid by the end of the year, CRA would not proceed with revocation proceedings. Benefic responded within 30 days and made arguments as to why we believed our interpretation of the law was correct and invited CRA to immediately begin revocation proceedings against Acorn so that the Federal Court of Appeal could rule on the legality of the gift planning. When we did not get a substantive reply within 30 days, we sent a registered letter to the Director General of Charities Directorate demanding an apology on behalf of Acorn.
 
Neither Benefic nor Acorn received an acceptable apology and CRA still could not cite any legal authority other than "it is our position" or "in our opinion". Given the intransigence of CRA on issues of administrative fairness, Benefic sought the expertise of Rob Grant of Heenan Blaikie LLP to advise Acorn on the administrative law issues since our expertise is primarily in tax and gift law. On 13 October 2005, Acorn filed a judicial review application in federal court seeking an order quashing the 7 February 2005 letter from CRA on the basis that:

1. CRA went beyond its powers in directing Acorn to eliminate its loan obligations and in threatening revocation;
2. CRA failed to observe established principles of procedural fairness by not providing Acorn with an opportunity to respond to the letter
3. CRA misinterpreted the Income Tax Act provisions on the types of debt charities are allowed to incur,
4. CRA made a factual finding about the nature of Acorn's debt on the basis of no evidence

On 14 November 2005, CRA asked the court to strike Acorn's application on the basis that the 7 February 2005 letter was not a "decision" or matter over which the Court has jurisdiction, but simply an "undertaking letter" that was intended to be addressed by negotiation and agreement, and that did not affect the rights or interests of Acorn. CRA was obviously extremely unhappy with Benefic's strategy of seeking a Federal Court review on the basis of administrative fairness rather than letting this matter proceed through the normal channels preferred by CRA.

On 25 November 2005, Rob Grant filed submissions on behalf of Acorn in response to CRA's motion.   The submissions note that the 7 February 2005 letter did not contain a "hint" of any willingness on CRA's part to negotiate, that it clearly threatened revocation of Acorn's charitable status, and that it has affected the interests of both Acorn and its director who had made the impugned loan.  Rob Grant requested that the court dismiss CRA's motion, arguing that judicial review is available for decisions that determine or affect a party's rights, even if the decision is not the "ultimate decision" taken by the agency. CRA had a right to reply to any new points raised in Acorn's submissions.  However, it did not file a reply.

On December 16, 2005 Russell J. ruled decisively in Acorn's favour. The fact that costs are "payable forthwith" is very unusual and is a slap on the wrist for CRA. Benefic was pleased that CRA tried to have everything thrown out at the outset because it isolated the issue of whether the 7 February 2005 letter was a reviewable "decision" in a preliminary motion context. The value of this decision on a precedent basis is stronger because of the fact that it did not deal with the merits of the issue.

Prior to the Federal Court decision, the tax services released the text of the Department of Finance's reply to Charities Directorate on his question on loans to private foundations which almost certainly refers to Acorn. This letter is attached and cites (without acknowledgement) arguments made in our submission and says that incurring such debt is not grounds for revocation. It is indicative of the bullying nature of CRA that this letter was written on October 21 and was not communicated to Acorn. More significantly, CRA did not communicate to the Federal Court that it had absolutely no legal grounds for its position in demanding Acorn repay the loan or have its registration revoked. We could not communicate it to the Federal Court because CRA did not advise us and we only learned of it after our submissions were complete when the letter was released by the tax services.

Acorn is to be commended for its courage in authorizing this challenge to CRA in the courts and it is good that the court has spoken so decisively. We think that charities and donors must be made aware of this so that others can begin to demand that CRA treat them fairly. Acorn has authorized Benefic to publicize this information so please also see an article written by Blake Bromley and published in Gift Planning in Canada as well as the judgment. Since CRA is publishing court decisions which it likes on its website and in its newsletters, it will be interesting to see if CRA will publish comments on the Acorn case.

For Further information, refer to the following documents:

Article: A Christmas Gift from the Courts
Blake Bromley's article about Acorn Foundation's experience vis a vis CRA, written for Gift Planning in Canada

Federal Court Order: Acorn Foundation vs. CRA
Justice Russell's ruling on Acorn Foundation vs. CRA on Dec. 16, 2005

CRA views on debts incurred by charitable foundations
CRA release announcing their revised position with regards to allowing charitable foundations to incur debt

Acorn Foundation ("Acorn") is a private foundation which Blake Bromley has represented since it was incorporated in 1995. It primarily funds missions, Bible education and other Christian causes. One of the mechanisms for funding it has been for the founder to loan a substantial amount of capital to the foundation on an interest free basis and have the charity keep all the income earned. No receipts were taken for the loans or income earned. Acorn had done this since its inception and was audited in late 2004.

