The much-anticipated work on reviewing the guidance and rules around what political activities Canadian registered charities can undertake has now been begun. The Canada Revenue Agency (CRA) recently announced that it will hold a consultation on that topic. The consultation will be both online and in-person.
The consultation will consider, among other things, awareness of the political activity rules among charities, the challenges experienced with the current CRA guidance in this area and whether that guidance helps or hinders charities in advancing their causes or the interests of their stakeholders. It will also consider potential improvements to the guidance content – including the description of political activity, the description of partisan political activity and information on charities’ accountability mechanisms – and the form of the guidance.
The CRA has been moving in recent years toward delivery of guidance by means other than written documents, such as videos and webinars, and the consultation is also seeking input on the ways through which the regulator can most effectively deliver its message with respect to the political activity rules.
Lastly, but perhaps over the long term most importantly, the question of whether there should be changes to the rules governing political activities and, if so, what those changes should be, is being canvassed.
A five-person consultation panel – drawn from sector leaders and allied professionals – has been established as part of the process, and is slated to make recommendations informed by the feedback received online and in-person to the Minister in Spring 2017.
..the question of whether there should be changes to the rules governing political activities and, if so, what those changes should be, is being canvassed.
However, the consultation being under the auspices of the CRA and mandated to look primarily at the administrative aspects of the political activity rules may not be a good omen for those hopeful of broader change. Any amendment of legislation would have to be put forward by the Department of Finance, rather than the CRA. So the initiative having been rolled out in this way leaves it uncertain if, or how, the government intends to pursue the broader reform contemplated in the Liberal election platform, which included language on modernizing “the rules governing the charitable and not-for-profit sectors” and “clarifying the rules governing ‘political activity,’ and spoke of a resulting “new legislative framework”.
These reforms are needed. By happenstance, a matter currently before the courts shows why.
While the consultation process for considering administrative (and, perhaps, legislative) measures to improve the political activity rules for registered charities is underway, it appears we are also poised to have the constitutional validity of those provisions considered in court.
Canada Without Poverty, a registered charity whose mission is the elimination of poverty was recently subject to a CRA audit, and has disclosed that it was told that an unacceptable portion of its work constituted political activity in the view of the regulator. The CRA takes the position that, pursuant to Income Tax Act (ITA) section 149.1 (6.1) and (6.2), a registered charity can undertake “ancillary and incidental” non-partisan political activities but must devote “substantially all” its resources to charitable purposes (6.1) or charitable activities (6.2.) It interprets “substantially all” as generally meaning 90% or more. Canada Without Poverty was found not to have satisfied that test.
The originating material filed as part of Canada Without Poverty’s Charter challenge to the 149.1 (6.2) provision raises questions about how the CRA characterizes some of the work done by the organization. In particular, any characterization has to be reconciled with the Supreme Court of Canada (SCC) decision in Vancouver Society of Immigrant and Visible Minority Women that an activity in pursuit of a charitable purpose is a charitable activity. From the materials, the CRA does not appear to have been adequately mindful of this rule when it determined what type of activities the organization was carrying out.
Since the enactment of the ITA political activity provisions, charities, the regulator and the judiciary have grappled with proper characterization of activities, and tried to reconcile conflicts between the legislation and common law as to how to do so. Although the statement by the SCC might have been expected to settle the matter, it has not – as the Canada Without Poverty materials clearly demonstrate. Instead, the references to ‘activity” in the ITA are seen as at odds with the Court’s holding and as trumping the Court’s decision in determining the nature of an activity.
That said, questions of the nature of particular activities are not central to the constitutionality of the measures. Rather, the Ontario Superior Court is being asked to determine if the provisions violate the rights guaranteed by the Charter, and particularly the right to freedom of expression and the right to freedom of association.
In the absence of a finding that the provision violates the Charter, however, questions of how to characterize an activity are deeply embedded in the current law, and confusing for the regulator and charities alike. Notwithstanding that some minor clarifications or clearer communication from the CRA could potentially result from its consultation, ultimately a change in the law will be needed to rectify this problem.
Which makes one hopeful the CRA consultation is only a first step.