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Lord Macnaghten once famously observed that the definition of charity is a legal matter about which “you had better ask a lawyer.” But according to a decision by the Supreme Court of Canada, the definition of charity may now be more of a fiscal matter, about which you had better ask a government accountant.

In Amateur Youth Soccer Association v. C.R.A., [2007] S.C.J. No. 42, the Supreme Court of Canada considered whether an amateur soccer association qualified as a charity under the Income Tax Act (Canada). Since the Act does not define charity, the decision turned on whether amateur sport is charitable at common law.

The court concluded that the authorities have historically been against the charitability of amateur sport and that legal charity should not be expanded to now include it. The court expressed concern that characterizing amateur sport as charitable would significantly increase the number of institutions to which taxpayers could make tax-receipted donations. Applying a fiscal consequences test, the court concluded that this is a change “best left to Parliament” because it “could have a significant impact on the income tax system.”

The explicit contemplation of fiscal consequences is something new for Canadian charity law. In Vancouver Society of Immigrant and Visible Minority Women v. Canada, [1999] S.C.J. No. 5, the “loss of revenue” was identified as a factor that should constrain charity courts. But this finding was made in response to counsel’s advocacy for a major paradigm shift in the test for charitable status. In Amateur Youth, the court adopted the altogether different proposition that revenue considerations should guide the traditional common law test.

Lord Cross proposed a similar approach long ago in Dingle v. Turner, [1972] A.C. 601 (not cited in Amateur Youth), but a majority of the House of Lords expressly rejected the proposal and the matter has not been revisited by English courts.

A case could certainly be made in support of Amateur Youth’s reasoning. The only reason charitable status legally matters is because of the income tax and other legal privileges exclusive to charities. Taking into account these benefits at the stage of definition provides a reminder of what it means in substance to characterize a purpose as charitable at law.

There is also the benefit of transparent reasoning. The decision to grant or deny charitable status is often influenced by masked policy concerns related to the privileges of charitable status. The outward reasoning of charity cases often seems like a façade, leaving the reader to wonder whether more compelling justifications lie somewhere dormant in the subtext of the judgments. Amateur Youth openly acknowledges such policy considerations and thereby removes confusion as to the true reasons for judgment.

It could be said in defence of Amateur Youth that, since questions of public resource allocation are best addressed by Parliament, withholding charitable status where there are potentially significant revenue concerns is appropriate.

But these arguments begin to unravel on critical reflection. In a sense, the reasoning of Amateur Youth runs contrary to its pretense of Parliamentary deference. Parliament opted to ration the state subsidy for charities based on a judicially articulated definition of charity. That charity decisions bode revenue implications is a known feature of the system. By concluding on the basis of fiscal concerns that expanding legal charity to include amateur sport is a task “better suited to Parliament than the courts,” the court in Amateur Youth essentially took issue with Parliament’s decision to delegate this task (fiscal consequences and all) to the judiciary.

Another problem is that fiscal consequences will rarely, if ever, be known in advance. All that can be said with certainty is that expanding the definition of charity will increase the roster of institutions to which tax-assisted donations could be made.

Adverse fiscal consequences will follow only if there is an increase in cumulative annual donations. The consequences will be neutral to the extent that there is a reallocation of donations. Without econometric data (of which there was none mentioned in Amateur Youth), courts will be left to speculate on fiscal consequences.

Amateur Youth could result in a frozen definition of charity, thereby undermining the adaptability of the legal meaning of charity to societal change. Future decisions may cite Amateur Youth for the proposition that “charity” should not be expanded if there is a possibility of adverse fiscal consequences. But every proposed expansion could fail this test, because every expansion introduces the possibility of revenue loss. This is inherent in the tax privileges conferred on charities and charitable gifts.

So where does Amateur Youth leave charity law? The decision focuses attention on the fiscal dimension to legal charity, which to some extent is positive. But legal charity is more than just a tax expenditure. It is an intelligible concept, the normative content of which could be distorted by the kind of fiscal consequences test applied in Amateur Youth. Calculating potential tax revenue loss is surely not the best way to define charity.

Adam Parachin is a professor in the faculty of law at the University of Western Ontario. He researches and writes in the areas of trusts and charities.