First, in December, the federal government enacted legislation to amend the Income Tax Act (ITA) in response to a July 2018 Ontario Superior Court decision that held its provisions governing registered charities’ non-partisan political activities are unconstitutional. That legislation, which has now been proclaimed in force, provided that charities could contribute to public policy discussions in furtherance of their charitable purposes and would not be subject to quantitative limits in doing so.
Second, in mid-January, the Canada Revenue Agency Charities Directorate released guidance (available at: https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/policies-guidance/public-policy-dialogue-development-activities.html ) that elaborated on the measures and the permissibility of participation in public policy dialogue and development activity. That guidance replaced earlier draft guidance (quickly withdrawn) on the new legislation that had seemed to limit its applicability. There remain some concerns with the January guidance, which will be discussed below, but the document clearly points toward creating an enabling environment for registered charities wanting to engage in policy work.
A broader concern, raised by some critics of the new measures, is that they will open the door to recognition of groups proposing law reform around a single issue – potentially around controversial social questions.Lastly, at the end of January, the government announced it was dropping its appeal of Canada Without Poverty v Attorney General of Canada, the Ontario Superior Court case that held the ITA political activities provisions violated the Charter of Rights and Freedoms. Although the amended legislative measures would still have applied in the future, and the appeal was thought to be largely driven by government concerns that other ITA provisions featuring preferential tax treatment might draw Charter scrutiny, the outcome of the appeal could have cast doubt on the government’s move to reform the provisions.
There remain questions around the new legislation and guidance. The scope for a registered charity to carry on public policy dialogue and development – as much as 100% of its activity, according to the Department of Finance Explanatory Notes released with the legislation – has to be understood together with the continuing common law prohibition on charities having a “political” purpose.
The difficulty of reconciling devoting 100% of your activities to working on public policy development and dialogue and not having a political purpose is reflected in the CRA guidance. It suggests that public policy development and dialogue is allowed as an activity, but must not become a purpose.
Given that many of the current CRA’s model purposes reference activity, it will require some subtle drafting by charities and their advisors and some nuanced interpretation by CRA examiners and auditors to thread this needle. For example, if a charity uses the CRA model object, “To relieve poverty by establishing, operating and maintaining shelters for the homeless”, how does it demonstrate that its policy work on low-income housing is in furtherance of that objective?
A broader concern, raised by some critics of the new measures, is that they will open the door to recognition of groups proposing law reform around a single issue – potentially around controversial social questions. Opponents of this view argue that other common law and statutory tools are available to CRA that will prevent the registration or justify the revocation of such groups. Notably, the common law limits the bounds of charity and there are statutory requirements for accuracy in registration applications and other filings.
Another unresolved issue is the character of the new legislative measures. This is again highlighted by the January guidance. It features the following paragraph:
The rules in the Income Tax Act regarding PPDDAs (Public policy dialogue and development activities), and the flexibility they provide, do not typically apply to other types of charities’ activities, such as fundraising.
One reading of the new provisions is that they simply entrench – for public policy dialogue and development activities – the Supreme Court of Canada ruling in Vancouver Society of Immigrant and Visible Minority Women v. M.N.R. (Vancouver Society) that the character of activities (charitable or not) is determined by the purpose(s) they further. A contrary view is that the legislation deems public policy dialogue and development activities in furtherance of charitable purposes to be charitable. New section 149.1(10.1) reads, in part:
…public policy dialogue and development activities carried on by an organization, corporation or trust in support of its stated purposes shall be considered to be carried on in furtherance of those purposes and not for any other purpose.
How this wording is understood won’t have much impact on public policy dialogue and development activities, but it does affect how one approaches characterizing other activities. The previous political activities provisions (149.1(6.1) and (6.2)) were long seen as changing the law, even though a close reading of them and knowledge of their history suggests they were better interpreted as entrenching existing law.
If this legislation is similarly misunderstood, it will reinforce the idea that activities that are not front line work can be categorized without reference to the purpose(s) furthered – even without ITA provisions defining “charitable” activity. Doing so will hamper efforts to foster an appropriate regulatory environment in those areas.
That said, much progress has been made on the political activities file and while some ambiguities remain to be clarified, an issue that has plagued both governments and charities for years appears – for the moment at least – to have been largely settled.