1993 Letter from Revenue Canada to the National Capital FreeNet, Ottawa, refusing charitable tax status.


Letter from Charities Division – RevenueMount Clark Yemensky Daigle Lemay

Barristers and Solicitors

Suite 208, 1400 Clyde Ave.

Nepean, Ontario

K2G 3J2

Attention: Mr. R. L. Mount

Dear Mr. Mount:

Re: National Capital FreeNet Incorporated

Thank you for responding to our letter of August 20, 1993, in which you were informed that it appeared unlikely that National Capital FreeNet Incorporated would qualify for registration as a charity under the Income Tax Act. I regret the delay in responding.

The additional information has not changed our view of the application. The organization has not been constituted to operate for the purposes qualifying as charitable as the advancement of education or as providing a benefit of a charitable nature to the community as a whole (the second and fourth heads of charitable purposes as established by Lord Macnaghten in The Commissioners for Special Purposes of the Income Tax Act y. Pemsel [1891] A. C. 531). Consequently, the organization’s application is hereby refused.

Advancement of Education

You are aware that in order to advance education, a purpose and activity must involve training or instruction, the development of mental faculties, or the improvement of a branch of human knowledge.

Not every experience of learning may be considered educational. For instance, in IRC v. Braddeley 1955] A. C. 572, the court indicated that it is not enough that something be educational in the sort of loose sense that all experience may be said to be educational. The mere obtaining and provision of information has been viewed as falling short of education. See Harman J. in Re Shaw [1957] 1 W.L. R. 429 (“merely the increase of knowledge is not in itself a charitable object unless it be combined with teaching or education”). Further,in D’Aguiar v. IRC (Guyana) [1970] T. R. 31, the Privy Council reasoned that providing advice to the community was not charitable as advancing education (or otherwise).

You reason that one of the organization’s goals clearly states as a purpose of advancing education (i.e. “to encourage and promote discussion and study of public information systems; and to further the broad public information and education values of an open and democratic society.”) In my view, this goal does not reveal an educational purpose, nor does it restrict the organization to educational activities. In fact, it easily empowers the organization to undertake a large variety of activities that may not necessarily be educational at law.

I do not dispute that certain of the programs undertaken by the organization involve educational purposes (e.g. teaching and instructing providers of information and end-users basics and skills on computer use). However, any such educational activities form part of the organization’s overall function of facilitating access to information. While it is likely that some of the material available through the network have some educational value, it is my understanding that such material is that of others; basically, the organization’s members. As I see it, the organization has little, if any, involvement in the production of educational material transmitted/broadcast through the network. Rather, a significant amount of the information available via the network includes, among others, conversations, advertisements of events, general discussions and exchanges of information on various topics. Accordingly, I must conclude that the organization, as a whole, cannot be regarded as charitable within the legally established meaning of advancement of education.

I appreciate that supplying materials and books to educational institutions to facilitate their objective of advancing education, might be recognized as charitable. In Attorney-General v. Marchant (1866) L. R. 3, the provision of books for a college was held charitable on the ground that a large well-assorted library in a college tends to the promotion of education. I do not see the organization’s purpose as being exclusively or primarily a provider of books in electronic form. Also, it has not been established to facilitate educational institutions by establishing therein “well-assorted libraries”. I believe that the organization’s role of providing access to information and programs which might assist education institutions is too remote a function to recognized as charitable.

Similarly, in terms of the organization’s research role, provided that it was otherwise established for charitable purposes and activities, the undertaking of research in furtherance thereof would be acceptable. The fact that research is undertaken in support of a goal or purpose does not render that goal or purpose charitable. The organization’s purposes are not charitable.

Other Purposes Beneficial to the Community, Not Falling Under Any of the Other Three Heads of Charity

Lord Macnaghton’s fourth category is essentially a repository for all those purposes that while clearly charitable, did not fall neatly into the first three heads of charity. In order to qualify under this head of charity a purpose must be both beneficial to the community and within the spirit and intendment of the preamble to the Statute of Elizabeth, or akin to purposes previously decided by the courts to be within the spirit and intendment of the statute.

