Canadian Revenue Agency finds speculating in comic books “inappropriate”
TORONTO, Ontario––Losing a last appeal to the Supreme Court of Canada, the Humane Society of Canada appears to be on the verge of losing tax-exempt status, nine years after flunking a Canadian Revenue Agency audit over alleged misuse of donated funds by Michael O’Sullivan, the only chief executive the organization has ever had.
“The charity’s fate may very well have been sealed with a simple sentence posted on the court’s website late last week: ‘The application for leave to appeal…is dismissed with costs,” reported Dale Brazao and Mary Ormsby of the Toronto Star on March 16, 2016.
The Canadian Federal Court of Appeal had on August 19, 2015 upheld a November 17, 2014 Canadian Revenue Agency decision to revoke the Humane Society of Canada’s charitable registration.
“Among the expenses flagged by the auditors examining the charity’s 2006 income tax return,” summarized Brazao and Ormsby, “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.”
Complained about coverage
O’Sullivan in a pair of March 15, 2016 media releases expressed “disappointment” at the Supreme Court of Canada dismissal of the Humane Society of Canada appeal and complained about media coverage of the case.
Continued the media releases, “As has happened with many other non-governmental agencies, the Humane Society of Canada was targeted by Canadian Revenue Agency ‘audits’ during the Harper government era,” meaning the 2006-2015 tenure of former Conservative Party prime minister Stephen Harper.
“These audits were aimed at punishing non-governmental organizations whose ‘politics’ were at odds with then then-governing Conservative party,” the media releases charged, claiming “The Humane Society of Canada has had a long history of advocating against the seal hunt on the East coast, and whale hunts on the West coast.”
Canada Revenue Agency & politics
The Canada Revenue Agency has long targeted animal advocacy organizations for waging allegedly “political” campaigns in opposition to government positions. Monitoring animal charities’ political activities officially began in 1985, in response to complaints from fur industry defense organizations. The reviewing program ended, current minister of national revenue Diane Lebouthillier announced, in January 2016, soon after she was appointed by current prime minister Justin Trudeau, elected to succeed Harper in October 2015.
Meanwhile, in 1992, a year before the Humane Society of Canada was formed and also a year before Harper was first elected to the House of Commons, the Canada Revenue Agency revoked the charitable status of the Animal Defence League of Canada, headquartered in Ottawa, for activities opposing the fur and sealing industries and animal use in experimentation.
In 1999, six years before Harper became prime minister, the Canada Revenue Agency for similar reasons revoked the nonprofit status of the Fur-Bearers Protection Association, headquartered in Vancouver.
Humane Society of Canada case different
However, unlike in the Humane Society of Canada case, the Animal Defence League of Canada and the Fur-Bearers Protection Association were not alleged to have used donations contrary to donors’ intent, nor of misusing donations to the benefit of any individual directors or members.
Also of note, the Animal Defence League of Canada and the Fur-Bearers Protection Association had both long been much more visibly active in opposition to Canadian government policies than the Humane Society of Canada ever was.
Few archived mentions
A search of the Humane Society of Canada web site reveals only 28 archived mentions of the Atlantic Canada seal hunt since 2002, three of them in recent responses to the Supreme Court of Canada’s rejection of the appeal of revocation of charitable status, and some of the others just links to mainstream media coverage of the hunt.
Seven mentions of the seal hunt came in 2009; nine in 2006.
Otherwise, the Humane Society of Canada appears to have posted only four items pertaining to the Atlantic Canada seal hunt in 2003-2005, one in 2007, none in 2008, one in 2010, none in 2011-2014, and one in 2015.
Statements and links in opposition to Canadian whaling policy appear to have been far fewer. Only one item, in 2011, appears to have explicitly addressed bowhead whale hunting by Inuit in the Far North, the only whaling currently allowed in Canadian waters.
Gave Harper’s wife an award
But O’Sullivan appears to have enjoyed friendly relations with Harper, who throughout his political career has promoted the Atlantic Canada seal hunt, recreational hunting, and the fur trade.
Recounted Brazao and Ormsby of the Toronto Star on October 27, 2015, “In September 2011, a year after the government moved to revoke [the Humane Society of Canada’s nonprofit] 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.
Stephen Harper was a donor
“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 prime minister’s office.”
The correspondence came to light, Brazao and Ormsby continued, when “In April 2012, O’Sullivan’s lawyer sent a copy of Stephen Harper’s letter to the Tax & Charities Directorate in an effort to stop the Canadian Revenue Agency 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.’”
The revocation process
The Canadian Revenue Agency said that “confidentiality provisions of the Income Tax Act prevent the federal agency from discussing a specific case or what their next steps will be,” Brazao and Ormsby wrote, “but outlined in general the process in revoking a charity’s registration.”
Explained Canadian Revenue Agency senior communication adviser Jelica Zdero, “Once the charity has exhausted all its appeal rights, the CRA proceeds with the revocation process.”
