Public Foundation Or Private Foundation? The Sheldon Inwentash And Lynn Factor Charitable Foundation v. The Queen

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On February 29, 2012, the Federal Court of Appeal (“FCA”) heard oral argument in The Sheldon Inwentash and Lynn Factor Charitable Foundation v. Her Majesty the Queen (FCA Court File No. A-235-11). Pursuant to subsection 172(3) of Income Tax Act (Canada) (the “Act”), an appeal of the Minister of National Revenue’s decision to refuse charitable registration is made directly to the FCA.

The Appellant trust is appealing the Canada Revenue Agency’s (the “CRA”) decision to refuse to register the Appellant as a “public foundation” within the meaning of subsection 149.1(1) of the Act. The Appellant was instead registered as a “private foundation” (For an excellent, if slightly out-of-date, discussion on the difference between private and public foundations, see Cindy Radu, “Public/Private Foundations – Issues and Planning Opportunities” in “Personal Tax Planning,” (2009), vol. 57, no. 1 Canadian Tax Journal, 119-142).

The definition of “public foundation”, as currently enacted, reads in part (underline added):
“public foundation” means a charitable foundation of which,

(a) where the foundation has been registered after February 15, 1984 or designated as a charitable organization or private foundation pursuant to subsection (6.3) or to subsection 110(8.1) or (8.2) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952,

(i) more than 50% of the directors, trustees, officers or like officials deal with each other and with each of the other directors, trustees, officers or officials at arm’s length, and

(ii) not more than 50% of the capital contributed or otherwise paid in to the foundation has been so contributed or otherwise paid in by one person or members of a group of such persons who do not deal with each other at arm’s ength

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