News earlier this year of the mass resignation of the Board of the Ottawa Lions Club should come as no surprise to followers of recent developments in organizational governance. The resignations came in response to a report commissioned by Athletics Canada into the group’s handling of allegations of sexual harassment and abuse. The report didn’t mince words about the organization’s governance shortcomings and fiduciary failures.

The allegations related to incidents that took place over many years, involved both male and female athletes and were made against more than one member of the organization’s personnel. The Ottawa group, one of the top track and field clubs in Canada, has had its reputation badly tarnished by the controversy. It drew fire for the original incidents, but more particularly for its ineptness in dealing with them.

Among the report’s 21 recommendations was a call for resignation of the Board. In response, the full Board decided to depart and let new leadership of the group deal with the continuing fallout of the allegations.

… due diligence should include not just identifying problems, but also thinking through processes for dealing with them.At least two Ontario arts organizations – a theatre company and a radio station – have seen board turmoil in the wake of misconduct allegations. From the various controversies it has become apparent that, while sometimes accusations involve staff and program participants, it is also common for frontline volunteers and/or individuals with governance roles to be the subject of allegations.

And anyone thinking these types of problems relate primarily to voluntary sector organizational governance can have that view dispelled by a recent American PwC study of leadership changes in major corporations, which found that ethical lapses (including sexual misconduct) were the number one reason for top executives leaving their jobs in 2018. That category even outpaced poor financial performance as a cause of CEO turnover.

There has clearly been a societal shift in attitudes around this issue, and a growing expectation for measures to identify and deal with this type of misconduct.

Among the steps recommended by the report on the Ottawa group were:

• exclusion of coaches and former coaches from board positions;
• establishment of an ombudsman to handle misconduct complaints; and
• mandatory harassment training.

Where someone subject to an allegation has a governance role, it can make it particularly difficult to address the situation.

It is now well established that voluntary groups dealing with vulnerable populations need to have policies and protocols to manage the risk of harassment or abuse. Indeed, background checks and other proactive measures are typically routine for these organizations. It is increasingly apparent that the time has come for governing bodies across all sectors to routinely put in place harassment and whistleblower policies and other procedures to address improper behaviour wherever it may occur within an organization.

Neither legislation nor the courts have yet provided unambiguous guidance as to what directors need to do in this area to satisfy their fiduciary obligations. Uniform practice is probably unrealistic given the wide variety of circumstances and stakeholders across sector organizations. That said, the report on the Lions Club incidents pointedly noted “failings of fiduciary duties to athletes” by the Board of the Ottawa group.

In the absence of more specific direction, members of an organization’s governing body must turn their attention to the issue and adopt measures to manage the risk of harassment, abuse or other misconduct. It has become essential to do this to protect directors by allowing them to show that there was due diligence done in this area. That due diligence should include not just identifying problems, but also thinking through processes for dealing with them.

It is increasingly apparent that the time has come for governing bodies across all sectors to routinely put in place harassment and whistleblower policies and other procedures to address improper behaviour wherever it may occur within an organization. One of the harder aspects of this issue to grapple with is establishing a safe and effective process for responding to a complaint. As in the Ottawa case, allegations often involve people that are embedded in the organization’s governance structures. That’s why it is essential to have a Whistleblower policy to reduce the chances of retaliation against someone lodging a complaint, and more broadly to have open communication channels to ensure that even those in positions of authority can be called out.

Many boards limit themselves to interactions only with the organization’s senior staff person, or do not have routine in camera sessions at board meetings. Recruitment of directors, who are apt to bring more independent thinking, from outside the organization may not be a high priority. It is important for directors to consider whether, without these or other tools, enough opportunities exist for problems to be raised, or frankly discussed if they are raised. Unless the proper checks and balances exist, it may not be reasonable to assume an allegation will come to light, or can be dealt with fully and fairly.

One doesn’t have to have followed this topic closely to know that there have been countless instances where allegations of sexual misconduct within organizations have been – deliberately or through happenstance – ignored or poorly pursued. Or, that when the incidents eventually surfaced, the reputational damage suffered by the organizations in question was likely exponentially worse than it would otherwise have been. And, as the Ottawa group discovered, it doesn’t much matter whether the cover-up is deliberate or just the consequence of flawed governance.

