A battle has been waging in Canada since 2012 over “political activities” by registered charities. The previous Federal Government initiated an audit by Canada Revenue Agency (CRA) of 60 registered charities, which was discontinued in 2017 by the current government. On July 16, 2018, the Ontario Superior Court of Justice struck down the limitations as unjustifiable restriction of a charity’s freedom of expression. On August 15, the Government of Canada appealed and promised to introduce new legislation in the fall.
Although this public debate and the attendant legal wrangling has been characterized as purely political, there is a charity law issue at play.
The Canada Without Poverty case struck down the so-called “10% rule” for political activities. Section 149.1(6.2) of the Income Tax Act states a charitable organization must devote “substantially all of its resources to charitable activities”. CRA and Finance have defined “substantially all” as meaning 90%. Hence, a charitable organization can only devote up to 10% of its resources to political activities, as long as they are not “partisan” in nature.
While the charity world is divided on issues, yesterday’s appeal came as no surprise to the legal community. The Canada Without Poverty ruling largely ignored charity law, the Income Tax Act and jurisdictional issues. It treated a registered charity as if was an person with charter rights.
The counter view is that an organization that decides to be a tax-exempt, receipt-issuing charity must accept the limits. Without the tax advantages, it can do whatever it likes.
What does this mean for estate donors and planning? At the moment, very little.
For the activist donor who wants to support legislative or social change, greater flexibility for registered charity would be welcome. Fewer restrictions on political activity would be beneficial for environmental, animal welfare and social issues (on both sides of the political spectrum). Advocacy can produce real systemic change, which is often blocked by the common law of charity.
The August 15th Appeal and legislative promise suggests the issue is not yet resolve. There will remain a difference between what is “political” and what is “charitable”.
2 Comments
Lone Welwood
August 16, 2018 - 9:29 pmThe Income Tax Act has no definition of charitable purposes or activities but relies on the 4 broad categories established by common law. Arguably, the biggest obstacles to effective relief of poverty in Canada are systemic and can most effectively be addressed by changes to government programs or policies. Hence “political” lobbying for that purpose fits under the head of relief of poverty as well as the category of other purposes beneficial to the public. The 10% policy was completely arbitrary and was not being applied in a way which considered the nature of the political activity and its underlying purpose and utility. Not all political activity is charitable, but appealing to politicians for a charitable purpose should not logically be limited to 10% of the charity’s resources.
Malcolm Burrows
August 16, 2018 - 9:57 pmLorne – Thank you for your comment. If advocacy and political activities are in support of the charitable purposes I believe they should be allowed, as long as they are not partisan. The 10% rule is arbitrary, but very rarely reached. Charities could be more bold in using the tools they have available to advance their charitable purposes.