Regulation of registered charities’ “political activities” has long been a bugbear of both the sector and governments. My last column dealt with an Ontario Superior Court decision that ruled parts of the current Income Tax Act (ITA) provisions governing charities’ political activities unconstitutional as in violation of the Canadian Charter of Rights and Freedoms. Much has happened since then.
In mid-September, the government announced that it would both be appealing the ruling (which has implications for other parts of the ITA that feature conditional preferential tax treatment) and introducing legislation to reform the impugned sections of the current legislation.
Later in September, the proposed reform legislation was released. It essentially removed the “substantially all” element of the old provisions and returned to a model where political activities of registered charities are assessed based on the purposes they further, rather than having in-and-of-themselves a charitable or non-charitable character. The new measures also retained the prohibition on partisan political activities that was part of the old provisions.
As parts of the proposed measures are retroactive, both the government and Canada Without Poverty (the party that brought the Superior Court application) have agreed that the appeal of the decision should be postponed pending enactment of the new legislation.
Historically, courts and regulators in most jurisdictions have relied on an analysis of purposes – and the furtherance through activities of those purposes – to determine whether the entity qualifies as a charity. In this context, it is well established that purposes that are partisan are a bar to being a charity.
However, the case law around purposes that are not explicitly partisan, but entail work that overlaps with positions held by parties or candidates, is inconsistent and difficult to reconcile. It is also rooted in doctrines and worldviews that are at odds with many contemporary values. For example, if a court held as charitable a group advocating for changes in law or policy, it would be usurping the roles of other branches of government to determine what laws ought to be in place and how they ought to be administered. A more modern take on this is that a dynamic and consultative process is the preferred way to develop and implement law and policy.
Historically, courts and regulators in most jurisdictions have relied on an analysis of purposes – and the furtherance through activities of those purposes – to determine whether the entity qualifies as a charity.In the 1980s this whole matter came to the fore in Canada when a Toronto legal clinic sought federal registration as a charity. In Scarborough Community Legal Services v. Minister of National Revenue, the Federal Court of Appeal upheld a decision by Revenue Canada – later the Canada Revenue Agency (CRA) – to deny registration to a community-based legal clinic. It found that the group’s participation in a rally at the provincial legislature and involvement in legal reform efforts related to certain statutory policy matters constituted impermissible political activity. The government responded by enacting legislation intended to deem as charitable limited non-partisan political activity by registered charities, but later administered as placing a hard limit on the amount of such activity that charities could undertake.
The approach taken to enforcing these measures effectively rendered unnecessary any reference to purposes in characterizing the political activities of charities. The same enforcement approach was continued notwithstanding the 1999 judgment of the Supreme Court of Canada in Vancouver Society of Immigrant and Visible Minority Women v. M.N.R., in which the majority opinion clearly and unequivocally endorsed looking to purposes to determine the nature of an activity undertaken by a charity.
Guidanace was developed guidance in the early 2000s to help charities navigate through the provisions and the approach taken by CRA. That guidance acknowledged the legitimate role of charities in assisting government to develop and implement public policy. It created a fairly stable environment around the issue for a number of years, although board members of charities often remained fearful of mandating any policy engagement with government lest their organizations be found to have violated the hard cap on political activities that the ITA provision required.
With the Political Activities regulatory initiative of the 2012 Budget, that equilibrium was lost. The audits that were part of that initiative, and the related media attention on the issue, re-ignited confusion and controversy around charities’ role in public policy.
Happily, the new measures offer an opportunity to return to a strictly purpose-based analysis of political activities. However, there will be two principle challenges if they are enacted as proposed. First, they retain a provision in the current definition of a charitable organization that requires that all its resources “are devoted to charitable activities”, which could open the door to administration of the provision characterizing the nature of an activity in-and-of-itself as charitable or not. This could mean that (as there is no longer any deeming as charitable of such activity) a small non-partisan action of a charity might jeopardize its status. Given various other provisions of the ITA that prohibit non-charitable conduct, this aspect of the definition could be dropped without creating undue risk.
Secondly, the measures retain the prohibition on both “direct” and “indirect” partisan support. There is no indication of what constitutes “indirect”. The wording could target:
- implicit rather than explicit support;
- use of resources rather than an articulated endorsement;
- social media partisan commentary by stakeholders who have no official connection with a charity;
- coinciding policy between a charity and a political party; or
- some other harm.
Preliminary indications from CRA are that it does not intend to enforce the measures in that way. Still, clearer language in the statute, or dropping the word “indirect” altogether would be preferable.
All in all, the measures are welcomed. The back to the future approach of making purposes the touchstone of whether an activity is acceptable or not is, so to speak, a step forward. Let’s hope that it presages wider reform of federal charity regulation that is badly needed.