What does the latest Charter challenge against the Canada Revenue Agency mean for Muslim organizations?

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Ramadan, which is considered the holiest month of the year in Islam, is seen as an opportunity for Muslims around the world to give back to their communities. This can often include donating to Muslim charities and non-profits.

But this Ramadan was different for one of Canada’s largest charities, the Muslim Association of Canada, says.  Hearings took place at the Ontario Supreme Court of Justice for a lawsuit it posed on the Canada Revenue Agency. 

MAC is trying to convince the court that a 2015 audit conducted by the CRA’s Review and Analysis Division (RAD) violated the Canadian Charter of Rights and Freedoms, freedom of religion, freedom of expression, freedom of association and equality. The hearing came one year after MAC filed the lawsuit. 

“An audit is an expectation of any charity — a simple review of the association’s financial records and controls. But this audit quickly turned out to be something much more sinister,” MAC says in an email to Future of Good. 

“As the audit progressed, it became clear to MAC that there was a deep undercurrent of Islamophobia within the CRA, and that this bias was affecting the way the audit was being conducted. Auditors were searching desks and closets, downloaded over one million financial transactions, and took 181 GB of email data accounting for almost 500,000 emails. This went on for 13 months.”

According to MAC, the judge will have four to five months to give a decision. 

The hearings come at a time where RAD has been under public scrutiny for the way it conducts its audits. In 2021, the International Civil Liberties Group found the CRA to disproportionately target Muslim charities for audits based on the risk of terrorist financing. It said that 75 per cent of organizations who got their charitable status revoked from 2008 to 2015 audits were Muslim-led, like the Islamic Services of Canada, The Canadian Islamic Trust Foundation, and the Ottawa Islamic Centre and Assalam Mosque. The report also said the CRA carries out audits “with little to no accountability and no independent review.” 

The CRA audits and revocation of charitable status for Muslim charities can impact donations, said MAC, in an email to Future of Good.  

“Donors may be hesitant to contribute to a charity that is being audited or whose status is being questioned by the CRA, as they may perceive it as a high-risk donation,” MAC says.

“Many charities, including Muslim charities, often choose to hide the fact that they are being audited for fear of damaging their reputation and donor support.”

While MAC says it has been transparent about its audit, it has been experiencing “a negative financial impact” due to donations being used for its legal proceedings. 

“These funds would be better used to serve the community,” MAC says. 

The audits do not just impact Muslim charities, but Muslim organizations that are considering registering for charitable status, says a co-founder of a small-scale organization in Canada, who will go by the name of Alex Smith to protect their identity.

“If we wanted to grow, the only way to grow as an organization in the non-profit world in Canada is to become a charity because that allows you to give tax receipts, that allows you to increase your visibility, the amount of funding, increase the number of private foundation grants and government grants [that you have access to],” they say. 

On the other hand, Smith says registering for charitable status as a Muslim organization can have consequences, which is why they, among other newer Muslim organizations that they know, are hesitant to do so.

“Do we apply for this [status] and then get over scrutinized? And if we do get scrutinized do we even have the capacity — in terms of personal capacity with people on the team and their time — to be able to deal with this?”

Even with hearings between MAC and the CRA comes a risk for Muslim organizations, says Smith. 

“I think [the hearings] give a lot of people in the space some comfort in knowing that someone is going to be fighting for you. On the flipside, you don’t know how the bureaucracy will take it and whether it can lead to more scrutiny, they say. “It does go both ways but I think it is an important issue that needs to be litigated and we do need to see what was happening behind the scenes during that period where we know there was an over-scrutinization among Muslim organizations.” 

MAC hopes that Muslim organizations can feel encouraged if the court makes a decision in its favour. 

“It could lead to increased scrutiny of the CRA’s audit process and could prompt other Muslim organizations to challenge the CRA’s ongoing audits and possibly previous revocations of Muslim charities,” MAC says. 

MAC also sees the hearings affecting the CRA functions within the charity sector. 

“It could lead to changes of how the CRA selected charities, increased oversight of the CRA’s audit process, and prompt changes in how the CRA decides the outcomes of audits,” MAC says. “It could also drive the government and the CRA to make policy and structural changes to address discriminatory Islamophobic practices.”

On March 27, Taxpayer Ombudsperson François Boileau released a final report, Charity Begins with Fairness which focuses on his findings of anti-Muslim bias within RAD as well as recommendations after a year of investigating. Boileau says the findings ended up inconclusive, due to a lack of information provided by the CRA, which he said was due to the CRA not being able to share taxpayers’ information without taxpayers’ consent. He also reccommended a mandatory unconscious bias training course for CRA employees of the Charities Directorate, that primarily focused on conducting audits.  

The result of the Boileau’s report sparked criticism from Muslim charities and organizations across Canada. MAC and other charities like Islamic Relief Canada, Canadian Council of Imams and the Canadian Muslim Public Affairs Council, say the scope of the report was set from 2017-2021, even though they say most Muslim charities, including MAC were audited between 2010-2016, which resulted in some of them losing their charitable status. 

To top it off, they also say the ombudsperson did not use all of the publicly available information, such as administrative fairness letters. These letters, according to Faisal Kutty and Faisal Bhabha, associate professors at Southwestern Law School and York University’s Osgoode Law School, respectively, show that the CRA relies on biased terrorism experts like Lorenzo Vidino, who they say “promotes conspiracy theories on the Muslim Brotherhood is connected to numerous anti-Muslim think tanks.” Kutty and Bhabha also found that the CRA uses the Hudson Institute to create policies, which they say is funded by foundations that actively fund “Islamophobic conspiracy theories, dis-information and anti-Muslim stereotyping.” 

Sharaf Sharafeldin, President-Strategy of MAC, says that the CRA continued to cite these disputed sources during their hearings, which he found to be an “alarming revelation.” 

“To exacerbate the issue, the CRA opted to double down on these sources, not only is it offensive and perpetuates systemic Islamophobia, but it marginalizes the Muslim community as the ‘other,’” he says.

Non-Muslim non-profits across Canada are also criticizing the federal government and supporting MAC in news of Boileau’s report. In a statement signed by non-profits like Imagine Canada, Nunavut Association of Non-Profit Organization and United Way Centraide Canada, the sector followed MAC’s and the National Council of Canadian Muslims’ recommendation to call on the government in immediately finding a solution to eliminate any current discriminatory audit practices within RAD, take part in anti-Muslim bias training, and ensure the NSIRA have all the documents necessary to investigate the CRA.

“Islamophobia harms Muslim organizations, Muslim nonprofit workers, and Muslim communities served by Canadian nonprofits,” the statement read. “Additionally, Islamophobia isn’t just an issue for Muslims. It undermines common goals that we all share for religious freedom, security, and equity for all people.”

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