I have been watching the case of the charity Canada Without Poverty since their charitable status was revoked for exceeding the 10% amount of permissible political activity spending. As you may recall, Canada Without Poverty devoted over 98% of its resources to political activity.

In an article published in the September 2018 issue of the CCCC Bulletin, I note that the federal government announced that it would appeal the decision and also introduce new legislation in the fall of 2018 to address the issues surrounding political activity within the charitable section. The Government announced that it would address the recommendations—in particular, Recommendation 3—stemming from the consultation panel report regarding political activity and specifically, the recommendation that charities be free to engage in public policy discussions without constraint. As I previously reported, the panel’s report largely reflected the sustained call of some charity lawyers, charities, and sector personnel.

Presently, the appeal of the decision and the filing of appeal documents have been delayed due to the proposed legislative changes recently published by the federal government. The parties are likely waiting to see whether the proposed changes adequately address the concerns raised by the Attorney General. On August 15, 2018, the Government of Canada announced its intention to amend the Income Tax Act (the “Act”) to implement changes to allow charities to pursue their charitable purposes by engaging in non-partisan political activities and public policy discourse. On September 14, 2018, the Department of Finance Canada released draft legislative proposals that remove the quantitative limits on political activities from the Act.

New Legislative Proposals

The draft legislative proposals are proposed to apply retroactively to related audits and objections that are currently suspended. The short draft proposals amend or repeal a handful of provisions with the primary effect of removing the quantitative limits on non-partisan political activity. The draft proposals are negative, meaning that they do not expressly identify political activity as permissible. The draft proposal makes clear that charities are still required to be constituted and operated for exclusively charitable purposes (ss. 149.1(1)(a)), meaning they cannot be constituted for a political purpose. In addition, all of a charity’s resources are expected to be expended on charitable activity (ss. 149.1(1)(a.1), and the restrictions against partisan political activities would remain (ss. 149.1(6.1) and (6.2)).

The most significant change includes the removal of the definition of political activity and the removal of the exemption for partial expenditure on political activity (former ss. 149.1(6.1) and (6.2)) such that the Act would consider the organization to still be constituted for charitable purposes or be devoting those resources to charitable activities when it carried out political activity to a permitted extent. Those provisions were replaced with general prohibitions regarding partisan political activity. Because the draft proposals are fairly limited, CRA issued supporting administrative guidance regarding these changes.

In summary, the changes

• largely remove provisions relating to the political activities of charities, most notably the allowance for charities to expend 10% of their resources to non-partisan political activities;
• maintain the prohibition on partisan political activities; and
• restate the requirement that foundations and charitable organizations be constituted and operated for exclusively charitable purposes.

Draft CRA Policy Proposed to Replace CPS-022

On October 2, 2018, the Canada Revenue Agency issued draft guidance for consultation with the charitable sector on how it would implement the draft legislative proposals. The draft guidance is proposed to replace current CRA policy on political activity, CPS-022, and contains information about how CRA would administer the draft proposals. The substantive changes to the guidance include revised nomenclature, referring to former “permitted political activities” as “public policy advocacy activities.” The CRA policy indicates that “as long as a charity operates only for charitable purposes, it can carry out activities, including public policy advocacy activities, that are incidental to those charitable purposes.”

CRA defines public policy advocacy activities as those that seek to influence the laws, policies, or decisions of a government, in Canada or any foreign country, which includes, for example, speaking about the impact of a law or engaging with the public to persuade a government to change a decision. The meaning of incidental, which CRA often uses, is not clearly understood by many charities. Incidental activity, according to CRA, refers to activity that “helps or supports a charity in carrying out its charitable purposes” and “is subordinate to a charitable purpose.” CRA considers the expenditures of resources on incidental activities to be devoted to charitable activities. However, an incidental activity cannot be a purpose or the charity’s reason for operating. That is to say, an incidental activity must serve the charitable purpose and cannot become a purpose in itself.

According to the policy, when an activity becomes more than incidental, such as a public policy activity, it is an indication that the charity may exist for or have a non-charitable political purpose. Within the policy, CRA has provided examples of the type of activities it considers to be public policy advocacy, which may be permissible. Such examples include informing a government or the public and engaging with the public to persuade a government.

What This Means for Charities

While the legislative changes and the CRA policy are only in draft form, it is evident that CRA recognizes that charities are free to engage in public policy advocacy and has provided significant leeway to allow them to do so. However, such activity must remain not unrelated to the charity’s charitable purposes and must not be disproportionate in the amount of resources expended on the activity to deliver a public benefit. This is because disproportionate expenditures on public policy advocacy may indicate that a charity has a political purpose.

