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CRA Contends Giving to U.S. Charity is a “Non-Charitable Purpose”

February 13th, 2012 by Blake Bromley, Bio

If a donor were to type “Give2Asia” into any internet search engine, she would quickly find information about many successful projects occurring on the ground throughout Asia supported by G2A. From disaster relief to social development and education, G2A has helped channel the philanthropic energies of the Asian Diaspora into many effective and impactful programs.

G2A was established as an American charity in 1991.  In 2003, I incorporated and registered G2A as a Canadian charity in response to growing interest from members of Canada’s Asian Diaspora.  In order to benefit from established infrastructure and expertise and avoid duplicating overhead costs, Give2Asia’s Canadian charity gifted money across the border to their American counterpart.  The Tax Treaty between Canada and the U.S. has specific provisions that authorize the mutual recognition of each other’s charities. The intent of these provisions is to encourage Canadians to donate to charities in the U.S. and vice versa.

Unfortunately for G2A, while CRA acknowledges that Canadian individuals can give to U.S. charities under the Tax Treaty, it has an administrative policy of denying that provisions enabling cross-border giving apply to Canadian charities. There is no court case that definitively addresses this grey area.  G2A provided a comprehensive, tightly reasoned defense of its interpretation of the provisions in the Tax Treaty but CRA refused to substantively engage with them on their legal analysis. Rather than spend many tens of thousands of dollars taking the issue to the Federal Court of Appeal, the Canadian G2A agreed to immediately cease making gifts to the U.S. charity and asked to voluntarily revoke its registration.

The Director General of Charities Directorate responded: “It is the Canada Revenue Agency’s position that it is in the public’s interest that the Charity’s registration be revoked for cause given that the Charity has operated solely for the non-charitable purpose of gifting funds to a non-qualified donee, Give2Asia, a U.S. 501(c)(3) non-profit organization.”

Not confident enough to defend its position on either a legal or policy basis in any significant way, CRA simply claimed it was right in its interpretation and didn’t worry about the lack of administrative fairness demonstrated by such an approach.

Given the circumstances, it is especially vindictive for CRA to have chosen to revoke G2A Canada’s registration “for cause”. There is no statutory standard for when a charity should be revoked for cause.  Such decisions lie entirely within the discretion of bureaucrats in Charities Directorate. Nor is there any legal avenue to appeal the type of revocation imposed by CRA because the Income Tax Act does not contemplate the possibility that Charities Directorate would revoke the registration of any charity without cause.

It saddens me that CRA took such a punitive approach with G2A’s Canadian charity. In my opinion, engaging the Canadian Diaspora in charitable giving is a legitimate and valuable charitable purpose and providing Canadian donors with easy access to some of the international expertise based at G2A’s San Francisco headquarters enhances the result of that charitable purpose. Based on decades of personal experience with the practices of Canadian charities that CRA considers to be compliant with their administrative policies on foreign charitable activities, I believe projects run through the G2A process provide better results to both donors and overseas recipients.

When I travel in China, I am constantly made aware of how much good is accomplished by funding provided by G2A. It is a tragedy that when members of Asia’s Diaspora search on the web to learn about G2A, they read about its role in providing innovative leadership to increasing Diaspora philanthropy but when they read CRA’s website, they see that Canadian officials revoked the organization’s registration for cause because it purportedly operated for a non-charitable purpose. Most people would think that gifting funds to promote a charitable purpose remains charitable even if the funds are handled by a U.S. charity. It is a shame that CRA’s harsh treatment of the Canadian entity stands in such stark contrast to G2A’s reputation as an innovative and effective charity that consistently supports remarkable work being done throughout Asia.

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Categories: Charity, Compliance, Law, Strategy

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