Canadian Jewish charity fights over potential $2.5M tax bill

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The Ne’eman Foundation of Canada, a non-profit that donates to Israel, is challenging an order that froze the group’s assets and left them with a potential multimillion-dollar tax bill.

The foundation had its charitable status stripped in August 2024, around the same time the Jewish National Fund lost its status. The Canada Revenue Agency (CRA) accused Ne’eman Foundation of failing to uphold several sections of the Income Tax Act pertaining to registered charities.

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Last Thursday, the foundation’s lawyers, Peter Swanstrom and Adam Aptowitzer, challenged the CRA’s “jeopardy order” imposed last December, which froze the group’s assets. The move prevented the foundation from disbursing its remaining funds to other approved charities, which would have reduced its outstanding tax bill.

“It’s an exceptional remedy,” Swanstrom told Justice Simon Fothergill in Federal Court in Toronto. “If the jeopardy order is upheld, it is game over for the Foundation’s ability to reduce its $2.5 million revocation tax liability.”

Christopher Van Berkum, a lawyer for the Department of Justice, said the CRA’s defence of the jeopardy order rests on three major points: the “diminishment of the respondent’s assets,” the Ne’eman Foundation’s inability to demonstrate the expenses would go to approved charities, and the belief that the non-profit’s activities since revocation “may not comply with the Income Tax Act.”

Much of the proceedings centred on the conduct of the Ne’eman Foundation’s chief executive, Chaim Katz, a Canadian emigrant to Israel. When the Ne’eman Foundation lost its charity status, Katz was listed as an “ineligible individual” and barred from overseeing registered charities. However, the government lawyers said, Katz subsequently took a leadership role with the Emunim Fund, another Canadian charity engaged in philanthropic work in Israel, which the Ne’eman Foundation re-directed donors to contribute to after its status was revoked.

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The development was first flagged to the CRA by a member of Independent Jewish Voices, who captured screenshots highlighting changes made to the Ne’eman Foundation’s “how to donate” page after the revocation in August. This, in turn, led to the CRA’s suspension of the Emunim Fund’s charitable status the following month.

“It was only after the respondent’s principal (Katz) engaged in these behaviours related to the Emunim Fund, did the court get this jeopardy application,” Van Berkum told the court.

Swanstrom said in his opening remarks that the Ne’eman Foundation’s actions, “when placed in the appropriate context,” the “evidence does not support reasonable grounds to believe that collection of the revocation tax – which may well be nill – is in jeopardy.”

A revocation tax is the amount a charity stripped of its status owes the government. It equals the entire value of assets the organization has after all debts have been paid for. It can be reduced by transferring assets to another charity in good standing. When the CRA fears that it might be unable to collect an outstanding tax debt, it can request a jeopardy order from a federal or provincial superior court to ensure that the funds are not lost.

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Swanstrom highlighted the five-year delay between the foundation receiving the CRA’s initial notice of its plan to revoke the group’s charitable status and the CRA’s recent concern that outstanding taxes could be in jeopardy of not being repaid as clear evidence that the federal agency’s concerns were unfounded.

“The (minister of national revenue’s) attempt to manufacture jeopardy now,” Swanstrom said, “where she was previously not concerned by it, ought to be rejected by this court.”

No decision was issued by Justice Fothergill on Thursday.

The Ne’eman Foundation of Canada’s stated purpose, according to the CRA’s profile of the group, included relief programs providing “food, clothing and shelter to the needy, advancing and teaching the religious tenants, doctrines and observances associated with the Jewish faith and advancing the Jewish faith by providing spiritual and educational resources to Jews in Israel.”

The non-profit tracker Charity Data, created by lawyer Mark Blumberg, reported that the Ne’eman Foundation of Canada had nearly $9.3 million in total revenue and $9.7 million in total expenses for the 2023 fiscal year.

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“This type of action by CRA is rare in the charity area and would only be used if CRA has a very significant concern that charitable funds will not be available to pay a revocation tax,” Blumberg, a leading expert on Canadian charity law, told National Post in a written statement.

“The Charities Directorate is increasingly using a risk-based approach to compliance with registered charities and is acting far more quickly today than it has in the past when there is a concern about serious non-compliance with the charity rules.”

The CRA said that its original decision to revoke the foundation’s status stemmed primarily from its failure “to devote resources to charitable activities carried on by the Organization itself,” failure to “maintain proper books and records” and failure “to issue donation receipts in accordance with the Act and/or its Regulations.”

The Ne’eman Foundation of Canada called the decision at the time a “travesty of justice” and accused the federal agency of demonstrating “its interest lies in the persecution of Jewish charities that support Israel, not supporting the generous, charitable acts of loyal Canadians” according to a statement to eJewishPhilanthropy, a digital newspaper covering philanthropic news in the Jewish world.

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