While organizations will likely never be able to entirely eliminate sexual mischief in their operations, what boards can realistically do is make clear their willingness and ability to respond to bad behaviour when it occurs. In today’s world, doing so is strongly recommended.

After years of turmoil around the topic, the federal government moved recently to reform treatment of charities’ “public policy dialogue and development activities”. The reform was, at least in part, in response to the striking down as unconstitutional of certain provisions of the Income Tax Act dealing with registered charities’ political activities.

In a 2018 case, the Ontario Superior Court found that the measures violated the Canadian Charter of Rights and Freedoms. 

One of the outcomes of the reform was clarity on the long troublesome area of the overlap between policy positions of registered charities and those held by political parties.

It is undisputed that charities should not engage in partisanship. However, many charities develop stances on policy matters that are later adopted or adapted by political parties. These positions can originate in a host of ways – among them, in an organization’s frontline experience, out of research it does, or, in the case of faith-based groups, from tenets of belief.

Having just been freed up under the federal regime to fully engage in the public policy process, Alberta charities apparently now have to curtail their activities in the face of the EFCDA measures.Historically, developing policy positions related to their missions that are the same or similar to those taken by political parties or candidates has placed charities at risk of running afoul of the prohibition on partisanship in the Income Tax Act. Neither the old legislation nor the old guidance on political activities provided charities with much information on assessing circumstances where positions overlapped or were shared. That is no longer the case.

The explanatory guidance on the new legislation released by the Canada Revenue Agency Charities Directorate (CRA), CG-027 Public policy dialogue and development activities by charities, makes clear that policy originating separately from political parties and candidates does not put charities offside the rules against being partisan. Whether positions overlap or are later endorsed by parties or candidates is not a determining factor.

The guidance states:

The actions a political party or candidate may independently take do not transform the activities of a charity into direct or indirect support of or opposition to that party or candidate. What the CRA considers is the activities of the charity itself.

Now that this problem has been resolved federally, however, it has arisen again in Alberta provincial law. The province’s Election Finances and Contributions Disclosure Act (EFCDA) regulates spending and other support for political parties or candidates both during and outside election periods.

EFCDA rules during election periods are stricter and are designed to preclude charities from participating in campaigns. Charities cannot register to do any of the types of activities governed by EFCDA during election periods.

Among the things the EFCDA deals with is certain paid advertising. Specifically it regulates any advertising message “that takes a position on an issue with which a registered party, the leader of a registered party, a member of the Legislative Assembly, a registered nomination contestant, a registered leadership contestant or a registered candidate is associated…” This wording, and lack of guidance on the meaning of “associated”, means charities face a risk that promotion of policy positions that have been independently arrived at will be mistaken for advertising linked to a political party or candidate.

It is undisputed that charities should not engage in partisanship. However, many charities develop stances on policy matters that are later adopted or adapted by political parties.Outside of election periods, such paid advertising requires registration of the sponsoring organization and is subject to other restrictions. Within election periods, charities cannot carry on this activity because they are not eligible for registration.

How a charity that has an ongoing initiative to promote its policy position – for example a billboard campaign or a sponsored supplement planned for a publication – is supposed to immediately halt the initiative at the onset of an election period is not explained in the statute or the Elections Alberta material on the legislation.

Among representations potentially caught by the law are minimum wage campaigns by poverty charities, health charity information inserts in newspapers, and advocacy of religious stances on medical or educational matters.

Enforcement of the legislation is complaints-based and includes a range of sanctions for non-compliance. The statute does not contain a due diligence defence for charities that err in good faith about whether a position is associated with a party or candidate.

Having just been freed up under the federal regime to fully engage in the public policy process, Alberta charities apparently now have to curtail their activities in the face of the EFCDA measures. If nothing else – as was seen under the old federal regime – vague rules and complex compliance requirements are apt to make Boards of Directors overly cautious in authorizing public policy work by their organizations.

At a minimum, Elections Alberta needs to release guidance indicating that the legislation is not intended to cover promotion of policy positions developed by charities independently of political parties or candidates, then taken up by them routinely without the charity’s participation or knowledge. Beyond that, it remains to be seen whether the law will be challenged in the courts and, if so, whether it will survive Charter scrutiny.

