Judgment About the Future of Provincial Sports Charity Status Put on Reserve

On April 5, 2006 the Federal Court of Appeal (“FCA”) rendered its decision in A.Y.S.A. Amateur Youth Soccer Association v CRA[1]. The decision was an appeal from a CRA assessment denying the appellant's application to be registered as a charity under the Income Tax Act (“ITA”). According to the CRA, A.Y.S.A. was not entitled to registration as a charitable organization because its main objective was to promote as sport in Ontario, specifically amateur youth soccer. The FCA agreed with the CRA’s assessment and dismissed A.Y.S.A’s appeal.

A.Y.S.A. appealed the FCA decision to the Supreme Court of Canada (“S.C.C.”). Judgment reserved. On May 15, 2007, McLachlin and Bastarache, Binnie, LeBel, Deschamps, Fish, Abella, Charron and Rothstein JJ., finished hearing the appeal, however, the Court reserved judgement.[2] 

Many are awaiting the SCC decision with much anticipation because of its potential to change the status quo for charitable registration standards. As was argued by the CRA at the FCA, and likely at the SCC, the policy not to extend charitable registration to provincial organizations whose main objective is to promote sport is consistent with the original intentions of the legislature that introduced the legislation that permits charitable registration. The CRA argued that registration was specifically provided for Canadian Amateur Athletic Associations to permit them to raise funds and issue tax receipts. However, the language in the ITA did not extend to provincial organizations that promote sport locally. In the CRA’s opinion, this was not an over site but intentional drafting. 

Nevertheless, with increased sensitivity and awareness around the need to reduce obesity among Canadian youth and children, if the SCC decision reflects current realities then the court is likely to rule in favour of A.Y.S.A. and other similar organizations, which will permit them to access charitable status or amateur athletic status. This would change the longstanding policy of the CRA and the common –law and, therefore, may force the CRA to respond by amending the legislation to, specifically, exclude these entities. Alternatively, the CRA may adjust its policy to also reflect the current realities of life in Canada. 

Unfortunately, we will have to wait for the SCC decision to see how the next chain of events will unfold.

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[1] 2006 FCA 136

[2] Docket: 31476


Dangling the Tax Incentive Carrot to Encourage Participation in Fitness Programs: What is the healthiest approach?

In April 2006, the decision of the Federal Court of Canada in AYSA Amateur Youth Soccer Association v. CRA[i] upheld the CRA’s determination that AYSA was not a charitable organization under the Income Tax Act (Canada)[1] because it was established to promote a sport.  Although, as the decision indicates, historically provincial amateur athletic programs have not been eligible to receive creditable or deductible donations, in light of the recent statistics that report a substantial increase in Canadian child obesity rates and predictions about the strain obesity related illness and disabilities will have on our health care system, it appears that it is time that the courts or the legislature revisit this issue.  The courts will have this opportunity sooner than expected.  In June 2006, AYSA’s leave to appeal to the Supreme Court of Canada was granted. 

In the interim, the government has proposed a different approach to increasing fitness levels for Canadian children and youth.  The Children’s Fitness Tax Credit proposal, announced in the government’s May 2006 Budget, shortly after the AYSA Federal Court of Canada decision, attempts to create an equally attractive alternative to the charitable tax credit.  However, the proposal does not appear to be the best solution for all Canadians.

Outline of Fitness Tax Credit

In Budget 2006, the Conservative government proposed to introduce the Children’s Fitness Tax Credit.  In October 2006, Finance Minister Flaherty received a Report of the Expert Panel for the Children’s Fitness Tax Credit that provided recommendations for meeting the objective of the credit.[ii]  The recommendations are based on the government’s proposal to provide parents with a


[1] RSC 1985, c. 1 (5th Supp.), as amended (herein referred to as the “Act”).  Unless otherwise stated, all statutory references herein are to the Act.


[i] 2006 FCA 136. (Hereinafter, “AYSA”).

[ii] Canada, Department of Finance, Report of the Expert Panel for the Children's Fitness Tax Credit (Ottawa: Department of Finance, October 26, 2006).

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Case Comment: Investing In Our Youth: Supporting Provincial Amateur Athletic Programs

          Whether it is basketball, football, soccer, baseball, figure skating or hockey, for as far back as Canadian history goes sports have been an integral part of many young peoples’ daily lives.  However, in the new electronic age and an era where sports are treated as “extra-curricular” activities, families are putting less emphasis on physical activity.   Children are spending more time watching television, listening to music in their rooms on their IPODs, glued to their computer screens surfing the net or playing with their Sony Playstations, X-Boxes or Gameboys rather than spending time outdoors and playing with friends or joining a sports league.  For underprivileged children who can’t afford these gadgets, their time may be spent devising ways to obtain those things, sometimes legally, but other times by illegal means.  Experts have indicated that children who are involved in sports are more confident, focused and work better with others.  It has also been reported that girls who are involved in sports are less likely to get pregnant at a young age and young men are less likely to get involved in illegal activities.  As a result, many argue that since involvement in sports has a direct benefit for society all sporting organizations should be eligible to apply for charitable status under the Income Tax Act[i] (Canada) based on the common-law requirement that an organization must demonstrate a benefit to its community before it can be registered.  This, however, is not the government’s or the court’s opinion – at least as far as provincially run and operated amateur athletic associations are concerned.

