The Uniform Law Conference of Canada (ULCC) is a body that develops model legislation that provinces can adopt to create a consistent and harmonious legal framework across jurisdictions. It has now provided a roadmap on the issue of crowdfunding, and more specifically internet fundraising. This is timely and helpful.

The 2005 ULCC Uniform Charitable Fundraising Act (UCFA) did not cover activity of non-charities. So, a decade ago the ULCC initiated a project on regulation of fundraising not falling under the UCFA.

The effort led to release of the 2011 Uniform Informal Public Appeals Act (UIPAA). Saskatchewan adopted a version of the UIPAA. It was used in resolving problems related to administration of the Humboldt Broncos Memorial Fund.

The Uniform Law Conference of Canada (ULCC) is a body that develops model legislation …The rapid rise of online crowdfunding over the last decade, however, lead to a need to revisit some of the provisions and update some of the definitions from 2011. Developments in case law and a U.S. effort to craft model crowdfunding legislation were also factors prompting a new look at the UIPPA.

Informed by these considerations, the ULCC has updated and renamed the 2011 model statute. It is now called the Uniform Benevolent and Community Crowdfunding Act (UBCCA) and was released in August. It is available online.

The UBCCA, like its predecessor, deals with spontaneous or ad hoc public appeals by individuals or groups for funds for a specified purpose, and the trust obligations that can arise from such appeals. The concept of a trust arising from any appeal made within the scope of the UBCCA is central to the model legislation.

The UBCCA is intended to cover appeals for humanitarian or public purposes, rather than those of a private nature. The approach taken in the model statute lessens the distinction between appeals for charitable and non-charitable purposes, essentially by extending the mechanisms used in the charitable realm to non-charitable appeals. But these changes only apply to appeals that fall within the model statute.

Photo by Markus Winkler from Pexels

Not covered by the UBBCA are appeals:

• made by some entities (qualified donees under the federal Income Tax Act – this includes registered charities – and their intermediaries);
• for certain ends (e.g. partisan politics, investment); or
• with particular features (where the funds are intended for the organizer, or a contributor is rewarded with more than public recognition or a perk of token value).

The legislation provides default rules and procedures for appeals within its scope. These can be supplemented or replaced by documents or provisions put in place by an individual or group organizing an appeal.

The legal term “trust” is more known than understood. Trusts can be established in a number of ways, but most commonly they are created by a trust document. Importantly, they can also arise through circumstances and representations. As it is often the case that public appeals are made with no or only partial documentation, an important role of the model legislation is to clarify that a trust relationship is created by the appeal within the scope of the UBCCA.

The model statute makes those directing “management and disbursement” of an appeal fund (or those with authority to do so) trustees. This has implications both for dealings with donors and for stewardship of funds raised. The model statute outlines various obligations, such as the need to maintain a segregated bank account for the funds, stemming from the proceeds of an appeal being a trust.

The UBCCA is intended to cover appeals for humanitarian or public purposes, rather than those of a private nature.Additionally, powers of public appeal trustees to administer funds and of the courts to oversee fund administration are set out in the UBCCA. Historically, under what is known as cy-pres power, courts have had the authority to make schemes where the purpose of charitable trust cannot, or cannot any longer, be fulfilled. This allows the court to substitute a similar purpose for the original purpose.

It also allows the courts to deal with surpluses. The model statute expands this authority to trusts for a non-charitable purpose and sets a threshold for when court approval for distribution of a surplus is required. As well as providing for expanded court oversight authority, the model statute also refines certain other aspects of existing law on UBCCA non-charitable purpose trusts.

Various means for dealing with surpluses are set out in the model legislation and apply based on whether the amount in issue exceeds the court threshold and was generated for a charitable or non-charitable purpose and based on the documentation in place.

The UBCCA provides for the ability of various persons or bodies, including (in a departure from existing law) donors, to go to court to enforce the trust.

Importantly, the UBBCA addresses what court has oversight authority when the appeal takes place across jurisdictions. Determining appropriate jurisdiction is particularly crucial given the rise of internet crowdfunding platforms.

… an important role of the model legislation is to clarify that a trust relationship is created by the appeal within the scope of the UBCCA.Another area of abiding concern was where organizers want to change the terms of the appeal over the course of a campaign. The UBBCA allows this in limited circumstances:

• to deal with disposition of an unforeseen surplus; and
• to replace a fundraising goal that proves unrealistic.