A purpose that is beneficial to the community is not necessarily a charitable purpose in the legal sense; the reverse, however, is always true; Re Compton [1945] Ch. 123. As Lord Hansworth M. R. pointed out in I. R. C. v. Roberts Marine Mansions Thrusees (Rest Home) (1927) 11 T. C. 425 (CA) at 443, it would be a “travesty of what Lord Macnaghten said if one were to interpret in that in the fourth class he meant that everything that was a benefit to the community was to be included as a charity”.

Your position is that the organization should be recognized as providing public amenities for the community, in that it provides a service that is the modern equivalent of a community centre.

I see important differences between this sort of public facility, and the function served by the organization.

Essentially, I see the organization as a telecommunication network, a transmitter of information, in much the same way as a telephone communication service, or radio or television network. In my view, these sorts of “networks” and “transmitters” are not charitable as fourth head purposes.

The provision of a public hall or community centre facility (real property) for the general use of the public for a variety of community activities (including, among other things, a physical meeting place for social gatherings and events, community meetings, health recreation and incidental sports activities) is charitable. This is so, insofar as the administration of such a facility retains sufficient control over the use to which the facility is applied.

The provision of a communications network for the public for the overall purpose of transmitting and receiving information electronically (including private or personal messages via the “E-Mail” service) is not, in my view, analogous to the provision of a public hall or a community centre facility. The provision of these “E-Mail” services further demonstrates that the organization does not have sufficient control over how the facility is used.

I am also aware that a public hall or community centre might incidentally public space for advertising, similar to a computer bulletin board. Again, however, I believe that the public hall and community centre facilities are responsible for ensuring that the materials placed on their public bulletin boards meet a standard for acceptable content. On the other hand, the organization’s provision of a bulletin board seems to have more prominence in its overall function and it does not seem to regulate the content of messages, etc.,carried on the network.

Relieving the conditions associated with the ages (the term “shut-ins” could reasonably be associated with the “aged”) has been recognized as charitable. Accordingly, an organization which has been established to assist the aged by alleviating their loneliness through the provision of social and recreational activities, or by addressing their health problems, could be charitable. Likewise, providing counseling to the abused is charitable. Again, I appreciate that there are components of the organization’s programs which might possibly assist the aged in a charitable manner. As to counseling the abused, there is no evidence that the organization provides this service. Rather, it seems that the organization may simply provide a vehicle for group discussions on the topic of abuse.

In conclusion, your presentation does not overcome my concern that the organization is not established to operate exclusively for charitable purposes. In addition, it does not devote its resources to charitable activities. There is no judicial precedent to recognize networks,electronic or otherwise, and in particular computer networks, as charitable.

An applicant may appeal refusal of registration as a charity pursuant to subsections 172 (3) and 180 (1) of the Act by filing a Notice of Appeal with the Federal Court of Appeal within 30 days of the time the decision to refuse the application was mailed or otherwise communicated to the applicant or its representative. For your reference, I have attached a copy of subsections 172(3) and 180(1) of the Act and would advise that the address of the Federal Court of Appeal is:

Supreme Court Building

Wellington Street

Ottawa, Ontario

Finally, I note for our letter of August 20 (copy enclosed) that we informed the organization of the possibility of qualifying for exemption from tax as a non-profit organization under paragraph 149(1)(L) of the Act. However, article 6 of its Application for Incorporation indicated that in the event of dissolution or winding-up, its remaining assets shall be distributed ratably amongst its members. While it was not addresses in our noted letter, this would be grounds for otherwise not considering the organization as a charity. As you may know, no part of a charity’s income may be payable to, or otherwise available for, the personal benefit of any proprietor, member, shareholder, trustee or settler thereof. Although the organization’s corporation documents provide for a non-profit clause, it would be inappropriate for us to consider registration of an organization which intents to distribute its assets among its members, either during its lifetime or upon dissolution. Further, this would likely be grounds for not considering the organization as non-profit for the purposes of paragraph 149(1) (L).

While I am unable to approve the application, I hope that my comments will help you to understand our position.

Yours sincerely,

R.A. Davis, Director

Charities Division Canada