This consists of sending the organization whose status is being revoked a registered letter warning that it is no longer allowed to issue donors receipts allowing them to claim a tax deduction for their gifts, and posting the revocation notice online in The Canada Gazette and on the Canadian Revenue Agency Charities Division website.
O’Sullivan plans to continue
An organization stripped of charitable status, said Zdero, “is no longer exempt from income tax, unless it qualifies as a non-profit organization, and it may be subject to a tax equal to the full value of its remaining assets.”
The Animal Defence League of Canada and the Fur-Bearers Protection Association have continued as nonprofit organizations without having the ability to issue tax-exempt receipts to donors.
O’Sullivan in the Humane Society of Canada media statements indicated that he plans to do likewise.
Took in $9 million in 15 years
The Humane Society of Canada, formally called the Humane Society of Canada for the Protection of Animals & the Environment, heads a constellation of subsidiaries, including also the Humane Society of Canada Foundation, the Ark Angel Foundation, and the Ark Angel Fund.
“The four charities under O’Sullivan’s direct control collected about $9 million in donations in the past 15 years,” Brazao and Ormsby found in October 2015.
Recently, Brazao and Ormsby wrote, “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.”
$680,000 in bequests
In 2006, however, the tax filing year audited by the Canadian Revenue Agency, “the Humane Society of Canada for the Protection of Animals and the Environment raked in more than $800,000 in donations.”
Added Brazao and Ormsby, “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 Canadian Revenue Agency.
“O’Sullivan blamed bookkeeping errors for his problems,” Brazao and Ormsby noted, but Canadian Revenue Agency documents “show O’Sullivan personally signed off on the financials for all four charities, including their tax returns.”
Wrote Canadian Revenue Agency Tax Charities Appeals manager Ghislaine Landry to O’Sullivan’s attorney, “We cannot accept that this was just a bookkeeping error. The use of the organization’s resources to buy (more than 300 transactions) memorabilia and comic books is inappropriate. In our view, this non-compliance is both serious and intentional.”
Fan Expo Canada 2013
O’Sullivan contended in the Humane Society of Canada media releases that “The comics and other materials were resold at more than twice their value,” producing profits that “were re-invested in HSC.”
Accompanying the second media release was a photograph identified as “HSC sales booth at Fan Expo Canada 2013.”
This event was held six years after the 2007 Canadian Revenue Agency audit flagged the comic book transactions as, in Landry’s term, “inappropriate.”
Was originally HSUS subsidiary
An advocacy organization, the Humane Society of Canada does not operate animal shelters, and is not to be confused with the Canadian Federation of Humane Societies. The Humane Society of Canada is not among the current 52 active Canadian Federation of Humane Societies members.
The Humane Society of Canada was originally incorporated by then-Humane Society of the U.S. president John Hoyt, who retired in 1996 and died in 2012; then-HSUS senior vice president Paul Irwin, who succeeded to the HSUS presidency and in turn was succeeded by current HSUS president Wayne Pacelle in 2004; and longtime World Society for the Protection of Animals board member Dominique Bellemare.
O’Sullivan, hired as executive director, had previously been Canadian representative for the World Society for the Protection of Animals, now called World Animal Protection.
Irwin, born in Canada but living in Maryland at the time, claimed Canadian residence on a passport application in order to get around a Canadian requirement that the majority of board members of Canadian nonprofit organizations be Canadians. Irwin’s Canadian passport was revoked after the arrangement was disclosed in subsequent litigation.
Bellemare, a Montreal attorney, had previously worked for the Canadian Ministry for External Affairs. The Ministry for External Affairs both then and now led Canadian governmental efforts to prevent the European Union from banning and enforcing bans on the import of seal pelts and trapped fur. Bellemare has said that he did not work on animal issues for the Ministry for External Affairs, but has not disclosed what he did do.
As a World Society for the Protection of Animals/World Animal Protection board member for more than 20 years, and WSPA board president in 2008-2010, Bellemare has rarely if ever taken public positions on animal issues, and has never individually and explicitly denounced the seal hunt and wearing fur.
Bellemare has, however, three times run unsuccessfully for Parliament as a candidate of the pro-sealing and pro-fur Conservative Party of Canada, most recently in 2006 in support of Stephen Harper.
O’Sullivan won control in lawsuit
O’Sullivan won control of the Humane Society of Canada in a 1996 lawsuit which also sought to recover just over $1 million which had been transferred from three Humane Society of Canada and Humane Society International accounts to HSUS earlier in the year.
Ontario Court of Justice judge Bruce C. Hawkins in January 1997 ordered HSUS to repay $740,000 to the Humane Society of Canada.
The Humane Society of the U.S. has been represented in Canada since 2009 by Humane Society International Canada.
Humane Society International, a Humane Society of the U.S. subsidiary, is the U.S.-based global umbrella for HSUS affiliates of similar name worldwide.