http://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/110887/index.do
Public Television Association of Quebec v. Canada (National Revenue) (July 22, 2015 – 2015 FCA 170, Pelletier, Gauthier, Scott (author) JJA).
Précis: Public Television Association of Quebec (“PTAQ”) appealed from the Minister’s revocation of its charitable status. The revocation was based on the Minister’s conclusion that PTAQ was not using all of its assets in its own charitable activities. Essentially the Minister argued that PTAQ was a creature of Vermont Public Television (“VPT”). In the alternative the Minister alleged that PTAQ was making gifts to VPT which was not a “qualified done” for the purposes of the Income Tax Act.
The Federal Court of Appeal rejected PTAQ’s appeal. While there were broadcasting and fundraising agreements between PTAQ they “were not followed or respected” [para. [55]]. PTAQ failed to maintain direction or control over its resources, ceding that function to VPT and accordingly it did not use all of its assets in its own charitable activities. Having reached this conclusion it was not necessary for the Court to examine the Minister’s second line of argument. The appeal was dismissed with costs.
Decision: On paper PTAQ and VPT had a complex relationship based on broadcasting and fundraising agreements:
[10] PTAQ was granted charitable status on November 15, 1990, with an effective date of September 21, 1990, its date of incorporation.
[11] The objects of PTAQ, as stated in its Letters Patent, are amongst others:
1. To advance education through the production, distribution and promotion of non-commercial television programs and films that are educational in nature;
2. To produce, distribute, sell and promote educational television programs and films;
3. To acquire and sell the rights to educational television programs and films;
4. To engage in joint ventures or other arrangements for production, distribution and promotion of educational programming for broadcast or carriage of non-commercial television;
5. …;
6. …;
7. …;
8. …;
9. …;
10. To solicit, collect, accept, receive, hold, invest, reinvest and administer gifts, legacies bequests, devises, funds, benefits or trusts and profits of any sort or nature, without limitation as to amount or value, and to use, apply, employ, expend, disburse, or donate the income or principal thereof and generally to devote the same to any purpose of the corporation.
(Appeal Book, Vol. 1 pp.10-11)
[12] On July 1, 1991, PTAQ entered into a Fund-Raising Agreement (the Fundraising Agreement) and a Broadcasting Agreement with Vermont ETV Incorporated (VPT), a public television station located in the state of Vermont and a registered charity in the United States.
[13] The Broadcasting agreement entered into by PTAQ as principal with the agent VPT specifies in article 1:
1. Appointment
a) The Principal hereby appoints the Agent its agent to produce or procure and to broadcast the non-commercial television programs and films identified by the Principal in its annual list of educational programs for television distribution (the “Programs”) copy of which, for the 1991-1992 program year, is annexed hereto.
b) The Agent hereby accepts the aforesaid appointment.
(Appeal Book, Vol. 7 p. 1417)
[14] Furthermore, in article 4 of the Broadcasting agreement, the relationship between PTAQ and its agent VPT with respect to Production, Procurement and Broadcasting is delineated as follows:
b) The Principal shall prepare or have prepared and shall submit to the Agent, not more than one hundred and twenty (120) days and not less than ninety (90) days prior to the commencement of each Program Year, a proposed list of Programs. The proposed list of Programs may be based, in whole or in part, on recommendations made by the Agent to the Principal. Within thirty (30) days of the receipt thereof, the Agent shall furnish to the Principal a statement of the estimated costs of producing or procuring, as the case may be, and of broadcasting each Program on the list submitted by the Principal. The statement shall indicate, in addition to the itemized estimated costs of producing or procuring the Programs and of broadcasting them, the estimated total costs of delivering the Programs to the public during the Program Year, including overhead costs which shall not exceed 15% of all other costs of delivering the Programs to the public, and shall be accompanied by a proposed broadcasting schedule and a notice of any Program which the Agent is unable to produce, to procure or to broadcast in the Program Year. The Principal may, not less than sixty (60) days prior to the commencement of the Program Year, amend the list of programs submitted to the Agent, failing which it shall be deemed to have irrevocably directed the Agent to produce or to procure, as the case may be, and to broadcast the Programs on the most recent list submitted by the Principal, and such list shall constitute the Principal’s annual list for the relevant Program Year of programs for television distribution (the “Annual List”).
(Appeal Book, Vol. 7 pp. 1417-1418)
[15] Article 5 of the Broadcasting Agreement defines the obligations of PTAQ, the principal, for the payment of the programs broadcasted by its agent VPT on its behalf.
a) Not more than thirty (30) days and not less than ten (10) days prior to the commencement of each month of the Program Year, the Agent shall submit to the Principal a statement listing the Programs to be broadcast during the month as established by the Agent from the Annual List and the estimated costs of producing or of procuring, as the case may be, and of broadcasting each Program. The statement shall also indicate the total estimated production, procurement and broadcast costs for the month and shall be certified accurate by an officer of the Agent having knowledge of the contents thereof.
b) Within then (10) days of its receipt of the aforesaid statement, the Principal shall pay the Agent an amount equal to the total estimated costs indicated in the statement.
c) Adjustments shall be made in the following manner to ensure that the sum of the procurement, production and broadcast costs paid by the Principal during the Program Year is equal to the sum of the actual production, procurement and broadcast costs incurred by the Agent hereunder.