The long tumult over registered charities’ role in public policy debate appears on the cusp of being resolved, or at least being significantly quieted, in the wake of three recent developments.

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.

It is an under-appreciated nuance of Canadian charity law that s. 92(7) of our Constitution actually gives the provinces the bulk of regulatory authority over charities. Provincial governments often don’t exercise their jurisdiction in this area, so the federal government’s Canada Revenue Agency (CRA) – which grants tax privileges to charitable groups – has become in many instances the default regulator.

However, though the CRA can and does exercise lots of oversight under the guise of federal powers over taxation matters, its ability to delve into the day-to-day operations of charities is limited.  One province, Ontario, has a longstanding and significant regulatory structure to monitor and enforce appropriate use of charitable property.  British Columbia has recently become more active in its regulation of this area.

In provinces without an office dealing with such matters, the Attorney-General retains an inherent  jurisdiction over charitable property.  This allows a provincial Attorney General to initiate court proceedings where charitable property needs to be protected.

Ontario’s Office of the Public Guardian and Trustee (OPGT) is mandated under the Charities Accounting Act (CAA) to administer an annual reporting requirement and with various sanctions and remedies where charities misuse or misappropriate charitable property.  One of its CAA powers is to investigate a charity’s finances.

A recent case, Fass v. CAMH, highlights the OPGT’s role and the limitations in that role.  The case is being appealed to the Ontario Court of Appeal.  At issue was an attempt by a donor, who had made a large gift to the Centre For Addiction and Mental Health (CAMH), to trigger an investigation by the OPGT into how the institution had used the proceeds of the donation.  The gift had, pursuant to a written agreement, been subject to certain conditions, which the donor suggested that CAMH had not fulfilled.  The parties disputed how closely the charity had abided by the terms of the agreement.

At common law a gift must be a voluntary transfer of property for which conditions on the use of a gift at the time it is donated.  For example, scholarship funds may be the donor receives no “consideration” (i.e., does not get anything of value in return).  A donor can, however, set certain established with a requirement that a prize be awarded to the student with the highest marks in a particular academic program.

Sometimes, however, scholarship funds or similar gifts are based on conditions that run afoul of human rights legislation, such as when they are awarded on the basis of racial characteristics.  In those circumstances, a court may find the condition to be contrary to public policy, and the terms of the scholarship may be changed.

Of course, many conditions do not trigger human rights concerns.  In such cases, options for enforcing or overturning terms attached to a gift are much more limited.  Sometimes where the conditions of a gift are not being followed, the threat or initiation of litigation can prompt a change in behaviour in an organization that has received a gift.

In the United States these matters are more apt to be litigated, and famously, in one American case, the heirs of the donors brought suit and got a large institution to redirect use of the resources in a way more in keeping with the original intention of the gift.  In 2002, the heirs of the A&P Grocery fortune sued Princeton University over alleged misuse of a donation endowing graduate education for students preparing for government careers.  The matter was settled out of court, but the heirs got at least part of what they were seeking with respect to use of the gift.

Some donors bring court proceedings asking for return of a gift where a condition has not been met.  But circumstances where a gift will be ordered returned owing to problems with a condition are uncommon.

In Fass v. CAMH, rather than seeking return of the gift or asking the courts to compel a change in the organization’s behaviour, the donor made an application for an order to have the OPGT directed to investigate use of the donation and publicly report on its findings.  One section of the CAA provides for a judge to make an order for an investigation where he or she believes it is in the public interest.

Morgan, J. in Fass v. CAMH found that in the circumstances of the gift in question an order for an investigation would not be in the public interest.  He noted that the concerns of applicant went beyond financial management, and had to do with how the funding was used.  He further noted the potential disruption and cost of any investigation, and that the Order being sought was driven more by the complainant’s personal interest than by that of the public.   The Order was denied.

The Appeal raises two key questions:

1) whether the public interest is served by an investigation even if the applicant’s private interests are also served; and

2) whether a charity can be investigated for its proper use of charitable property with respect to a specific charitable purpose designated by a donor or only for its proper use with respect to the organization’s stated charitable purpose(s).

Given the popularity of donor agreements when large gifts are made, the outcome of the appeal will be closely watched.

