Executive Summary: Key Legal and Evidentiary Issues

• The Minister of National Revenue revoked the Foundation’s charitable status following an audit revealing significant regulatory breaches.

• A Jeopardy Order was issued ex parte to prevent dissipation of the Foundation’s remaining assets.

• The Foundation challenged the order, arguing there was no evidence its funds were in jeopardy.

• Mr. Katz, an “ineligible individual,” attempted to transfer assets to a related charity, raising compliance concerns.

• The Foundation failed to produce timely, substantive evidence rebutting the Minister’s claims during the motion.

• The Court found the Minister made full and frank disclosure and upheld the Jeopardy Order.

Facts and outcome of the case

Background and audit findings

The Ne’eman Foundation Canada was registered as a charity in 2011 and primarily operated by collecting donations in Canada and transferring funds to agents abroad. In 2019, the Canada Revenue Agency (CRA) began auditing the Foundation’s activities for 2016–2017. The audit uncovered multiple compliance issues, including the use of charitable resources for non-charitable purposes, the conferral of private benefits to the Foundation’s CEO Chaim Katz, and the lack of control over foreign agents. The CRA also noted deficiencies in the Foundation’s record-keeping, donation receipting, and tax filings.

Following the audit, the Minister issued a Notice of Intention to revoke the Foundation’s charitable status on July 2, 2024, and later finalized the revocation on August 10, 2024. The Foundation disputed the findings through a Notice of Objection, which remained unresolved at the time of litigation. On November 19, 2024, the Foundation was assessed $2.56 million in federal taxes.

Events leading to the Jeopardy Order

On November 25, 2024, the Minister obtained a Jeopardy Order on an ex parte basis from Justice Pentney to prevent asset dissipation. The Minister cited evidence including significant fund withdrawals post-revocation, transfers to the Foundation’s Israeli counterpart, and continued credit card use by Mr. Katz. Additionally, Mr. Katz’s efforts to transfer the Foundation’s operations to a newly named charity, The Emunim Fund, while he was classified as an “ineligible individual” under the ITA, were seen as further non-compliance.

Legal motion and court analysis

The Foundation sought to have the Jeopardy Order set aside, arguing that its asset disbursements were part of the winding-up process allowed under the ITA and that there was no risk to tax recovery. It also alleged that the Minister failed to provide full and frank disclosure in obtaining the order. However, the Court emphasized that the burden was on the Foundation to show reasonable grounds to doubt the need for the Jeopardy Order.

Justice Fothergill reviewed the evidence and found that the Foundation had not sufficiently rebutted the Minister’s claims. Mr. Katz’s affidavit lacked detailed documentation to support claims of proper charitable disbursements, and additional materials submitted were not entered into evidence. The Court concluded that the Minister had reasonable grounds to seek the order, particularly due to Mr. Katz’s conduct and the rapid depletion of liquid assets.

Outcome

The Federal Court upheld the Jeopardy Order, ruling that the Foundation failed to meet its burden under section 225.2(8) of the Income Tax Act. The Court found that the Minister acted reasonably and made adequate disclosure during the ex parte application. Arguments concerning the constitutionality of section 225.2 as it relates to charities were deferred for a future hearing. The Foundation may still be permitted to transfer assets to eligible donees with Ministerial approval, but it remains subject to the terms of the Jeopardy Order.