In the first case, disposition of the surplus must accord with the s. 10 provisions of the UBCCA on that topic. In the second case, the spirit of the new goal must accord with that of the original goal.

Finally, the UBBCA features a Schedule setting out a Trust Declaration template to encourage organizers to document in writing the terms of their appeal.

With information on online crowdfunding initiatives now so often a feature of news and social media about community and personal disasters or hardships, the ULCC work on this new model statute should be welcomed and commended. Provinces should be encouraged to adopt the UBCCA as quickly as feasible.

Photo by succo on Pixabay

The COVID-19 pandemic lead to numerous court proceedings being postponed. So, some important charity and non-profit cases may well remain in limbo as I write this. But, both internationally and domestically, the last few months have also seen some major decisions on a range of sector issues.

Aga v Ethiopian Orthodox Tewahedo Church of Canada (Aga)

Earlier this year, I wrote about this Ontario Court of Appeal (OCA) decision, which dealt with crucial member rights issues for voluntary sector groups. The litigants in that case have now been granted leave to appeal the decision to the Supreme Court of Canada.

Aga will provide the Supreme Court with the opportunity to further clarify when a court can delve into the internal decisions — here having to do with disciplinary measures taken against congregants — of faith-based or other voluntary sector organizations. It will also provide a chance to look at the applicability of the Charter of Rights and Freedoms in private litigation. Specifically, whether the Charter has any role where the courts have been asked for a remedy that may compel a religious group to take certain actions.

Friends of Toronto Public Cemeteries Inc v Public Guardian and Trustee (FTPC)

In another OCA decision, the Court looked at governance issues. The case concerned the Mount Pleasant Group of Cemeteries (MPGC) in Toronto. The organization was originally established in 1826 as a statutory trust but has had its structure modified by legislation at various times during the ensuing two centuries. MPGC is now run as a corporation. The OCA looked at whether the succession procedure of the governing body was legitimate and at whether certain decisions about the permitted scope of its activities were valid.

As well as the governance questions, the proceeding dealt with whether the organization was a charity, and whether it should be subject to an investigation by the province’s Public Guardian and Trustee under Ontario’s Charities Accounting Act.

The decision could be a setback for development of Canadian charity law.The OCA finding that the group is not a charity does not accord with the practice in other common law jurisdictions of recognizing organizations operating cemeteries as charities. As well, the analysis used in the case to determine if MPGC is a charity features consideration of some factors that are not traditionally used in determining common law charity status. The decision could be a setback for development of Canadian charity law.

Greenpeace of New Zealand Inc v Charities Registration Board (Greenpeace)

A recent decision of the New Zealand High Court, on the other hand, adds to the common law of charity in a more positive way. Decided in August, Greenpeace was the latest case that considered the eligibility of Greenpeace NZ for registration as a charity.

An early proceeding had set out the proper criteria for assessing Greenpeace NZ’s eligibility, but had referred the matter back to the regulator to determine. The 2020 case arose when the regulator refused to register the group.

The High Court decision contributes to the law in four distinct ways. It examined if the advocacy component of Greenpeace NZ’s work made it ineligible for registration, and determined that, under New Zealand, law, it did not. This aspect of the decision will likely have little impact in Canada, since a December 2019 change to the federal Income Tax Act allowed all Canadian registered charities to undertake the type of advocacy done by Greenpeace NZ.

Second, the decision appears to expand what is considered within the purpose of advancement of education in New Zealand — opening up that term to include work mobilizing the public. In Canada, however, the Supreme Court of Canada commented extensively on what qualifies as advancement of education in the 1999 case, Vancouver Society of Immigrant and Visible Minority Women (Vancouver Society).

…Greenpeace was the latest case that considered the eligibility of Greenpeace NZ for registration as a charity.While the SCC expanded the term to include instruction or training outside the classroom, so long as it was sufficiently structured, it cautioned against material primarily aimed at indoctrination or persuasion. It stated dissemination of such material was not charitable advancement of education. As the High Court seems to go further than Vancouver Society, it is unlikely that this aspect of the decision will hold sway here unless there is legislative change or additional jurisprudence on the topic.

Third, the High Court analysis of protection of the environment as a common law charitable purpose featured a similarly expansive view on what could qualify as charity. That part of the decision does not face the same uphill battle against settled Canadian law.