On February 7, 2005, CRA sent Acorn a letter saying that if in 30 days Acorn agreed with CRA's position that these debts were improper and promised to have the loans repaid by the end of the year, CRA would not proceed with revocation proceedings. Benefic responded within 30 days and made arguments as to why we believed our interpretation of the law was correct and invited CRA to immediately begin revocation proceedings against Acorn so that the Federal Court of Appeal could rule on the legality of the gift planning. When we did not get a substantive reply within 30 days, we sent a registered letter to the Director General of Charities Directorate demanding an apology on behalf of Acorn.
 
Neither Benefic nor Acorn received an acceptable apology and CRA still could not cite any legal authority other than "it is our position" or "in our opinion". Given the intransigence of CRA on issues of administrative fairness, Benefic sought the expertise of Rob Grant of Heenan Blaikie LLP to advise Acorn on the administrative law issues since our expertise is primarily in tax and gift law. On 13 October 2005, Acorn filed a judicial review application in federal court seeking an order quashing the 7 February 2005 letter from CRA on the basis that:

1. CRA went beyond its powers in directing Acorn to eliminate its loan obligations and in threatening revocation;
2. CRA failed to observe established principles of procedural fairness by not providing Acorn with an opportunity to respond to the letter
3. CRA misinterpreted the Income Tax Act provisions on the types of debt charities are allowed to incur,
4. CRA made a factual finding about the nature of Acorn's debt on the basis of no evidence

On 14 November 2005, CRA asked the court to strike Acorn's application on the basis that the 7 February 2005 letter was not a "decision" or matter over which the Court has jurisdiction, but simply an "undertaking letter" that was intended to be addressed by negotiation and agreement, and that did not affect the rights or interests of Acorn. CRA was obviously extremely unhappy with Benefic's strategy of seeking a Federal Court review on the basis of administrative fairness rather than letting this matter proceed through the normal channels preferred by CRA.

On 25 November 2005, Rob Grant filed submissions on behalf of Acorn in response to CRA's motion.   The submissions note that the 7 February 2005 letter did not contain a "hint" of any willingness on CRA's part to negotiate, that it clearly threatened revocation of Acorn's charitable status, and that it has affected the interests of both Acorn and its director who had made the impugned loan.  Rob Grant requested that the court dismiss CRA's motion, arguing that judicial review is available for decisions that determine or affect a party's rights, even if the decision is not the "ultimate decision" taken by the agency. CRA had a right to reply to any new points raised in Acorn's submissions.  However, it did not file a reply.

On December 16, 2005 Russell J. ruled decisively in Acorn's favour. The fact that costs are "payable forthwith" is very unusual and is a slap on the wrist for CRA. Benefic was pleased that CRA tried to have everything thrown out at the outset because it isolated the issue of whether the 7 February 2005 letter was a reviewable "decision" in a preliminary motion context. The value of this decision on a precedent basis is stronger because of the fact that it did not deal with the merits of the issue.

Prior to the Federal Court decision, the tax services released the text of the Department of Finance's reply to Charities Directorate on his question on loans to private foundations which almost certainly refers to Acorn. This letter is attached and cites (without acknowledgement) arguments made in our submission and says that incurring such debt is not grounds for revocation. It is indicative of the bullying nature of CRA that this letter was written on October 21 and was not communicated to Acorn. More significantly, CRA did not communicate to the Federal Court that it had absolutely no legal grounds for its position in demanding Acorn repay the loan or have its registration revoked. We could not communicate it to the Federal Court because CRA did not advise us and we only learned of it after our submissions were complete when the letter was released by the tax services.

Acorn is to be commended for its courage in authorizing this challenge to CRA in the courts and it is good that the court has spoken so decisively. We think that charities and donors must be made aware of this so that others can begin to demand that CRA treat them fairly. Acorn has authorized Benefic to publicize this information so please also see an article written by Blake Bromley and published in Gift Planning in Canada as well as the judgment. Since CRA is publishing court decisions which it likes on its website and in its newsletters, it will be interesting to see if CRA will publish comments on the Acorn case.

For Further information, refer to the following documents:

Article: A Christmas Gift from the Courts
Blake Bromley's article about Acorn Foundation's experience vis a vis CRA, written for Gift Planning in Canada

Federal Court Order: Acorn Foundation vs. CRA
Justice Russell's ruling on Acorn Foundation vs. CRA on Dec. 16, 2005

CRA views on debts incurred by charitable foundations
CRA release announcing their revised position with regards to allowing charitable foundations to incur debt