CRA strips Vancouver Whitecaps owner’s foundation of charitable status

The Canada Revenue Agency has stripped a foundation run by Vancouver Whitecaps co-owner Greg Kerfoot of its charitable status.

The organization is called the Loyalty Foundation and provides significant funding to the Canada Soccer Association.

The loss of its charity status comes after the government’s revenue service outlined what it described to the foundation as “non-compliance of a serious nature” following an audit.

Last year, the Loyalty Foundation began a financial arrangement with Canada Soccer in which it planned to contribute $6-million over a multi-year period.

CityNews understands the foundation provided financial support to the national men’s soccer team in the buildup to this year’s World Cup, and more recently has contributed to a preparation camp for the U-17 women’s soccer team ahead of this month’s U-17 Women’s World Cup in India.

Tax rule violations identified by CRA

There were a number of violations of tax rules the CRA identified during its audit of the Loyalty Foundation.

Charities are required to spend a certain amount of money, based on how much they collect in donations.

In May of this year, the CRA communicated with the foundation, highlighting a disbursement quota shortfall of $5 million from the period between December 2015 and November 2018.

Additionally, the CRA audit identified loans made by the foundation to two privates companies owned by Kerfoot — Carrera Management and Kerfoot WFC Holdings — loans which the foundation didn’t collect interest on. The CRA found this was a “failure to be constituted and operated for exclusively charitable purposes” on the part of the Loyalty Foundation.

The revenue service also identified record keeping issues, highlighting the organization’s lack of minutes of annual general meetings for the entire period that was under audit.

The audit also found the Loyalty Foundation failed to properly issue donation receipts.

Kerfoot declined an interview request for this story, but did provide a statement to CityNews:

“The Loyalty Foundation was established to make donations to charities that support the communities in which we live and to support the growth of soccer in Canada,” Kerfoot’s statement reads. “During the course of a CRA audit, with which the foundation and I fully complied, it was brought to my attention that between 2016 and 2019, the foundation did not meet its disbursement quota obligations and failed to fully collect interest payments on loans from the foundation.

“Upon learning of this non compliance the Loyalty Foundation took immediate steps to come into full compliance with its obligations including collecting all interest owing and remedying outstanding disbursement quota obligations in accordance with the CRA guidance. As a director of the foundation, I take full responsibility for these errors and while the responsibility for the errors remains mine, the foundation went through a period of time where it did not effectively manage the retirement of the accountant who dealt with financial matters of the foundation, including ensuring compliance.

“The Loyalty Foundation is now in the process of transitioning the professional management of its assets to better align with CRA guidance and the Income Tax Act (Canada).”

Charities, interest, and loans

Metro Vancouver-based researcher and writer Vivian Krause obtained documents relating to the CRA’s audit and has posted them on her website.

During her research into the Loyalty Foundation, Krause said the CRA provided her with a list of how many charities have made loans to non-arm’s length individuals — that is, people with some sort of affiliation to the charity.

“I got back the list, and there were more than 600 charities that have done this with amounts in excess of $500,000,” Krause told CityNews during an interview. “Mr. Kerfoot’s charity was No. 2 on the list. There is only one charity in Canada that had made a larger loan, and that charity did collect the interest to the tune of a couple million dollars a year. So, I can see why the CRA shut down Mr. Kerfoot’s charity, because of the charities on the list, it was No. 1, it was at the top of the charities not [collecting] interest on their loans.”

But even when charities collect interest on loans, Krause questions whether this is all in the best interests of taxpayers.

“I do wonder about this whole issue of charities, someone making a very large donation, and there are many, many cases of this — you make a $100-million donation, and then you use the money to make loans to yourself,” Krause said while speaking of that practice in general and not this specific case. “And that’s okay, as long as you pay the interest? I’m not sure that that is an arrangement where the public benefit is big enough to warrant that sort of tax relief.”

CityNews understands the Loyalty Foundation is working to regain its charitable status.

Editor’s Note: A previous version of this story referred to loans made from the foundation to two of Kerfoot’s companies as “interest free.” More accurately, the loans had an interest rate of 5 percent but that interest was not initially collected.