Greenpeace rejects a narrow interpretation limiting charity in this area to uncontroversial, remedial work to mitigate or eliminate harm. It instead endorses public engagement as an important element of the purpose of environmental protection, and rejects deeming this work not charity merely because it vies with other economic or social interests. Greenpeace acknowledges the charitable purpose of protection of the environment ought to include the ability to raise environmental concerns as part of public policy discourse, even if this entails conflict with competing interests. If adopted by Canadian courts or regulators, this would be a positive development. The reasoning in Greenpeace could be helpful in bringing that about.

Finally, it has long been established that an illegal purpose precludes eligibility to be a charity. Less clear is the relationship of incidental illicit activity (rather than purpose) to qualifying as charity. The “fact and degree” analysis used in Greenpeace helpfully contributes to the common law on this topic. It finds minor and isolated illegal activity may not prevent an organisation from being a charity. This is so even where small amounts of the charity’s resources are used to support illegal activity.

There may well be other significant charity and non-profit cases wending their way through the courts in the pandemic backlog, but in the meantime Aga, FTPC and Greenpeace provide amply food for thought for the moment.

The COVID-19 pandemic has devastated charity and non-profit organizations’ revenue sources to an extent rarely, if ever, seen before. Though some high-profile groups saw governments and the public funnel generous support to them and there have been a few clever online initiatives to raise money, that is just a small part of the story. The reality is that fundraising activities for many sector organizations have either been substantially scaled back or halted altogether. Gaming proceeds from casino nights that are budgeted and relied on by numerous Alberta groups have disappeared.

One silver lining is that emergency relief programs from all levels of government are generally open to voluntary sector groups … as well as the private sector.Those charities and non-profits, such as YMCAs, that offer products or services to part of their client base at market rates, and then use the proceeds to defray overhead, have seen sales dry up. This development, together with the fall in more traditional fundraising, is particularly troubling because funders — whether government or philanthropic — often remain only willing to fund direct service delivery or other frontline work. They expect agencies to find other ways to cover their infrastructure costs. Colloquially this is known as funding with 80-cent dollars.

Arts and cultural organizations that use ticket sales to fund their core operations are in deep peril. Even if they can find a way to recover from their revenue loss, and meet costs such as rent and utilities, with the gig economy workers on which they rely disproportionately hurt by the economic shutdown and with huge uncertainty about the willingness of audiences to return as we emerge from the crisis, prospects look glum.

Finally, most voluntary sector groups don’t have investments, but those that do have seen the value of their holdings plummet. So, things are pretty lean there as well. There is an initiative — notwithstanding recent poor investment returns — to encourage foundations and other organizations with endowments to spend 5% of their portfolios this year, instead of the 3.5% mandated by the federal government. If that 5% goal was to become a standard widely followed, it would still cover only a miniscule fraction of the revenue gap currently being experienced by the sector.

Photo from Pixabay

One silver lining is that emergency relief programs from all levels of government are generally open to voluntary sector groups (or individuals associated with them) as well as the private sector. That is a positive because in the past it was not always the case that charities and non-profits were eligible for government initiatives, particularly those with an economic focus. That said, some measures have been better thought through than others.

At the federal level, the emergency benefits available either through the employment insurance program or though the Canada Emergency Response Benefit (CERB) seem to have been well-received and by and large successful. One shortcoming of the CERB, noted by the Prime Minister, was the potential for a low-wage earner in a frontline organization (frequently a voluntary sector group) to opt for the benefit rather than continue in a job where they faced a health risk and would be financially worse off than on the relief program. Tweaks were made to the CERB and funds were announced to boost frontline wages in essential industries to counter this problem.

The cost of wage subsidy is being shared by the federal and provincial governments, with the provinces determining eligibility. The long-term care sector, which is the focus of much of the attention for this measure, is composed of different types of providers. The federal tax system allows for long-term care facilities to qualify as registered charities, as a special category of non-profit organization under Income Tax Act s. 149 (1)(i) or as for-profit entities.

In having providers that are charities, non-profits and for-profits, the long-term care sector mirrors the early learning and childcare sector, where the Alberta provincial government has long financed a wage top-up for certain workers. The model is to offer the same support regardless of the nature of the provider. It is anticipated a similar approach will be taken to the wage top-up for long-term care home workers.