Canada, through the federal government and its provincial counterparts, offers preferential tax treatment to charities and certain other public benefit entities that is among the most generous of any country in the industrialized world.  That advantageous treatment comes in the form of tax credits for individuals and tax deductions for corporations that make contributions to these groups.  As well, governments forego taxes on much of the income generated by charities and bodies similar to charities, known as qualified donees.  Goods and Services Tax and Provincial Sales Tax are also typically not applied or applied at a reduced rate.

To qualify for this special treatment, however, most of these entities must register with the federal government, and are subject to various constraints on how they are constituted and operate.

Not surprisingly, given the favourable tax treatment they get, Canadian authorities have been quite restrictive as to who is entitled to be a “registered charity” or other “qualified donee”. This restrictive approach has been adopted both by the courts, in litigation concerning eligibility and conduct, and by the Canada Revenue Agency (“CRA”), the arm of the federal government charged with administering the provisions of the Income Tax Act (“ITA”), in its rules.

Many jurisdictions that historically, like Canada, relied on recognition of new charitable purposes by the courts – i.e., defining charity through the common law – have modified that approach.  The restrictive approach has led to Canada falling behind in the breadth of legal meaning given to the concept of charity here, and to a regulatory environment that is stricter than that of many other countries. This situation was most recently highlighted by the controversy over the amount and type of non-partisan political activity that registered charities are permitted to engage in.   In the wake of this controversy, and other frustrations with the current regime, there have been widespread calls for reform.

Potential ideas for changes to the existing system will have a chance to be aired (and perhaps move a step closer to being adopted) with the approval of a Senate Motion in late January. This is a Motion to strike a Special Committee on the Charitable Sector “to examine the impact of federal and provincial laws and policies governing charities, non-profit organizations, foundations, and other similar groups; and to examine the impact of the voluntary sector in Canada”.  The Committee will have nine members and is expected to submit its final report by December 31, 2018.

Although the precise terms of reference and membership of the Committee were not available at the time of writing, one hopes that the Committee’s mandate will explore matters well beyond the tax measures affecting charities and like groups. Notably, the Motion references “non-profit organizations” and the “voluntary sector”.  Non-profit groups (whether their work benefits their members or the public more widely) that are not registered charities are largely unregulated in Canada, even though most of their income is not subject to tax.

With politicians and policy-makers increasingly alert to the significance of tax expenditures and with the growing use of hybrid structures as vehicles for activity that mixes public and private benefit – including, but not limited to, social enterprise – there is an obvious imperative to consider the need for oversight of tax-exempt entities other than registered charities.

Other areas also warrant attention.

Many jurisdictions that historically, like Canada, relied on recognition of new charitable purposes by the courts – i.e., defining charity through the common law – have modified that approach.  They use a statutorily-empowered body, such as a Commission, to determine what qualifies as a charity and/or expand the definition of charity through legislation.  Given that Canadian courts have developed the meaning of charity very slowly (typically deferring to Parliament on all but the most incremental change), and the CRA has been reluctant to go beyond positions that have clearly been sanctioned by the courts, thought should be given to whether there is a better approach.  New consideration should also be given here about what role transparency, as opposed to hands-on regulation, ought to play in controlling conduct.

Non-profit groups (whether their work benefits their members or the public more widely) that are not registered charities are largely unregulated in Canada, even though most of their income is not subject to tax. 

Another concern is regulation of activities.  There are ITA measures that in practice regulate the character and/or the amount of political, international, and business activities that charities and similar groups conduct. These are all areas where there may be legitimate concern over use of tax-supported resources that might not be adequately constrained by the common law.

However, at least some of these measures appear to have been applied in ways that aren’t in keeping with the original intention when they were enacted or have taken additional unforeseen directions in how they have been used.  In certain areas, this has resulted in a significant gap between the common law and the statute. Additionally, the current categories of registered charity, which seek to distinguish between doers and funders (through provisions framed around activities), may be outdated.

As noted above, reliance on a mix of the common law and a series of ITA measures, administered by a branch of the CRA and adjudicated largely through the Federal Court of Appeal, to define and regulate registered charities and similar groups has not allowed Canada to keep pace with other jurisdictions in the 21^st century.  So the Senate study might also consider matters like the appropriate appeal mechanism for charitable registration or revocation, whether the ITA is the best place for the statutory provisions in this area, how to facilitate better federal-provincial coordination of voluntary sector oversight, and the need for a Charity Commission-style body in Canada.

