Toronto charity loses tax-free status
Supreme Court denies CEO of animal-welfare group leave to appeal revocation order
An animal welfare charity that expensed everything from comic books to booze to a trip to Disneyland has had its long leash yanked by the Supreme Court of Canada.
After a nine-year battle with Canada’s taxman, the Humane Society of Canada for the Protection of Animals and the Environment — a charity led by Toronto’s Michael O’Sullivan — will not get a chance to stave off impending revocation of its taxfree status with an appearance before the country’s highest court.
The charity’s fate may very well have been sealed with a simple sentence posted on the court’s website last week: “The application for leave to appeal . . . is dismissed with costs.”
The court’s decision means the Canada Revenue Agency is free to proceed to shut down O’Sullivan’s charity based on the expense abuses revealed in a 2007 audit of the organization’s books. The CRA served notice on O’Sullivan in February 2010 that it intended to revoke the charity’s tax-free status.
Among the expenses flagged by the auditors examining the charity’s 2006 income tax return were: $27,000 in superhero-themed comic book purchases; $22,000 in meals eaten mainly in Toronto; a $4,000 O’Sullivan family trip to Disneyland in California; $1,800 in alcohol; and a $67 charge at LaSenza Girl lingerie store.
In emails to the Star, the CRA states confidentiality provisions of the Income Tax Act prevent the federal agency from discussing a specific case or what their next steps will be, but outlined in general the process in revoking a charity’s registration.
“Once the charity has exhausted all its appeal rights, the CRA proceeds with the revocation process,” Jelica Zdero, the agency’s senior communication adviser, said in an email. An organization stripped of its tax-free status “is no longer exempt from income tax, unless it qualifies as a nonprofit organization, and it may be subject to a tax equal to the full value of its remaining assets,” Zdero said.
The CRA sends the organization a registered letter warning it can no longer issue tax-free receipts for donations, and the revocation notice is posted online in the Canada Gazette and on its Charities Division website.
The Star has made repeated attempts over the past several months to contact O’Sullivan to tell his side of the story. Those attempts by email, phone calls, texts and visits to the Carleton St. headquarters, where he runs his mini-empire of four related charities, have all been met with silence from O’Sullivan.
O’Sullivan posted a response to the Supreme Court decision on his website Tuesday night. He said he was disappointed in the ruling, but would not be deterred in his work. He asked supporters to continue making donations to his organization.
A Star investigation published last October showed the four charities under O’Sullivan’s direct control collected about $9 million in donations in the past 15 years and continued to operate under the nose of the federal regulator that had been trying to shut it down since 2010. The four charities are: the Humane Society of Canada for the Protection of Animals and the Environment; the Humane Society of Canada Foundation; the Ark Angel Foundation; and the Ark Angel Fund. The Humane Society of Canada Foundation raises and collects the majority of the funds, more than $510,000 in 2014, and $697,000 in 2013, then disperses most of it to its sister charities.
In 2006 — the tax filing year audited by the CRA — the Humane Society of Canada for the Protection of Animals and the Environment raked in more than $800,000 in donations.
Recently, bequests from people’s wills have formed a significant part of the animal welfare charity’s income. Over the past five years, O’Sullivan’s charities have collected nearly $680,000 in bequests, according to their year-end financial statements filed with the CRA.
An examination of the government’s case against O’Sullivan, contained in 18 binders of documents filed with the courts, showed that O’Sullivan used the charity as his personal piggy bank and put tens of thousands of dollars in personal expenses through it.
Items O’Sullivan claimed in the charity’s 2006 tax return as legitimate business expenses included $4,000 in Costco purchases, movie and theatre tickets. A $454 Batman utility belt purchased from the Philippines was one of more than 300 PayPal transactions questioned by CRA auditors. O’Sullivan told the CRA the comics and related paraphernalia were “investment assets” for the animal welfare charity.
CRA documents show O’Sullivan personally signed off on the financials for all four charities, including their tax returns. O’Sullivan blamed bookkeeping errors for his problems, a charge the CRA dismissed outright.
“We cannot accept that this was just a bookkeeping error,” Ghislaine Landry, manager of the Tax Charities Appeals, wrote to O’Sullivan’s lawyers. “The use of the organization’s resources to buy (more than 300 transactions) memorabilia and comic books is inappropriate.”
O’Sullivan contested the notice of revocation through a series of appeals inside the CRA and then took his fight into the public courts, which included losing a 3-0 decision at the Federal Court of Appeal in August, 2015, upholding the government’s right to revoke his charity.