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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.)

The court disagreed.  Noel J.A., on behalf of the Federal Court of Appeal held that since the Act specifically provides for the registration of amateur athletic associations that operate across the country it was clear that Parliament had considered these types of organizations when determining eligibility for charitable status.  Noel J. believes that if Parliament intended that this status should be conferred on amateur athletic associations operating solely in a provincial capacity they would have made this provisions in the Act.  In support of this position Noel J. referred to the 1969 White Paper for Tax Reform where it was proposed that athletic associations that operate nationally should be treated as charities. In 1972 the Act was amended to permit these types of organizations to obtain this status.  On this basis, Noel J. found that although the promotion of amateur sport nationally is a charitable activity, where the organization is provincially established and run it cannot qualify for charitable status.  However, he also stated that A.Y.S.A. would be eligible for charitable status if it was teaching soccer as an objective that was incidental to other objectives that would be considered as charitable.  Noel J. concluded by saying that the facts of the case did not support this position.           

Arguably A.Y.S.A. v. CRA was correctly decided based on the strict and purposive interpretation of the Act.  However, if we believe the expert reports about how sports and physical activity can benefit our young people and thus our broader community, it’s hard to ignore the fact that A.Y.S.A.’s activities clearly are beneficial to the community.  Therefore, on the other hand, it may also be argued that this decision is inconsistent with the object and spirit of the Act.  This, however, is a much weaker argument.  Overall, the intention of permitting charitable registration is to provide a benefit to a needy group, which historically has been viewed as a historically underprivileged group.  Youth as a age category can not be viewed as such a group because of the size of the group and the government resources that would need to be allotted to support them.  Opponents of providing charitable status to these associations would argue that not all activities that benefit society must be funded through a charitable designation.  These organizations can take advantage of other government programs, or solicit other types of funding to support their programs.    

As a solution to this problem and as a way of demonstrating commitment to the health and wellbeing of our young people, the new government has introduced a tax credit mechanism to encourage participation in sport.  Budget 2006, the Conservative governments first budget for their term, proposes to allow parents to claim a non-refundable tax credit up to $500 for a child under the age of sixteen years that is enrolled in a physical activity program. The proposal will apply to the 2007 and subsequent taxation years.  To be eligible for the credit, fees must be paid within the year.  Although, this proposal will assist with the segment of the population under 16, it does not address the children most at risk: the older teenagers and early twenty groups.  This is something presumably charitable status would be able to address in a non-discriminate way. 

Whatever side of the argument you fall on, if history is any indication, provincially run sports organizations will not likely see any changes that will permit them to obtain charitable status.  However, they may see an increase in participation registration now that the government has offered a tax credit incentive.  Only time will tell.  This debate will definitely be revisited post- 2007 once the government plan has been implemented.

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