In the circumstances of the pandemic it makes sense to have programs with broad scope and to support frontline workers directly rather than focusing too much on the nature of organizations or companies. Staff recruitment and retention are necessarily of primary concern for the moment.

The reality is that fundraising activities for many sector organizations have either been substantially scaled back or halted altogether.But widespread reports of deplorable conditions in some long-term care facilities in Eastern Canada suggest a more strategic approach to funding and regulating these activities ought to be taken. Ideally, this would see facilities that offer higher quality care receive priority in getting funding. One approach, which is taken by Alberta in the childcare field, is to link the amount of the wage supplement to educational qualifications.

Though correlation between education and quality of work is not exact, research does indicate a discernible relationship. So, linking the wage top-up to academic training is reasonable as something of a proxy for better care.

On the flip side, experience in the early learning and care sector has been that wage top-ups paid to employees of for-profit entities are hidden cross-subsidies for acquiring private property (i.e., ownership of facilities, such as buildings) and in increasing profitability. As well, the better quality of care they make possible allows for higher fees to be charged. So, in economic terms, without additional regulatory measures — such as caps on fees — subsidies paid in these situations are less efficient in improving quality.

The COVID-19 pandemic and its economic fallout are unprecedented. Government support in the face of this is understandably less nuanced than might be desired. But resources are not unlimited. As we move past the crisis, we should think harder and more deeply about how we can get the best ‘bang for the buck’ out of public dollars.

Photo from Pexels

As I write this, the coronavirus pandemic is shining an unexpected spotlight on charities and non-profit organizations. Canada is reputed to have – in economic terms – one of the largest and most dynamic voluntary sectors in the world. It is estimated to account for more than two million jobs and to contribute tens of billions of dollars to Canada’s Gross National Product. Volunteers are estimated to provide almost two billion hours of time annually – the equivalent of about two million full-time jobs.

But the frontline efforts needed to deal with the fallout from COVID-19 remind us that the sector’s contribution to the country’s quality of life far exceeds the raw economic numbers.

The pandemic and the accompanying economic disruption have thrown into sharp relief those sector groups that serve and support vulnerable or disadvantaged Canadians. Both federal and provincial initiatives have been put in place to bolster the resources these organizations have to meet the needs of the individuals and communities with which they work. That’s the good news.

Another positive note has been the inclusion of voluntary sector groups in most government relief initiatives. Eligibility for these programs was opened to charities and non-profit organizations having had to temporarily shutter operations or suffering economic hardship as a result of “social distancing”.

These and other responses to the crisis were again a reminder, however, of the blind spots and challenges governments have in dealing with voluntary sector organizations.

Ironically, as was noted by the Prime Minister, some low-wage employees in crucial jobs – both in the voluntary sector and in other parts of the economy – faced a dilemma of potentially being better off leaving their positions and accessing government relief payments. Adjustments to programs were made to try to correct this anomaly. More broadly, this incongruity is a reminder of the reliance by governments on using sector groups to economize on the cost of delivering services.

… civic leaders at all levels encouraged and recognized the role that volunteers needed to play in providing services and fostering social cohesion given the disruption brought on by the pandemic.Among other shortcomings – sometimes more evident at the provincial level, as that is the point of delivery for many services – were governments proposing programs providing “80-cent dollars”. This practice, which is not limited to pandemic emergency measures, entails funding client services or other program activities but not providing resources for infrastructure and other overhead needed to support frontline work. Given the fraught state of fundraising in the wake of the pandemic, weak demand for the products and services often sold by charities to generate revenue, and the collapse of investments, it is not clear where the difference is supposed to be made up.

Some governments actually saw windfalls because organizations had to shut down or scale back their operations and so lost access to subsidies or direct funding, since they were no longer able to meet targets for service provision or deliverables. Properly, such saving should have been put back into supports for sector groups and their work, but it is not clear this always happened.

Another aspect of voluntary groups, which governments have difficulty grappling with, is their reliance on volunteers. To be sure, in their public statements civic leaders at all levels encouraged and recognized the role that volunteers needed to play in providing services and fostering social cohesion given the disruption brought on by the pandemic. At the same time, it was widely acknowledged that social distancing curtailed the use of volunteers in many organizations or required new procedures to ensure that people were kept safe when they did offer up their time and skills.

