THE BLOG

Charity Lesson From the Scottish Referendum

09/23/2014 12:01 EDT | Updated 11/23/2014 05:59 EST

It took the fear of Scotland voting to separate for the tax authorities in London to afford any respect to Scottish law when determining tax benefits for charities in Great Britain.

When opinion polls showed the Scots might actually vote in favour of separation on September 18, the fear of a "yes" majority led the three leading political party leaders in England to publish a signed agreement pledging increased tax and other powers for Scotland.

What does charity law have to do with motivating ordinary people in Scotland to vote to break their political links with Great Britain?

It is indisputable that the foundational case in charity law is a decision of the House of Lords way back in 1891, Income Tax Special Commissioners v. Pemsel, an 1891 decision of the House of Lords. John Pemsel was a resident of Scotland and the issue before the court was whether the meaning of charity for a trust resident in Scotland was to be determined by the law of England or Scotland. In a split decision, the highest court in the United Kingdom held that in order to receive tax benefits, a Scottish charity must comply with English law.

The Pemsel decision remains the governing legal reality of ordinary Scots trying to set up charities under the laws of Scotland today. In 1999 Scotland was given its own Parliament and in 2005 the Scottish Parliament enacted a Charities Act. The Scottish definition of charity is similar to the English definition; but contains some significant distinctions that are important to the Scottish people and their Parliament. However, until the tax authority is transferred to Scotland as promised in the referendum panic, the Pemsel case means Scottish charities do not obtain tax benefits if they deviate from the English definition.

The Pemsel case shapes the meaning of charity in Canada. Almost every federal court decision on the meaning of charity cites Pemsel. Consequently, Canada Revenue Agency cites it incessantly. The charity established by influential charity lawyers and funders "to foster better knowledge and understanding by the Canadian public and voluntary sector organizations of charity law and regulation" calls itself The Pemsel Case Foundation.

However, Canadians should be concerned that the consequence of building Canada's law of charity on the Pemsel case means that Canadian courts and Canada Revenue Agency exclude any possibility of Quebec law influencing the meaning of charity. It is wrong that the people of Quebec are denied the benefit of their law and their experiences in shaping what should be an evolving concept of charity. How can Canada claim to be bijural when it excludes any civil law influence on the definition of charity and restricts itself to the Pemsel common law definition?

I was one of the lawyers for the Appellant when the Supreme Court of Canada doubled down on excluding provincial law from influencing any changes in the meaning of charity. In 2007, the SCC held: "specific statutory definitions of charity in provincial legislation and decisions dealing with that definition do not dictate the meaning of charity under the Income Tax Act."

Quebec's National Assembly could possibly do as Scotland did and pass a Charities Act defining the meaning of "bienfaisance" which aligned with the values, realities and aspirations of the people of Quebec. Should Quebec do so, any group of Quebec activists organizing themselves under this legislation would find that they would not qualify as a "registered charity" when they applied to CRA. Quebecers, like Scots, would have to convince CRA that they had not taken advantage of any unique provisions in Quebec law but had limited their purposes and activities to those accepted by the common law in the Pemsel tradition.

The referendum in Scotland demonstrates the risks of England denying tax benefits to charities which promote indigenous Scottish values. Canada should have the self-confidence to respect the values and purposes which emanate from Quebec's people and legislature when granting tax benefits to registered charities. As a nation we should no longer restrict our understanding of public good to purposes recognized by common law courts following the Pemsel case of 1891.

Will it take the threat of separation for the tax authorities in Ottawa to give any respect to Quebec law when determining tax benefits for charities in Canada?