Charities are an integral part of our society; they provide a positive impact and afford the means for people to give to others. Whereas it is common to give to charities during one’s lifetime, in recent years, there has been a significant increase in Canadians leaving gifts to charities in their Wills.^[1]

But what is a charity and how do courts deal with them? In this series, ‘WEL on Charities’ I will cover some of the important legal aspects of a charity including:

• What constitutes a charity at law;
• The requirements for a valid charitable trust;
• The benefits of a charitable trust;
• The court’s powers and discretion to administer and implement charitable trusts; and
• How charities are governed in Canada, including the rights of a charity named as a beneficiary in a Will.

This blog will begin by discussing what a charity is and what are deemed as charitable purposes at law.

What is a Charity?

In Canada, charities are governed by legislation and the common law. The principal legislation governing the eligibility and registration of charities is the federal Income Tax Act (“ITA”).^[2] The definition of ‘charity’ as provided in the ITA is a “charitable organisation or charitable foundation”.^[3] The ITA defines a ‘charitable foundation’ in section 149 as:

a corporation or trust that is constituted and operated exclusively for charitable purposes, no part of the income of which is payable to, or is otherwise available for, the personal benefit of any proprietor, member, shareholder, trustee, or settlor thereof, and that is not a charitable organization.^[4]

Accordingly, there are three key requirements to be regarded as a charity at law:

• An exclusive dedication of property;
• To a charitable purpose; and
• Which provides a public benefit.

Charities as Corporations and Trusts

It is important to note that there is no such legal entity as a ‘charity.’ Instead, when we speak of charities, we refer to the charitable activities that are carried out by a corporation or a trust.^[5]

In Canada, those organizations wishing to become a charity can do so via incorporation at a federal or provincial level. Most large charitable institutions in Canada are corporations who register as a charity across several provinces. For instance, Heart and Stroke Foundation Canada are registered as a separate charity in six Canadian provinces including Ontario, British Columbia, and Quebec.

A charity can also be a trust, or more specifically, a charitable trust. A charitable trust is a true express trust. It can be created either as an inter vivos trust, or as testamentary trust (such as in a Last Will and Testament). Because it is an express trust, many of the rules that apply to express trusts apply also to a charitable trust. Thus, for example, the settlor or testator must clearly intend to create the trust, the property of the trust must be certain, and the trust must be constituted, i.e., the property must be transferred to the trustee.^[6]

Charitable Purposes

Of the three key requirements, courts typically encounter the most difficulty in determining whether the corporation or trusts’ purposes are sufficiently charitable. The ITA does not define what ‘charitable purposes’ are, instead, these are provided by the common law as follows:

• The Relief of Poverty;
• The Advancement of Education;
• The Advancement of Religion; and
• Any benefit to the community, not falling under the preceding heads.

The four categories were established by the English House of Lords in Commissioners for Special Purposes of Income Tax v. Pemsel in 1891.^[7]

The origin of these charitable purposes goes back to Elizabethan England and the Charitable Uses Act 1601.^[8] The preamble to the Charitable Uses Act contains a list of what were then considered by Parliament to be charitable purposes, which are as follows:

… relief of aged, impotent, and poor people; the maintenance of sick and maimed soldiers and mariners, schools of learning, free schools, and scholars in universities; the repair of bridges, ports, havens, causeways, churches, sea banks and highways; the education and preferment of orphans; the relief, stock, or maintenance of houses of correction; marriages of poor maids; supportation, aid, and help of young tradesmen, handicraftsmen, and persons decayed; the relief or redemption of prisoners or captives; and the aid or ease of any poor inhabitants concerning payment of fifteens, setting out of soldiers, and other taxes.^[9]

To this day, Canadian courts interpret the four heads of charitable purposes narrowly and will do so by strict analogy to the preamble found in the Charitable Uses Act. For instance, in Vancouver Regional Freenet Association v. Minister of National Revenue,^[10] a non-profit volunteer network sought to provide free-internet access through an “information highway”. The court approved the charitable status of the volunteer network under the fourth ‘benefit to the community’ head. It found that the “information highway” was analogous to the “repair of bridges, ports, causeways and highways” found in the Charitable Uses Act preamble. This is because both are considered essential for public welfare.

Summary

In summary, a corporation or trust wishing to be designated as a charity in Canada must:

(i) exclusively allocate property;

(ii) for a charitable purpose; and

(iii) for a public benefit.

The next article in this series of 4 will explore in greater detail what these requirements mean.

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[1] See National Post, ‘Leaving their legacy: More Canadians donating to charity in their will’, accessible online at: < https://nationalpost.com/sponsored/life-sponsored/leaving-their-legacy-more-canadians-donating-to-charity-in-their-will#:~:text=According%20to%20a%20study%20commissioned,%2437%20billion%20in%20future%20donations.>

[2] (R.S.C., 1985, c. 1 (5th Supp.)) [ITA].

[3] Ibid. at s.149.1(1)

[4] Ibid. at s.149.1(1)

[5] D.M.W Waters, Waters’ Law on Trusts in Canada, (Thomson Reuters: 5^th ed) at Chapter 14.1

[6] Albert Oosterhoff, Charitable and Non-Charitable Purpose Trusts (LexisNexis, 2023)

[7] Commissioners for Special Purposes of Income Tax v. Pemsel, 1891 CanLII 21 (FOREP)

[8] (U.K.), 43 Eliz. I, c. 4.

[9] Ibid.

[10] Vancouver Regional FreeNet Assn. v. M.N.R. (C.A.), 1996 CanLII 4076 (FCA), [1996] 3 FC 880