More broadly, consideration could be given to the value of additional research on the nature and scope of the voluntary sector, and re-visiting the principled basis for the relationship between the government and the sector originally contemplated as part of the 2000-2005 Voluntary Sector Initiative, which has since fallen into disuse.

This is a long list to ask for in a study expected to last just under a year.  But if we are committed to getting the best “bang for our buck”, we need to look beyond just the dollars and cents.

Canadians recently marked the 35^th anniversary of the Charter of Rights and Freedoms.  Since it was enacted that document has profoundly altered the legal discourse – and the public’s perceptions – on many issues in Canadian law.  Given this change, coupled with the centrality of free speech to the concept of fundamental rights, particularly the freedom of political speech, it is not surprising that the debate over regulatory treatment of charities, and more specifically the permissibility of charities engaging in political activities, has occasionally been framed as a Charter or rights question.

As appealing as this argument is, it is legally questionable.  With respect to registered charities and their donors who enjoy preferential treatment under the Income Tax Act, the case law suggests that eligibility for status, and the advantages that registration confers, is a privilege, not a right.  (Note here that the applicability of this jurisprudence to common law charities that do not seek federal registration is uncertain, and that the legal context for these groups may be subject to different considerations.)

That said, in Canada much of the case law on charities and rights concerns the Income Tax Act registered charity regime and its provisions addressing political activities. In that context, rights arguments with respect to eligibility for charitable status have not been well received. For example, in Vancouver Society of Immigrant and Visible Minority Women v. Minister of National Revenue, a Section 15 equality Charter argument was roundly rejected by Justice Iacobucci.  Essentially it was held that it was always open to the stakeholders of a group rejected for charitable status to constitute a body that met all the common law and Income Tax Act requirements.

As long as federal charitable registration is associated with generous tax advantages, it is highly improbable that groups enjoying or aspiring to that status will ever be able to rely on the full scope of Charter rights and freedoms.  Once it is understood that federal charitable status is not a right, the issue of the procedural fairness to which applicants for status or charity’s at risk of losing their registration are entitled comes into sharper focus.  Unhappily, the law on that question, and the related one of the appeal rights of entity’s denied registration, is more ambiguous.

In October of last year, a Quebec applicant for charitable status initiated a proceeding in the Federal Court of Canada (“FCC”). This case may provide some additional guidance on the obligations of the Canada Revenue Agency (“CRA”) as the federal regulatory body with authority over granting and revoking status as a registered charity to act fairly and promptly in its decision making in this area.

The Institut de Recherché sur L’Autodétermination des Peuples et les Indépendances Nationales (“IRAI”) asserted in its filing that the CRA engaged in an abuse of process, demonstrated bias and improperly exercised its discretion by not rendering a timely decision on that entity’s application to be a registered charity.

The IRAI was constituted as a think tank mandated to do research into independence issues. It asserts in its submissions that similar organizations – notably including some with a federalist research orientation – have been granted status.  While it is settled law in Canada that previous registration of similar bodies is not binding precedent on CRA when considering new applications, an allegation that the IRAI was not treated equitably with these other groups when its eligibility was assessed, if proven, could be more troublesome.  It would potentially support an abuse of process or bias argument.

The IRAI proceeding is in the FCC. The normal venue and the appeal body specified in the Income Tax Act (“ITA“) for charitable registration and revocation disputes to be settled is the Federal Court of Appeal (“FCA”).  IRAI is apparently taking the position that the FCC has jurisdiction in this matter because it alleges the organization suffered damages associated with the CRA’s failure to render a decision.  Under the Crown Liability and Proceedings Act, the FCC has jurisdiction over claims for damages against federal government bodies. 

Canadians recently marked the 35^th anniversary of the Charter of Rights and Freedoms.  It is perhaps not surprising that IRAI is opting for the FCC instead of the FCA.  The ITA statutory provision giving the FCA jurisdiction provides little guidance on that Court’s role other than stating its authority over federal charity matters.  The Court itself has rarely shown much inclination to address procedural matters at length, beyond looking broadly at whether CRA has acted reasonably in determining an entity’s eligibility for registration or moving to revoke a registered charity’s status.