The more efficient use of resources stemming from the availability of volunteers to charities and non-profit organizations is often taken for granted. And, though government were in many cases prepared to prop up voluntary sector groups with financial support, there wasn’t a quick or simple policy solution to organizations losing or having to limit their access to this valuable resource.

That said, the recent Report of the Senate Special Committee on the Charitable Sector recommended a series of measures to reinvigorate volunteerism in Canada. These included:

• development of a national volunteer strategy;
• use of government funding mechanism to promote volunteer recruitment and retention;
• seeking ways to defray the cost of police checks on volunteers; and
• recognition programs for volunteers assisting in the delivery of government services.

One often-cited notion, a tax credit for volunteers, was not taken up. The Committee found that the idea was likely to be difficult to administer, particularly for small groups, and that there were doubts as to how effective it would be in increasing volunteering.

The pandemic and the accompanying economic disruption have thrown into sharp relief those sector groups that serve and support vulnerable or disadvantaged Canadians.With the exception of a national volunteer strategy, it is not clear that any of the proposals would have made a significant difference to the problems that arose in the recent crisis.

Since volunteering is often undertaken – at least in part – for social reasons, it may even be that the pandemic, and the anticipated “new normal” that will come after it, will reduce people’s appetite for volunteering.

On the flip side, there is some suggestion that the compelled isolation and collective purpose stemming from Canadians together having faced a common threat could increase our sense of social cohesion. In that context, finding ways to encourage contributions that are outward looking might find a receptive audience. And with much travel and mass entertainment likely curtailed for the foreseeable future, there could be opportunity to alter how people spend their time away from work in the post-pandemic world.

So, a national volunteer strategy is a concept that may be timely.

Working out a national strategy could also help in coming to terms with some modern trends in volunteering. These include greater interest in “informal” volunteering among younger people. That is, a desire among individuals for more casual and time-limited roles with organizations, rather than on-going, regular positions. This trend to informality is no doubt egged on by technology, and that is another area that could be fruitfully explored in promoting contemporary volunteering.

As well, the strategy could grapple with concepts like mandatory volunteering – something that is now a component of the high school curricula of many provinces. It could examine the popularity of people “volunteering” as part of fundraising events and explore whether this type of activity could be better leveraged to benefit organizations.

Development and adoption of a national strategy could also be useful in slowing, or perhaps even reversing, recent stagnation in volunteering. As importantly, it could also help in expanding the current demographics of volunteering, which see religious affiliation and post-secondary education as key drivers of volunteerism.

None of that will solve the challenges faced by charities and non-profit organizations as a result of the coronavirus pandemic, but in fiscally straightened circumstances that government will undoubtedly face once the crisis has passed, it would be a worthwhile investment.

And, looking beyond economics, it could add immeasurably to the ability of charities and non-profit groups to enhance Canadians’ quality of life.

A recent Ontario Court of Appeal case, Aga v. Ethiopian Orthodox Tewahedo Church of Canada (Aga), provides some insight into the vexing question of the extent of “member” rights in not-for-profit organizations. Although the idea of such rights seems straightforward, it is anything but.

The litigation in AGA came about because the membership status of a number of congregants in a religious parish was stripped after they questioned decisions by a church Archbishop. The congregants were not corporate members of the legal entity under which the group was constituted and operated. Given that, it was in dispute whether they could rely on the internal disciplinary procedures that the church had established. A broader concern is the extent of procedural fairness required in circumstances of this sort, but that issue was not dealt with in the ruling.

The case suggests that, at least in certain situations, individuals who are not formally part of a group’s corporate governance structure may have some protection from being treated unfairly by the organization.

All this speaks to the need for not-for-profit organizations to exercise care in who they describe as members, and in how they treat them.
The confusion around this issue comes partly from different uses of the term “member” by not-for-profit groups. In its legal sense, the term is used to refer to stakeholders with voting rights in an organization’s corporate structure. However, it is not always used in that way.

Many not-for-profit groups have corporate structures that are quite different from the operational structures they use to engage with their stakeholders. The term “member” often gets used as part of that engagement. In the Aga case, the litigants were not part of the Church’s corporate structure but were part of a Congregation.

It is certainly not uncommon for faith-based organizations to take this type of approach to their governance. But it also pops up in other contexts as well. For example, advocacy groups sometimes count those who financially support them (even where their contributions are relatively modest) as among those they speak for, while drawing their corporate governance from a narrower base. When making representations to government or the public, it is obviously valuable to assert the broadest possible backing.