Consultation 

The Federal Government and CRA are consulting on the draft amendments and draft guidance. Comments on the draft legislation may be submitted by October 13, 2018. Comments regarding the draft legislative proposals should be sent to fin.charity-bienfaisance.fin@canada.ca or mailed to:

Tax Policy Branch
Department of Finance Canada
90 Elgin Street
Ottawa, Ontario
K1A 0G5

Comments respecting the draft CRA policy may be submitted to consultation-policy-politique@cra-arc.gc.ca or mailed to:

Charities Directorate
Attn: Policy, Planning, and Legislation Division
Canada Revenue Agency
Ottawa, Ontario
K1A 0L5

The post Government’s Response to Unconstitutional Political Activity Limits appeared first on CCCC Blogs.

CRA’s requirement that charities spend no more than 10% of their resources on political activity has been found by Justice Edward Morgan, of the Ontario Superior Court of Justice, to be unconstitutional. Justice Morgan was emphatic. He did not allow the government any time to change the rule to be Charter compliant. In his opinion, the rule was arbitrary and infringed freedom of expression protected in section 2(b) of the Charter; it was an unjustifiable breach and therefore is of no effect.

This is welcome news for charities. The federal government, over the last number of years, has spent some $13.4 million in its political audit program, according to news reports. Charities have found this program an extra (and an unnecessary) burden to abide by. CRA’s “10% rule” policy limits a charity’s engagement in non-partisan “political activities” to only 10% of its resources. Failure to keep in line with this rule will mean the loss of registered charitable status.

Political activities as noted by Justice Morgan (at para. 38) are “where the organization issues a call to political action, or publicly advocates for changing or maintaining any law, policy, or decision at any level of government in Canada or a foreign country, or ‘states in its internal or external materials that its goal is to convince an elected representative or public official to change, oppose, or support any law, policy, or decision at any level of government.'”

The case involved Canada Without Poverty, a non-partisan, not-for-profit, charitable organization dedicated to ending poverty in Canada. It was created in 1971 and since then has ardently championed the rights of individuals experiencing poverty and marginalization through research, awareness-building campaigns, public policy development, and educational programming.  Facing the loss of its charitable status as a result of a CRA political audit, the charity was forced to seek relief from the courts.

“This is an incredible victory – not only for CWP, but for Canadian democracy,” said CWP’s Executive Director, Leilani Farha.

I couldn’t agree more.

Justice Morgan noted (at para. 42) that CWP does “not claim a right to engage in political objectives or purposes; rather, it seeks to pursue its existing charitable purpose through means which are self-evidently expressive and protected by s. 2(b) of the Charter. In effect, the language of s. 149.1(6.2), [of the Income Tax Act] and CRA’s 10% rule in application of that statutory provision, makes [CWP’s] charitable purpose untenable.”

The decision affirmed that CWP has a right to “effective freedom of expression – i.e., the ability to engage in unimpaired public policy advocacy toward its charitable purpose.” (Para. 47)

There is no word, yet, if the federal government is going to appeal the decision. However, given the fact that it has publicly criticized the previous government’s emphasis on charity political audits – and given its own Minister of National Revenue’s Consultation Report in 2017 that recommended the deletion of any reference in the Income Tax Act to non-partisan political activities for charities – it may prove very difficult for the government to appeal the decision.

In my view, there is no need for the 10% rule. As long as a charity is carrying out its approved charitable purpose while engaged in political activity, it makes no sense to arbitrarily limit such efforts to 10 % of its resources.  There are many times when charities must engage in public advocacy through no fault of their own.

Take, for example, the Canada Summer Jobs issue. We were forced into action because of an ill-conceived public policy decision of the government, and as a result, we had to (and are continuing to) let our views be known to political leaders. We’ve written letters and participated in meetings with MPs. In other words, we are engaged in “political activity.” It is not partisan. We are focused on the issue, which is of profound significance to many of our members across the country. Yet in the back of our minds we have had to be conscious of this 10% rule. The facts on the ground may mean that we could get close to infringing it – but why have the rule if what we are doing is vital to carrying out our charitable purpose? It not only interferes with our right of expression, but also, in the CSJ issue, with our religious freedom. The government has sought to control the messaging of charities and it is simply wrong.

I, for one, applaud Canada Without Poverty for taking the stand it did in challenging this needless and unconstitutional rule. Good riddance, and may the government never appeal!

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