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Maintain direction and control of charitable resources, or lose charity status

legal-structure-charity-incAccording to the Canada Revenue Agency (CRA), one of its main reasons for revoking a charity’s registration is the charity’s failure to devote its resources to its charitable activities (see The audit process for charities). A recent Federal Court of Appeal case, Public Television Association of Quebec v. Canada (National Revenue) provides a refresher on what this requirement entails when a charity uses an agent or other intermediary.

What happened? 

A CRA audit concluded that Public Television Association of Quebec (PTAQ) had ceased to comply with the requirement to devote all of its resources to its charitable activities, and CRA revoked PTAQ’s charity registration. PTAQ appealed the decision.

PTAQ’s main charitable purpose was to advance education, through the production, distribution and promotion of non-commercial television programming. PTAQ had two agreements with Vermont ETV Incorporated (VPT). VPT is a public television station and registered charity in the United States. A Broadcasting Agreement appointed VPT an agent of PTAQ’s, to produce, procure and broadcast non-commercial educational programs identified by PTAQ, and outlined in programming lists PTAQ would provide to VPT. PTAQ was to pay VPT based on the cost of producing the programming. Under a Fundraising Agreement, VPT was to promote PTAQ and its educational programs, and collect any donations arising from its promotion of PTAQ. VPT had a number of reporting and record-keeping obligations, including providing PTAQ with donor details and certified, quarterly fundraising statements.

CRA’s position

Citing its guide, “Using an Intermediary to Carry out a Charity’s Activities within Canada” , CRA reiterated that a charity must make decisions concerning significant issues related to its ongoing activities and maintain a record of the steps taken, to allow verification that the charity’s resources have been used for its own activities.

CRA alleged that based on the way the agreements unfolded, PTAQ failed to monitor or control VPT, as VPT was simply telling PTAQ how much donations it received, and the cost of fundraising and broadcasting. PTAQ did not, for example, set fundraising targets for VPT. In addition, VPT never mentioned PTAQ when it aired programs or did fundraising. It seemed that VPT was conducting its own fundraising and assigning Canadian donors to PTAQ; PTAQ was merely a conduit for VPT to issue tax receipts for VPT’s Canadian donors.

The court agreed with the CRA

The Court confirmed that a charity may carry out activities through an agent, but it must also devote all of its resources to charitable activities it carries on itself. To reconcile these two requirements, a charity must be able to demonstrate that although it carried on activities through an agent, at all times it both maintained control over the agent and remained in a position to report on the agent’s activities. This would demonstrate that the activities are those of the charity and not the agent.

The Court emphasized that among other factors, PTAQ:

  • Did not control VPT’s programming choices. VPT merely presented predetermined packages, and PTAQ always selected programs from VPT’s list. PTAQ made only minor changes to the predetermined packages three times in a ten-year period.
  • Did not question anomalies in the programming costs. The costs remained the same regardless of the program package and notwithstanding variations in the number of hours in the different packages. Coincidentally, when VPT presented estimates for programming costs, they always equalled the forecasted fundraising revenues.
  • Did not produce any board minutes that reflected instances where VPT provided detailed breakdowns of broadcasting costs.
  • Never monitored actual monthly or quarterly fundraising against an approved schedule, and VPT never submitted any descriptions or details of its fundraising activities.


Charities that use agents or other intermediaries should:

  1. Implement steps to maintain direction and control over intermediaries and resources, for example by: making enquiries, requesting and reviewing regular progress reports, directing key decisions, providing input of substance and requesting independent program audits or reviews.
  2. Document the steps taken to maintain direction and control. Charities should retain evidence of this, including: email trails and detailed board minutes.
  3. Abide by contract terms, absent compelling reasons to deviate, and even then, only after legal or other professional advice. As the Court concluded, had PTAQ followed the reporting and monitoring procedures in the two agreements it would have established direction and control over VPT.

Apolone Gentles, JD, CPA,CGA, FCCA, Bsc (Hons)

Apolone Gentles is a CPA,CGA and Ontario lawyer and editor with over 20 years of business experience. Apolone is leveraging 20 years of business and accounting experience to build a commercial litigation practice with an emphasis on construction law. She has held senior leadership roles in non-profit organizations, leading finance, human resources, information technology and facilities teams. She has also held senior roles in audit and assurance services at a “Big Four” audit firm. Apolone has also lectured in Auditing, Economics and Business at post-secondary schools. Read more here

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