And federated bodies may have a structure that gives members say in local decisions but where governance at the national level is driven by input from local leaders rather than from grassroots members. Being called a “member” of a sports league, or fitness or social club won’t necessarily involve you in the corporate structure of the organization.

When the Canada Not-for-Profit Corporations Act (CNCA) became law in 2009, it specified that all “members” – as that term is used in the CNCA – were entitled to vote on fundamental changes to the organization (winding up, amalgamation, etc.), while still permitting classes of membership with different voting rights on other matters. So, a member may be able to vote on winding up, but not for purposes of electing the board. The CNCA also sets out several member privileges and protections, such as the right to examine the organization’s membership list.

… the precision with which the term “member” is used varies considerably.For groups incorporated at the provincial level, sometimes the equivalent statutes mirror the federal approach. Other provincial incorporation statutes are silent on privileges and protections for members, other than setting out that they are empowered to choose the Board of Directors and have certain rights and responsibilities to an Annual General Meeting.

Given this legislative framework, the precision with which the term “member” is used varies considerably. CNCA corporations, and those incorporated under similar provincial legislation that use the term loosely, may find that they have unintentionally created rights where they did not mean to do so.

As well as the applicable statute, bylaws and other corporate documents may also come into play in determining what, if any, rights someone considered a “member” has.

Which brings us back to the Aga case. The litigants in Aga were not formally part of the Church’s corporate structure, and there was a question whether they were even aware of the provisions in the organization’s Constitution and Bylaws. The expulsions, which stemmed from a theological dispute, concerned their ability to participate in the Congregation.

The litigants submitted that they had not received due process when the disciplinary measures were administered. Although not members of the corporation, the litigants had completed and submitted “membership application forms” to join the Congregation. The application forms did not reference the Constitution or Bylaws.

In overruling the trial judge, who held there was no contractual link between the parties, the Court found that:

Voluntary associations do not always have written constitutions and bylaws. But when they do exist, they constitute a contract setting out the rights and obligations of members and the organization.

The Court held that the litigants’ rights to procedural fairness, whose form turns on the circumstances and gravity of the discipline, arose from this contract – i.e., the Ethiopian Orthodox Tewahedo Church’s Constitution and Bylaws.

… individuals who are not formally part of a group’s corporate governance structure may have some protection from being treated unfairly by the organization.Having found that a contract existed and gave rise to procedural fairness expectations, the Court considered the appropriate remedy. It ordered that – the respondents not having satisfied the burden of showing that the expulsions had been carried out in compliance with the rules set forth in the applicable documents – the matter should be returned to the lower Court.

Although it found that there was an expectation of procedural fairness, it did not offer an opinion on the extent of procedural fairness that applied on the facts of the case, nor whether the procedural fairness obligation had been met.

All this speaks to the need for not-for-profit organizations to exercise care in who they describe as members, and in how they treat them. At a minimum, groups should follow the rules set out in their corporate documents, but – especially in situations involving member discipline – they should be mindful that there may be procedural fairness obligations that extend even beyond what is required by those rules.

Although welcome and overdue, the new federal tax legislation and guidance on policy advocacy by registered charities doesn’t mean that compliance worries faced by sector organizations in this area are a thing of the past. For those unfamiliar with the changes, more information on them can be found online. Essentially, these changes free up groups to do more non-partisan policy advocacy in furtherance of their charitable purposes.

What hasn’t changed are the obligations of organizations under other statutes. Charities should be aware of any regulatory requirements they face, whether under federal or provincial law, before embarking on their advocacy work.

This was highlighted last month when, as was widely reported in the mainstream media, Elections Canada warned charities that they remained subject to third party registration requirements under election legislation if they meet spending thresholds for “regulated activities”. Activities in this category include several types of conduct, but for charities the most important is “election advertising”.

Under charity tax rules, no coordination with a party or candidate is allowed.Election advertising is “transmission to the public by any means during the election period of an advertising message that promotes or opposes a registered party or candidate, including by taking a position on an issue with which the party or person is associated.” The last part of this definition means that charities can be required to register as third parties if they pay to promote a policy stance that happens to overlap with a position of a party or candidate. The $500 financial threshold is quite low, so easily triggered if any costs are incurred in the promotion.

