Over the past twenty-five years or so, commentators have lamented the sometimes inordinate influence of tax policy considerations in the administration and adjudication of the federal registered charities regime.
There is no doubt fiscal implications ought to be taken into account in structuring the legislative regime to ensure timely and appropriate use of the preferentially-treated resources available to registered charities under the Income Tax Act (ITA). Indeed, to supplement the common law (a body of judicial decisions), which establishes the meaning of charity in Canada, there are specific statutory measures designed to promote tax policy goals. Included among these are the disbursement quota provisions, measures to restrict self-dealing, and a requirement for revoked charities to pass their remaining property on to an “eligible donee.”
But that is not the end of the story. Unhappily, in interpreting many routine aspects of the federal charity rules, judicial and administrative decision-makers are apt to overlook or downplay well-established charity jurisprudence in deference to fiscal concerns.
An example of this is the application of direction and control requirements. These are the obligations placed on a Canadian registered charity when it carries out its work though another entity that is not a registered charity. Such obligations are typically triggered when the collaboration is with an overseas partner, but can also occur when working domestically, for example, in conjunction with a non-profit.
It is a longstanding tenet of charity law that groups can operate abroad and serve foreign beneficiaries. Canadian rules acknowledge that this country’s charities can operate outside the country, but hamstring this work by placing onerous oversight and reporting requirements on such initiatives. The tax policy rationale at play here is ensuring government-subsidized resources are not diverted from charitable purposes. But examples of leakage of resources are few and far between. Research has shown that our rules in this area are stricter than those of other jurisdictions.
Government actors are subject to the Charter; private sector bodies (i.e., entities such as corporations, trusts and associations) are not. Whether looking at this from the perspective of the sector as a whole – which gets less than 10 percent of its revenues from tax-receipted donations – or that of individual charities, many of which receive only a small portion of their funding from philanthropy, it appears such an approach is backward.
Now, according to a recent case, along with tax policy, Charter protections are another legal imperative that must be grappled with as part of the federal charity regime. Previously, the Courts held that registered charity status was a tax privilege, and not a right. Therefore, those seeking such status were not entitled to the full range of protections found in the Charter.
In a July 16, 2018 Ontario Superior Court decision, however, Justice Ed Morgan ruled that the Income Tax Act provision governing the non-partisan political activities of charitable organizations was unconstitutional. The case, Canada Without Poverty vs. Attorney-General of Canada, left the legislative prohibition on partisan political activities in place, but declared s. 149.1(6.2)(a) and (b) of the ITA “of no force and effect.” The analysis stated that the provision was contrary to the Canadian Charter of Rights and Freedoms (Charter) freedom of expression protections and couldn’t be saved under the s. 1 reasonable and justified limitation criteria.
Two other recent cases, both before the Supreme Court of Canada (SCC), also raised concern over the potential application of the Charter for federal regulation of charities, even though the cases did not focus on eligibility for charitable status. The two cases, Trinity Western University v. Law Society of Upper Canada and Law Society of British Columbia v. Trinity Western University, were related and dealt with refusals of Law Societies in two provinces to grant accreditation to a proposed law school at an evangelical Christian postsecondary institution owing to its impugned compulsory behavioural code for students.
Government actors are subject to the Charter; private sector bodies (i.e., entities such as corporations, trusts and associations) are not. So what’s at issue is how the CRA administers the registered charity regulatory regime, and whether it needs to take the Charter into account in granting or revoking status to groups, rather than direct application to the Charter to the groups themselves.
In mid-August the federal government announced it would appeal the Ontario decision, and that it would also move this fall to amend the ITA registered charity political activities provisions to “allow charities to pursue their charitable purposes by engaging in non-partisan political activities and in the development of public policy.”
It is a longstanding tenet of charity law that groups can operate abroad and serve foreign beneficiaries. But, even once the outcome of the appeal is known and the reformed provisions are enacted, the issue of reconciling protecting Charter rights with administering the ITA registered charity regime seems unlikely to be put to rest. In the SCC cases, although in the end the judgements did not address the matter, it was apparent from oral argument questions that at least some members of the Court were concerned with whether groups not operating in accordance with the Charter ought still to be afforded registered charity status. In that context alone, it can be assumed there will be numerous future Charter challenges to federal charity regulation.
The good news is that this could spur further legislative reform. Ideally such reform would take a hard look at the different considerations that ought to be taken into account in a revamped system, and how those considerations ought to be balanced, in a 21st century context. If that were to happen, an updated regime could be put in place, driven by the principles of charity law that have evolved over the centuries, taking appropriate but circumscribed account of tax policy concerns, and also being mindful of the Charter and its implications for how charities are regulated.
The alternative seems likely to be a piecemeal regime – based on a Charter decision here, a tax policy decision there, and a decision relying on charity law precedent somewhere else – that is difficult to administer and plagued by uncertainty.
About Peter Broder