…
(iii) The obligations of the parties to make any adjustment pursuant to this paragraph 5 c) shall survive the expiration of the term of this Agreement.
(Appeal Book, Vol. 7 pp. 1418-1420)
[16] The Fundraising agreement entered into by PTAQ, the principal, with the agent VPT defines the parties’ obligations with respect to the direction and control of fund raising activities undertaken by the agent (VPT) on behalf of PTAQ in articles 2 b), 3, and 5:
2. Fund-raising activities
…
2 b) The Agent agrees to promote the Principal and, in particular, the non-commercial television programs and films made available by the Principal and to inform prospective donors and donors of its relationship with the Principal.
3. Direction by Principal
a) The Agent shall prepare and submit to the Principal for approval a summary of proposed fund-raising activities. The summary shall set forth:
(i) a schedule of fund-raising activities;
(ii) a description of fund-raising activities, including the medium and manner of such fund-raising activities and any accompanying programs or films as well as the participation of any celebrities or public officials;
(iii) a proposed budget for the fund-raising activities.
…
5. Records and Accounts
a) The Agent shall record the date and amount of each donation received by it on behalf of the Principal and the name of each donor. Such records shall be submitted to the Principal on request. A statement of total donations certified accurate by an officer of the Agent having knowledge thereof, shall be submitted quarterly by the Agent to the Principal.
b) All donations received by the Agent on behalf of the Principal shall be for the account of the Principal and shall be deposited daily in a bank account established by the Agent and approved by the Principal and in the name of the Principal.
c) No monies received by the Agent on behalf of the Principal shall be applied for the benefit of the Agent unless the Agent has first received a written authorization from or entered into a separate contract with the Principal authorizing the transfer of monies to the Agent.
d) All donations received by the Agent from persons resident in Canada shall be deemed to be donations received on behalf of the principal.
(Appeal Book, Vol. 7 pp. 1429-1432)
[17] On October 4, 2007, PTAQ received a Notice to Audit from the CRA, applicable to the fiscal periods that ended on June 30, 2005 and 2006.
[18] Following the audit, on March 23, 2009, PTAQ was advised of the auditor’s position that it was non-compliant with the provisions of the Act, as it failed to devote all its resources to charitable activities. More specifically: “The audit findings revealed that the Charity’s only activity for the fiscal period ending June 30 2006, was simply the purchase of a program package from Vermont ETV for airing on certain television stations. The programs identified by the Principal were Caillou, Arthur, The News Hour and the Nightly Business Report” (Appeal Book, Vol. 1 p. 53).
The Minister concluded, in her revocation decision, that these agreements were essentially ignored in practice:
[25] The decision on that objection to revoke was reached on October 21, 2013, when the CRA upheld the Minister’s proposal to revoke the registration of PTAQ and issued a Notice of Confirmation. In its letter the CRA concluded that:
While a broadcasting agreement and a fundraising agreement exist between PTAQ and Vermont Public Television (VPT), it has not been demonstrated that the provisions of the two agreements were followed and respected. No documentary evidence has been provided to demonstrate that PTAQ is monitoring the cost of the broadcasting activities, the donations received and the fundraising, and that it is ensuring that all of this is, in fact, its own activities. VPT is only informing PTAQ on how much donations were received, what is the cost of the broadcasting and the fundraising. PTAQ does not exercise direction and control over any of these activities. We maintain that all the activities are carried on by VPT and that PTAQ is only used to issue receipts for donations received by VPT from Canadian donors.
(Appeal Book, Vol. 1 p. 7) [Emphasis added]
[At present the Federal Court of Appeal web site does not actually have any indication of emphasis in the above-quoted passage]
The Court of Appeal concurred with the conclusion of the Minister:
[55] Based on the evidence outlined above, I conclude that it was reasonable for the Minister to determine that PTAQ failed to maintain direction and control over its resources as it did not devote all its resources to its own charitable activities. The provisions of the broadcasting and fundraising agreements were not followed or respected. PTAQ has not adduced evidence that it exercised proper control over the activities of its agent by demonstrating how it monitored the cost of the broadcasting activities, the donations received and the fundraising. It has not established how the Minister erred in coming to the conclusion that PTAQ is only used to issue receipts for donations received by VPT from Canadian donors, as the documentation contained in the record does not overturn the factual findings noted above with respect to the broadcasting and fundraising agreements.
As a result the appeal was dismissed with costs.