The charity’s position overlapping with the party or candidate’s is enough to prompt the requirement. An organization having an existing stance on an issue, which is later taken up or opposed by a political actor, does not eliminate the need to register. Nor does the spending having been undertaken independently of the party or candidate relieve the charity of its registration obligation.

Provincial election legislation may take a similar approach.

Under charity tax rules, no coordination with a party or candidate is allowed. The Canada Revenue Agency (CRA) does, however, state in its guidance that autonomously promoting charity positions that at some point become part of a party or candidate’s platform do not indicate partisanship for its purposes. More broadly, based on the two regulators’ different areas of focus and definitions, registration with Elections Canada as a third party will not generally result in increased scrutiny from CRA.

That said, moves by a charity to sharply increase its advertising on a contentious issue or otherwise take a higher profile on a controversial position during an election campaign could spur CRA interest.

Election law is only one worry. In policy dealings with government, charities may also have registration and/or filing obligations under lobbying legislation. Some lobbying statutes, such as Alberta’s, recognize that charities’ policy interaction with government is different from that of individuals, corporations or others because charities are established and operated for the public benefit, rather than private interests. So, exemptions or less onerous requirements may apply to charities under some of this legislation.

Both federal and provincial lobbying statutes need to be reviewed to determine what obligations, if any, a charity faces. Charities, their staff or their representatives may be required to register or report activity in some circumstances. Again, this is not in-and-of-itself apt to trigger compliance concerns from CRA.

One recent case, however, has thrown a wrinkle into federal lobbying regulations as they apply to charities. As a general rule, members of the governing body of a charity cannot be remunerated for their work on the board. This is a big reason for charities avoiding filing requirements in many cases. That could change.

Charities should be aware of any regulatory requirements they face, whether under federal or provincial law, before embarking on their advocacy work.In the wake of a trip taken by Prime Minister Trudeau and his family to visit the Aga Khan over the 2017 New Year’s holiday, a complaint was filed with the federal Lobbying Commissioner. The response to that complaint lead to a judicial review. The case, called Democracy Watch v. Canada (Attorney General), included a challenge to the Commissioner’s initial finding that the Aga Khan, in his capacity as a board member of the Aga Khan Foundation – since it was unpaid – was not covered by the Lobbying Act or the Lobbyists’ Code of Conduct. The Federal Court held that the Commissioner’s decision was not reasonable, given this and other factors, and ordered reconsideration of the matter by her office.

In commenting on the issues, the Court found that even if a salary wasn’t paid to the Aga Khan this did not mean he wasn’t compensated in other ways for his foundation role. It ordered the Commissioner to take into account “a broad view of the circumstances” in its reconsideration. The government has since taken the matter to the Federal Court of Appeal, where at the time of writing it had not yet been heard.

If, when this matter is eventually resolved, charity board members are found to be potentially compensated in circumstances where they are not remunerated directly, this will have huge implications for them in reporting requirements under the federal lobbying legislation. It could also affect many non-profit organizations that do not pay their directors.

For charities, both because they are public benefit groups and because many of them face capacity issues or are difficult to reach with compliance information, increasing what is required of them under this legislation would be a bad idea. While it would increase transparency, doing so would be at the price of unnecessary red tape for groups that are operating for public benefit.

For the moment, registered charities can celebrate their increased scope for policy advocacy under Income Tax Act rules, but they need to be diligent and careful in meeting any obligations they have under other statutes as well.

With a federal election slated for this October, there is little chance we will see any major changes to the Income Tax Act (ITA) rules governing registered charities in the coming weeks.

Once the election is over, however, whichever party forms government could do worse than use the recently-released Report of the Special Senate Committee on the Charitable Sector as a blueprint for a needed and long-awaited revamping of federal regulation of charities and non-profit organizations. The report, Catalyst for Change: A Roadmap to a Stronger Charitable Sector, is available online.

Leaving aside the issue of the role of registered charities in public policy debate, which was the subject of new legislation passed by Parliament last December, charity regulation is not something that has drawn much attention federally in recent years. (Indeed, action on the political activities rules was only prompted once there had been a successful court challenge to the old ITA provisions under the Canadian Charter of Rights and Freedoms.)

The report offers a roadmap for addressing a host of problems plaguing the current regulatory regime.

