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On July 25, 2013, CRA released a new Guidance, CG-019, entitled “How to Draft Purposes for Charitable Registration”. This Guidance updates previously released policy statements on acceptable charitable purposes (or “objects”) and sets out CRA’s recommended approach to drafting charitable objects, whether in the form of a corporate charter (articles of incorporation, letters patent, etc) or trust document. As such, the Guidance provides valuable insight for charities and practitioners into how the Charities Directorate interprets the legal requirement that a charity must be constituted for exclusively charitable purposes as well as the technical requirements that must be met when drafting such purposes.
CRA confirms in the Guidance that in order to qualify for charitable registration, an organization must be constituted for purposes that are exclusively charitable. CRA states further that the purposes must define the scope of activities that can be engaged in by an organization. When evaluating an application for charitable registration, or determining whether an organization continues to qualify, CRA will review the statement of purpose in the organization’s governing documents to confirm that it meets these requirements.
CRA states that a statement of purpose should identify three basic elements:
- charitable purpose category – the purpose should be drafted so as to establish that it falls within one of the four “heads of charity”;
- the means of providing the charitable benefit – the purpose should define the scope of the activities that can be conducted to directly further the purpose and ensure the provision of a charitable benefit; and
- the eligible beneficiary group – the purpose should identify the section of the public that is eligible to benefit from the organization’s activities, so as to ensure that the charity meets the public benefit test.
CRA elaborates on each of these elements in the Guidance, and in particular the second and third elements. With respect to the second element, CRA states that the requirement to identify the means by which the organization can carry out its purpose is intended to ensure that the organization’s activities will be exclusively charitable and that the charitable purpose is capable of providing a charitable benefit. CRA states that the benefit must be recognizable and capable of being objectively measured, and must be a reasonably direct result of the purposes of the organization and the activities done to further them. To be sure, applying this standard in practice is sometimes difficult, as charitable purposes can be furthered in many ways, some of which may be more difficult to measure than others but nonetheless effective.
With respect to the third element, i.e., the identification of the eligible beneficiary, CRA confirms that the class of eligible beneficiaries must be consistent with the public benefit test, which requires that the benefit be made available to the general public or a “sufficient section of the public”. Any restrictions imposed on the class of eligible beneficiaries of a charity’s services must be logically connected to the charitable purpose (e.g., a women’s shelter may justifiably restrict its benefits to women). CRA makes reference to its earlier policy statement on the public benefit test, CPS-024, as a source for further information on this requirement.
CRA also confirms specific requirements that apply to purposes falling within each of the four categories of charity.
Broad or Vague Objects
CRA states that if a purpose does not contain each of these three elements, it may be rejected as too broad or vague to be exclusively charitable. The Guidance provides examples of wordings for charitable purposes that are too broad, as compared to an acceptable wording for that purpose that contains all of the required elements. The Guidance includes the following examples:
Acceptable: “Improving socio-economic conditions in (specify location) by operating social businesses for people with disabilities”
CRA notes that the activities of an organization may reveal a purpose that is not stated in the organization’s objects. Such purposes may be charitable, in which case the organization can be registered provided that it amends its governing document to incorporate this purpose explicitly, or may be non-charitable, in which case the organization will not be eligible for registration. CRA may, for example, infer an unstated political purpose from the activities of an organization, or may conclude that the organization has a purpose of raising funds (which is not considered charitable, though fundraising is an acceptable ancillary activity to a charitable purpose).
Organizations should evaluate their activities carefully to consider whether CRA might infer from them any unstated purposes, and should consult counsel if the organization’s activities appear to further purposes that are not included in its formal objects. This may require an updating of the organization’s objects and/or modifications to the organization’s activities to ensure that its purposes are exclusively charitable and properly reflected in its formal statement of purposes.
CRA publishes model wordings for charitable purposes on its website. These model wordings have been recently expanded to encompass a wide range of charitable purposes and activities.
CRA confirms in the Guidance that there is no requirement to use the model purposes, and that the use of the model objects does not guarantee registration. It does state that the use of such purposes will make it easier for CRA to evaluate the organization’s eligibility for registration. For this reason, new organizations should consult CRA’s model objects as a starting point when developing their own statement of purpose.
The provision of the Guidance is welcome to lawyers who deal frequently with objections from the Charities Directorate on proposed charitable objects, will benefit from the details provided on CRA’s analytical approach.
CRA’s published guidance is not itself law, and it is possible that CRA’s interpretation of the legal requirements for a statement of purpose may be challenged in court. In our view, the CRA’s approach is much more restrictive than the case law requires. However, when developing purposes or contemplating amendments to existing purposes, organizations should take account of CRA’s guidance so as to minimize the likelihood that the Charities Directorate will challenge these purposes.
Organizations with questions on these issues should feel free to contact a lawyer in Miller Thomson’s Charities and Not-for-Profit Group.