Case Law Comment - Football Canada and the Taxman

Published September 11, 2008

Registered Canadian amateur athletic associations (also termed RCAAAs) are non-profit organizations that were established for the primary purpose of promoting amateur athletics in Canada on a nationwide basis.  These organizations are registered as such under the Income Tax Act (the Act) and have the authority to issue official donation receipts for income tax purposes. Virtually all NSOs in Canada enjoy RCAAA status.

On September 3, 2008, the Canada Revenue Agency (CRA) revoked the status of the Canadian Amateur Football Association (CAFA) as a registered Canadian amateur athletic association, effective August 30, 2008 therefore revoking its right to issue official donation receipts for income tax purposes. The relevant portion of the Act is Section 168(1)(d) which reads:

168(1)(d) – Where a registered charity or a registered Canadian amateur athletic association issues a receipt for a gift or donation otherwise in accordance with this Act and the regulations or that contains false information, the Minister may, by registered mail, give notice to the registered charity or registered Canadian amateur athletic association that the Minister proposes to revoke its registration.

Paul Waldie of the Globe and Mail reported on September 4th, 2008, that the CRA revoked Football Canada’s charitable status mainly because of its involvement in a tax-shelter program that had raised more than $70-million under the names of several amateur sport organizations. Operated by ParkLane Financial Group, based in Burlington, nearly all of the money is held in an investment fund, the donors receive a large tax receipt and the sport organizations receive an annual ‘royalty’ payment that is fairly significant (approximately $100,000 per year in the case of Football Canada).

The CRA is currently reviewing the participation of the other organizations in ParkLane Financial Group, namely Canadian Lacrosse Association, Wrestling Canada, Biathlon Canada, Little League Canada and the Canadian Wheelchair Basketball Association. In particular, CRA is seeking information to substantiate the amount of funds in the shelter, the value of tax receipts issued, and to whom they have been issued.

According to media reports it is unlikely that any of the organizations involved in the tax shelter will have to pay back the money they have received to date. However, the CRA’s decision will have an impact on future royalty payments from the money raised, and may result in the tax shelter being closed. As well, as Football Canada has learned, this scheme places the RCAAA status in jeopardy, and this will negatively impact future fundraising. The CRA is currently reviewing the participation of some of the other organizations in the tax shelter.

We are not tax or charity experts, and all we can offer in response to this situation is to be very cautious about fundraising schemes that appear so clever yet so easy on the surface. The RCAAA status is precious and once lost, not likely to be restored. The arrangement with ParkLane was “too good to be true”: the participating sport organizations were merely lending their good name (and RCAAA tag) to a third party investment scheme and were being compensated for this through an annual payment. We will continue to monitor this case and hope to do a more thorough reporting in our next newsletter.

Originally published: Centre for Sport and Law Newsletter (2008) Vol. 4(2)