It features 42 recommendations, and while not all of them will be feasible to implement or are uncontroversial, taken broadly they present the opportunity to:

• modernize the current regulatory system;
• simplify or clarify various regulatory structures or requirements;
• reduce unnecessary red tape for registered charities and other sector groups; and
• better align Canadian regulatory practice with that of comparable jurisdictions.

The report, Catalyst for Change: A Roadmap to a Stronger Charitable Sector, is available online.Major reform of the framework would also almost certainly trigger large efficiency gains both for the regulator and sector organizations.

Before any reform is undertaken, it is important to better define the rationale for charity regulation. That will both help ensure consistent future development of law in this area and reduce the risk of overwhelming organizations that are heavily volunteer-driven with compliance obligations. Commonly cited rationale are:

• to preserve tax-assisted assets (for eventual use on public benefit purposes);
• to economize or limit a tax expenditure; and
• to justify, and support, some idea about what is legally considered charity.

Historically, in Canada, what qualifies as a registered charity has largely been defined through the common law – past rulings by judges about what kinds of philanthropic endeavours fall within the legal meaning of charity. But, because registered charities and their donors enjoy generous tax privileges, there has been ongoing debate over to what extent ITA legislation should reinforce or modify the common law of charity – which allows for a wide range of altruistic, public benefit endeavours.

In the view of many legal scholars, once a group’s endeavours (as set out in its purposes or objects) have been accepted, a charity can engage in whatever conduct it chooses so long as that conduct is not illegal, contrary to public policy or otherwise at odds with its charitable character. In contrast, it is typical under the ITA for certain transactions or types of transactions to be prohibited or constrained. How these approaches are reconciled will obviously have a big impact on whether charities operate in an enabling or restrictive environment.

Once these preliminary questions have been answered, attention can be turned to the Senate report.

Crucially, the report endorses:

• a new Tax Court appeal process for charity registration and revocation decisions;
• a program to assist organizations in bringing those appeals;
• streamlining of the categories of registered charity (from a charitable organization/public foundation/private foundation model to a public charity/private charity model);
• development of a standardized reporting mechanism across departments and jurisdictions and improved treatment of overhead and infrastructure costs in government funding of sector groups; and
• reform and/or clarification of direction and control (specifically, a move to an expenditure responsibility standard of accountability) and related business regulatory requirements and several operational improvements in the CRA Charities Directorate.

Other positive ideas featured in the report include calls for:

• more systematic and regular research on the sector;
• regular review of ITA provisions governing registered charities and more precise drafting of legislation pertaining to them;
• policy changes to promote giving and volunteering and an initiative to reduce volunteer screening costs for sector organizations;
• better support for charity and non-profit organization human resources including development of a portable pension plan for the sector;
• measures to foster diversity in the sector governance and personnel;
• a commitment to federal funding practices based on longer timeframes and proportionate reporting requirements;
• bringing sector organizations more fully into government innovation and procurement initiatives;
• more accessible capitalization for sector work and ventures; and,
• reform and clarification of certain rules for non-profit organizations.

Further study is proposed for issues such as: the most appropriate regulatory regime for non-profit organizations that are not registered charities; what charities should report on the T3010, and public disclosure of sector ITA filings and decisions; the current ineligible individual rules; the impact of anti-spam measures on the sector; and, certain changes around tax treatment of gifts of real estate and shares in privately-held corporations.

… charity regulation is not something that has drawn much attention federally in recent years.Another aspect of the report worth commending is a call for pilot projects on a destination of funds test and permitting gifts to entitles other than qualified donees with appropriate safeguards.

Matters that the report recommends be referred to the newly-established Charity Advisory Committee (for which one recommendation endorses a broad and inclusive membership) include:

• the question of adoption of a statutory definition of charity versus continued reliance on the common law;
• the merit of changing the disbursement quota and whether it ought to be set by statute or in regulation;
• establishment of clear policy rationale and a principle-based framework for qualified donee and other tax-assisted categories of organizations; and,
• exploring an appropriate regulatory approach to donor-advised funds.

At least one recommendation needs to be re-thought or refined. It isn’t clear that the suggestion to situate a Sector Secretariat under the Minister of Innovation is the best option for ensuring that adequate thought is given to how a wide range of government policy potentially affects the voluntary sector.

Overall, however, the report charts an exciting path forward.