CHARITY IN DOGFIGHT FOR TAX-FREE STATUS
Michael O’Sullivan has raised millions of dollars for his Humane Society of Canada organization. It’s what he’s spending donors’ money on that has put him squarely in the CRA’s crosshairs
Michael O’Sullivan has raised millions of dollars from animal-loving Canadians — including Prime Minister Stephen Harper — for his Toronto-based animal welfare charity.
Though O’Sullivan has vowed to spend donors’ hard-earned money to save animals and nature, he has at times used charity coffers as a personal piggy bank, a Star investigation has found.
His organization — comprising four charities under O’Sullivan’s control that collected $9 million in donations in 15 years — continues to operate under the nose of the federal regulator that has been trying to shut it down.
O’Sullivan, executive director and CEO of the Humane Society of Canada for the Protection of Animals and the Environment, has successfully stopped Canada’s tax watchdog from closing the charity he’s run for 23 years, despite a federal audit that revealed “serious and intentional” spending breaches.
The other charities are the Ark Angel Fund, the Ark Angel Foundation and the Humane Society Foundation.
The audit team examining the lead charity’s 2006 tax return uncovered suspect spending that included an O’Sullivan family trip to Disneyland, theatre tickets in England, booze bills and a purchase at a women’s lingerie store passed off as legitimate charity expenditures.
The results prompted the regulator to try — unsuccessfully, so far — to revoke the organization’s charitable status.
The Star has made repeated attempts to contact O’Sullivan to get his side of the story, but he has not responded to any requests made by phone, email, text or letter.
In his defence, as part of his legal challenge to keep his charity registered, O’Sullivan and his charities have stated that some of the problems raised by federal auditors occurred as the result of a “bookkeeping error,” according to statements his lawyer has made to the taxman.
His lawyer, Blake Bromley, has also said that O’Sullivan is so devoted to the cause that he has personally paid for such items as the charity’s own bank interest expenses. “The nature of Mr. O’Sullivan is such that he thinks of benefitting animals rather than the charity,” Bromley wrote in 2012.
Bromley has also said that charity personnel and volunteers have “expended substantial resources” in responding to concerns raised by federal auditors, and that has “diverted manpower and resources away from the actual carrying out of the charity’s charitable programs and fundraising.”
The government’s charity regulator — which first flagged Humane Society of Canada spending infractions as far back as 1998 — has kept the charity’s ongoing tax troubles secret from the Canadian public. The federal Charities Directorate, which polices more than 86,000 charities across the country, has a policy of not alerting the public about an organization’s tax troubles until its status is officially revoked.
On Feb. 17, 2010, the Canada Revenue Agency (CRA) notified O’Sullivan it was moving to revoke the Humane Society of Canada’s charitable status, based on the detailed findings of the audit. O’Sullivan has contested the revocation through a series of appeals.
Now, he has taken his case to the Supreme Court of Canada, after three Federal Court of Appeal judges ruled unanimously in August to uphold the government’s decision to shut down the charity. O’Sullivan is seeking permission to appeal the federal court ruling.
While O’Sullivan’s other three charities were appealing revocation orders, they recently abandoned their appeals.
And while O’Sullivan keeps fighting in the courts to keep his main charity in business, he is allowed to collect and issue official receipts for donations from the public. The charity’s website currently solicits funds on a number of platforms, including asking donors to consider making the Humane Society of Canada the executor as well as beneficiary of their wills. In recent years, much of the donation funds have gone to lawyers’ fees. According to its 2014 tax return, one of his four charities spent $157,000 on legal fees and only $50 on “animal welfare.” In 2013, it spent $181,251 on legal and accounting fees, and $140 on “animal welfare.”
The audit of the Humane Society of Canada’s 2006 tax filings ran from 2007 to 2009.
The audit team found such flagrant expense abuses that it recommended in 2009 that the charity be stripped of its tax-free status.
Auditors found “a large portion” of the organization’s funds were not being used for its stated charitable purposes but for O’Sullivan’s “personal gain,” according to CRA notes and internal reports examined by the Star.
The charity, which is not connected to other humane societies across Canada, had reimbursed O’Sullivan more than $251,000 in expenses in 2006, including at least $70,000 the CRA deemed were his personal expenses, according to audit team findings.
In 2006, the charity self-reported to the CRA more than $817,000 in total revenue derived mainly from public donations.
Items O’Sullivan claimed in 2006 as legitimate charity expenses included: $27,000 in superhero-themed comic books and related paraphernalia; $22,000 in meals eaten mainly in Toronto, $4,000 from Costco; $1,800 in LCBO items; movie tickets for the Beaches Cinemas in Toronto; theatre tickets in London, England; a $67 purchase at La Senza Girl lingerie store and O’Sullivan family expenses of about $4,000 for a California trip.
