For making loans to private companies, not giving enough money to legitimate charities, and other reasons, CRA has revoked the charitable status of Loyalty Foundation whose sole director is well-known as a co-owner of the Vancouver Whitecaps soccer team, Greg Kerfoot.
The companies to which Kerfoot's charity made loans are Carrera Management Corp. and Kerfoot WFC Holdings Ltd. The outstanding loans exceeded $42 million plus $4 million in unpaid interest.
Carrera Management Corp. ("Carrera") is a property management company that handles its own real estate portfolio. Properties include offices, store leases, residential apartments, and luxury residential homes, the company's website says. The assessed value of the properties listed at Carrera's website is $134 million and includes 275 apartments, by my count.
CORRECTION: A previous version of this post said that the loans made by Kerfoot's charity were "interest-free" loans. Technically, the loans were not "interest-free." Interest was to be charged at 5 percent per year. But since the interest was not collected, the loans were tantamount to "interest-free" loans until CRA caught up with Kerfoot the interest was paid.
Back in 2003, Loyalty Foundation was registered by Blake Bromley, a retired lawyer known for sophisticated tax arrangements. He claims to have set up 650 charities that have handled $2 billion in donations.
By 2005, Kerfoot had became a director of Loyalty Foundation and by 2016, he was the sole director, an unusual scenario. Typically, charities have at least three directors. In fact, that's required by law.
Loyalty is the third foundation set up by Kerfoot and Bromley. The others are C&R Foundation ("C&R") and Canadian Football Federation, an amateur athletic association.
C&R Foundation and Loyalty Foundation reported a combined total of $101 million in tax-receipted donations, records show. C&R Foundation gifted a total of $13 million to its sister charity, Loyalty Foundation and then closed voluntarily in 2014, having essentially merged the two foundations.
After a foundation has had its charitable status revoked, CRA audit reports and some correspondence becomes publicly available, upon request. These documents provide a glimpse into the transactions between the Bromley charities and why Loyalty Foundation lost its charitable status.
CRA audit reports show that Loyalty Foundation was closed, in part, because it made loans to two of Kerfoot’s private companies, Carrera Management Corp. & Kerfoot WCF Holdings Ltd. ("WFC").
What CRA auditors objected to wasn’t the loans per se; it was that Loyalty Foundation didn’t collect the interest on the loans to Kerfoot’s businesses, thus conferring an undue benefit to him. On one loan, interest had never been collected since the loan began in 2011. On the other, interest was collected only every 3 years.
Because Loyalty did not receive the interest payments that were owed to it, the uncollected interest income benefited parties that Loyalty does not deal with at arm’s length, namely Carrera, WFC and Kerfoot. By participating in these transactions, Loyalty was not operating for charitable purposes, CRA's auditors concluded.
After Loyalty Foundation was audited, the outstanding interest was paid but CRA shut down the foundation anyways, citing the "serious nature" of the violations.
Gifts for $54 Million
Tax returns show that C&R and Loyalty gave away a combined total of $54 million over 21 years. That sounds impressive. But by my detailed analysis, only $11 million went to charities that are not part of the Bromley network.
The top recipient of the Kerfoot donations was Canadian Football Federation, (“CFF”), also set up by Bromley & Kerfoot. While it was Blake Bromley and Kerfoot who established Canadian Football Federation in the first place, it was John Bromley, Blake Bromley's son, who was a director during its active life (2005-2010). The other directors were Bob Lenarduzzi, Gerry Dobson and Kerfoot.
Financial records show that CCF received $26 million (2005-2010) from Kerfoot’s foundations, roughly $4.6 million per year. In addition to the Kerfoot donations, CCF also received nearly $2 million from sources that have yet to be identified.
Every year, CCF spent 99 percent of total revenue on what is described simply as "programme development" in financial statements, obtained from CRA, upon request.
Surprisingly, CCF didn’t accumulate any long-term assets and never earned a single dollar of interest. That's odd.
The commitment that CCF made when it applied for charitable status is that it would promote amateur soccer in Canada by funding community clinics, summer camps and an academy for year-round training of athletes with potential. But which clinics, camps and which academy did CFF actually fund with $28 million dollars?
Canadian Football Federation voluntarily ceased to operate as a registered charity in 2010, having received and spent $28 million over the five previous years.
A second problem that CRA found with Loyalty Foundation is that it didn't give away enough money.
By law, charities are required to give away a minimum each year, known as the “Disbursement Quota” or “DQ.” It is defined as 3.5 percent of assets not used in charitable programs and administration. Next year, the DQ goes up to five percent.
Tax returns show that Loyalty Foundation gave away only $5,000 over five years, falling short of its DQ by over $5 million, according to CRA.
Per year, the DQ shortfalls were $1.5 million, $1.7 million and $1,8 million during 2015, 2016 and 2017. “In our view, these are significant shortfalls and demonstrate non-compliance of a serious nature," CRA concluded.
"The calculated shortfalls are neither minor, nor due to calculation errors or oversights; they are due to the fact that the Organization (Loyalty Foundation) failed to make any qualifying expenditures during its 2016 to 2018 taxation years except for the $5,000 gift made in 2018," says a CRA letter to Kerfoot, dated May 12, 2022.
A third problem found by CRA is that Loyalty Foundation did not issue tax receipts for donations properly.
The fourth shortcoming that CRA found is that Loyalty Foundation did not keep minutes of annual general meetings nor board meetings. CRA concluded that the "lack of minutes of meetings of the board and members, or even resolutions in lieu of meetings, demonstrates a disregard to the performance of the basic duties of these positions."
UPDATE:
On October 5, 2022, Martin McMahon at CityNews reported a statements from Greg Kerfoot, as follows:
“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 ... 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).”
An important point to note is that, as mentioned earlier, CRA did not object to the loans per se that were made by Loyalty Foundation. Rather, the problem with the loans is that the interest was not collected annually. By my calculations, Loyalty Foundation will have earned $27.6 million (2004-2022) as interest on the loans. At 5 percent, that's much better than the bank rate which was as low as 1 percent, or 2 percent. Also important to note is that between 2020 and 2021, a loan for approximately $26 million was repaid, thus reducing the amount owed to Loyalty Foundation from non-arms length charities from $43 million to $16.5 million.
CRA letters regarding audit results & revocation:
- CRA letter regarding revocation, Loyalty Foundation, May 13, 2021.
- CRA Letter of Revocation, Loyalty Foundation, May 12, 2022.
Financial statements & tax returns for Greg Kerfoot's charities:
- Spreadsheet summarizing gifts from Greg Kerfoot charities (C&R Foundation and Loyalty Foundation)
- Pages of tax returns showing tax-receipted donations: $101 million (2000-2021)
- Financial statements for C&R Foundation (27 pages)
- Tax returns for C&R Foundation (82 pages)
- Financial statements for Loyalty Foundation (2005-2020)
- Loyalty Foundation Tax Returns (2005-2021)
Canadian Football Federation (2005-2010):
- Overview: Directors, Assets, Liabilities, Revenue & Expenditures - 1 page summary
- Letters Patent - includes the objectives or the corporation
- Application of Registration - includes key goals and statement of activities
- Annual Summaries (2006-2010) - shows that directors were John Bromley, Greg Kerfoot, Bob Lenarduzzi & Gerry Dobson
- Notification of Registration from CRA - December 23, 2004
- Financial Statements (2005-2010)
- Tax Returns (2005-2010)
To download all documents pertaining to the Canadian Football Federation, click here.