          In A.Y.S.A. Amateur Youth Soccer Association v. CRA[ii], the taxpayer A.Y.S.A. was confronted with this issue.  A.Y.S.A. was established to promote amateur youth soccer in Ontario.  As one of its objectives the organization stated that it provided youth with an opportunity to develop pride in their abilities and soccer skills.  A.Y.S.A. believes that youth who take part in the program will develop a healthy appreciation for soccer, fitness and team building that would translate into improved life management skills.  A.Y.S.A also argues that youth that are involved in sports like soccer can focus on physical activity and team building rather than illegal activity.  Based on these objectives, the organization submitted an application for registration as a charity under the Act.  The Minister denied the taxpayer’s application on the basis that the activities of the organization were not charitable under the laws of Canada.  The taxpayer appealed.

          As defined under subsection 149(1) of the Act, a charitable organization is an entity that uses all of its resources in the support of charitable activities carried on by the organization.  In other words, if any of the organization’s resources are used to support non-charitable activities it will not be eligible for charitable status.  The Act also defines a registered charity under 248(1) as an entity that is resident in Canada and has been registered by the Minister as a charitable organization.  The Act, however, does not provide a precise definition of what constitutes a charitable activity.  The CRA has published Guidelines[iii], Interpretation Bulletins[iv] and policy statements to provide clarity and predictability about the appropriate interpretation.  The courts also provide guidance, as well.  For example, Vancouver Society of Immigrant & Visible Minority Women[v], the leading case on what constitutes charitable activities, provides the following categories of activities that can be registered by the Minister:

o       relief of poverty;

o       advancement of education;

o       advancement of religion; and

o       other purposes beneficial to the community

          Any activity that does not fit within one of these categories will disqualify an organization from registration as a charity.  However, there are additional requirements that must be met once an organizations is considered to fit within any of these categories.  In this case, A.Y.S.A. filed its application on the basis that the activities it engages in as an amateur sports association are beneficial to the community.  Although there is a clear benefit to society from being involved in sports, historically, sports have not been recognized as a charitable activity.  In fact, in response to a letter from a taxpayer to the CRA inquiring about the status of an application for charitable status, the Minister issued a response clearly stating this:

I would add as a note of caution that our courts do not recognize the promotion of a sport or sports as a charitable purpose.[vi]   

          The taxpayer argued that despite the Minister’s position, generally, on sports and the overwhelming common-law support for this position, given that one case has previously held that amateur sports in Ontario was eligible for charitable status[vii] this interpretation could apply to its application as well. 


[i] R.S.C. 1985, c. 1 (5th Supp.), (amended) (hereinafter the “Act”).  All statutory references herein, unless otherwise stated, are to the Act.

[ii] 2006 FCA 136 (hereinafter A.Y.S.A. v. CRA).

[iii] See T4063: Registering a Charity for Income Tax Purposes; and RC4108: Registered Charities and the Income Tax Act.

[iv] See IT-83R3.

[v] 1999] 2 C.T.C. 1 (S.C.C.).  Also see Commissioners for Special Purposes of Income Tax v. Pemsel [1891] A.C. 531 (H.L.).

[vi] See CIL 1994-012.

[vii] Re Laidlaw Foundation (1984) 13 D.L.R. (4th) 491. (O.H.C.J. Div. Ct.)

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Eliminating "Buy-Low, Donate-High" Charitable Giving Arrangements

Subsection 248(35) was introduced as an amendment to the Canadian Income Tax Act with the intention of eliminating the incentive for taxpayer's to engage in "buy-low", "donate-high" arrangements.  Essentially, these arrangements allow an individual to purchase property, such as pharmaceuticals or art at wholesale prices and almost immediately donate them to a registered charity at substantially inflated prices.  The individual then files a claim for a charitable donation tax credit based on the inflated price.  The new provision provides that the value of this property will be deemed to be the acquisition cost where a donation is a part of such a gifting arrangement.  It will also apply where the donation is not part of a gifting arrangement if the property is donated within three years after acquisition, or if the individual intended to make a gift at the time of acquisition and does so within ten years of acquisition. 

Subsection 248(35) is effective as of 6:00PM (EST) December 5, 2003.  There a severe penalties for non-compliance with the new provisions, so consult a legal professional or your financial advisor for more information about how this may affect you specifically.  You may also review the Gifts and Income Tax Guide for a discussion about how gifts of capital property are treated or read the Interpretation Bulletin dealing with the same issue.  For a general search on Charities, visit the CRA website link under the Resources Heading.

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