Questioned by auditors about the $27,000 in comic book purchases, made through more than 300 transactions on a PayPal account, the charity’s lawyer described them as “investment assets” of the charity. The Minister of National Revenue dismissed the comic book claims as “a matter of Mr. O’Sullivan’s personal interests and not for charitable purposes,” according to the government’s response filed with the Federal Court of Appeal last year.
O’Sullivan’s lawyers had argued that bookkeeping errors led the humane society to “inadvertently” reimburse O’Sullivan approximately $22,000 in personal expenses. The government and the court did not buy those arguments.
“We do not accept that this was just a bookkeeping error,” Ghislaine Landry, Manager of Tax Charities Appeals, wrote to O’Sullivan’s lawyers on Jan. 23, 2013, confirming the decision to revoke the charity’s status.
“In addition, the use of the Organizations’ resources to buy (more than 300 transactions) memorabilia and comic books is inappropriate. In our view, this non-compliance is both serious and intentional,” Landry wrote.
Among other irregularities flagged by the audit team: The same receipt was photocopied many times and put into different folders purporting to represent different projects (this happened for many receipts).
For a majority of expenses incurred by O’Sullivan there were no supporting documents showing how they related to charitable activities, and folders which purported to correspond to programs run by the charity, for the most part, contained only printouts from the charity’s websites.
“The (charity’s) accounting system was unable to directly assign its allegedly charitable expenditures in 30 of the 42 major programs,” the Federal Court of Appeal found in reviewing the 18 volumes of documents put before it.
In Sept. 2011, a year after the government moved to revoke its status, O’Sullivan awarded the prime minister’s wife, Laureen Harper, the “Heroes for Animals Lifetime Achievement Award,” in recognition of her work with animal advocacy.
Three months later, then-prime minister Stephen Harper sent O’Sullivan a personal letter thanking him for his work and saying he was “pleased to enclose a small token of my appreciation for the Humane Society of Canada and its noble efforts to protect animals and their habitats.”
Harper also asked that a tax receipt be sent to the PMO’s office.
In April 2012, O’Sullivan’s lawyer sent a copy of Stephen Harper’s letter to the Tax and Charities Directorate in an effort to stop the CRA from stripping the charity of its tax-free status. The letter, the lawyer argued, “demonstrates that the charity is held in high regard within Canada.”
From a fourth-floor Toronto condo office, O’Sullivan presides over his mini-charity empire. He has a tiny staff and entrance to the charity is guarded by a high-security fingerprint scanner on the front door. On several visits to the office, a staff member did not allow the Star to enter. Another staff member told the Star that staff are not allowed to divulge O’Sullivan’s whereabouts “for security reasons.”
The four charities are a virtual oneman show. CRA documents show O’Sullivan personally signs off on the financials for all four charities, including their tax returns. The Humane Society of Canada Foundation raises and collects the majority of the funds, more than $510,00 in 2014, and $697,000 in 2013, then disperses a lot of it to its sister charities. The charities under O’Sullivan’s control make only token donations to outside organizations, such as giving the Toronto Humane Society $200 in 2014.
Donors are also asked to leave a bequest in their will. In the past five years alone, O’Sullivan’s charities have also collected nearly $680,000 in bequests, according to their year- end financial statements.
Court documents filed in the Federal Court of Appeal show O’Sullivan objected on several fronts to his charity’s status being yanked. He blamed the CRA auditors for not understanding the nature of his work and his accountant for not catching bookkeeping errors.
O’Sullivan also said he used his personal American Express Platinum card for all expenses because the society could not obtain a corporate credit card of its own. In a letter to CRA investigators, O’Sullivan’s lawyers said that had been his practice for more than 40 years.
In upholding the government’s decision to pull his charity’s status, federal appeals judge Justice C. Michael Ryer noted that the society’s books and records did not separate O’Sullivan’s personal family spending from that of the corporation.
“The Appellants’ submissions give the impression of a general view that everything Mr. O’Sullivan did was on behalf of the Appellant, whether eating with others, eating alone, or purchasing items at the LCBO and other establishments,” Justice Ryer wrote.
The court noted O’Sullivan simply wrote “WM” on receipts for “Working Meal” but provided few other details. Many of those meals were in restaurants in downtown Toronto and the Beach area, where O’Sullivan resided with his wife and two kids.
O’Sullivan’s lawyers also argued that the Minister of National Revenue did not have the authority to revoke the charity’s status, but could merely impose a monetary penalty on the amounts paid to O’Sullivan as personal benefits.
That argument was summarily dismissed by the three judge panel, which also ordered that O’Sullivan pay the government’s court costs. Mary Ormsby can be reached at (416) 869-4373 or mormsby@thestar.ca Dale Brazao can be reached at (416) 869-4433 or dbrazao@thestar.ca