The majority of FCA procedural holdings that do exist deal with revocations, and while the Court held in the 1980s case of Renaissance International v. M.N.R. that groups facing loss of registration are entitled to natural justice, it has not set out in detail the elements of equitable treatment in the context of an application.

As long as federal charitable registration is associated with generous tax advantages, it is highly improbable that groups enjoying or aspiring to that status will ever be able to rely on the full scope of Charter rights and freedoms.  Most notably, they will likely never have the same degree of protected speech available to others.  It is reasonable to expect, however, that they be given fair and equitable treatment in their dealings with the CRA.  Regardless of outcome, if the IRAI proceeding in the FCC can advance that goal, it will have been worthwhile. 

As the charitable sector awaits an announcement from the federal government on when and how it will be responding to the Report to the Minister of National Revenue of the Consultation Panel on the Political Activities of Charities (the “Panel”), a couple of lower profile regulatory developments have come to the fore.

 Consultation Panel on the Political Activities of Charities

Many readers may recall that the Panel was struck in the wake of an initiative by the previous government to more closely scrutinize and regulate registered charities’ political activities and a commitment in the 2015 Liberal election platform to clarify the rules in this area.

While there is widespread agreement in the charitable sector on the need to address the political activities question, there is also significant support for more sweeping change.  The need for such change was also reflected in the Liberal platform, which referenced modernization of charitable and not-for-profit sector regulation. This reference was picked up by the Panel in one of their recommendations calling for an update of the legislative framework governing the charitable sector.  Still, the scope of what the government will do when it acts on this is uncertain.

In the meantime, there have been announcements of more routine developments in the Canada Revenue Agency’s (the “CRA”) administration of current federal charity law in the areas of Ineligible Individuals and disaster relief.

Ineligible Individuals

In 2011, Ineligible Individual provisions were added to the Income Tax Act registered charity legislation in an effort to prevent people with problematic tax abuse or criminal histories from being on the governance bodies or in senior leadership positions of charitable sector organizations.  The legislation permits revocation and other sanctions against a charity or denial of registration of an applicant where such an individual is in a governance or key leadership role.

The measures were quite sweeping, and potentially caught a wide group of people beyond those who posed a genuine risk to the organizations with whom they were affiliated or more broadly to the reputation of the sector and integrity of the regulatory regime.  In its guidance on how it would be applying these provisions, however, the CRA indicated that the statutory language provided it with discretion and that it would allow organizations to take steps to dispute the designation of a particular person, or remove or manage the risk stemming from having the impugned individual hold a position in their group.  It did not provide detailed information on how organizations could reconcile governance obligations or labour law concerns with removing someone who was offside.  Nor did it fully explain how its administration of the measures would be discharged in accordance with privacy legislation.

In 2011, Ineligible Individual provisions were added to the Income Tax Act registered charity legislation in an effort to prevent people with problematic tax abuse or criminal histories from being on the governance bodies or in senior leadership positions of charitable sector organizations.In September, the CRA published a notice on its website, outlining its privacy practices with respect to those involved with registered charities or groups seeking registration.  The notice indicates that the CRA has broad authority for extensive collection of personal information, to use that information for registration assessment, administrative and enforcement purposes, and to disclose certain of the information about charity officials for transparency purposes. It also flags the practice of sometimes sharing information within the CRA, within the federal government and even with other Canadian governments.

 The document encourages groups to inform their officials that their personal information will be collected and disclosed and why.  It goes on to state: “[t]his gives applicant organizations the chance to withdraw their application, and gives officials the chance to recuse themselves from an organization, if they do not wish to be subject to the rules and obligations of registration.”

The notice advises that, beyond information provided through the registration process and regulatory filings, the CRA can seek personal information from other sources and that the scope of this information could include: “an individual’s social insurance number, gender, language, marital status, citizenship status, personal tax information, financial information, bankruptcy and consumer insolvency information, credit history, biographical information, criminal checks, opinions or views about individuals and details of suspected non-compliance with CRA investigations or audits.”

This additional information can be sought from “open-source internet searches, internal CRA systems, third parties such as financial institutions, third-party suppliers, beneficiaries, donors, informants, other qualified donees, and from other government departments and agencies.”

While this publication can be seen as the government merely doing its privacy due diligence, the tone of the document is somewhat troubling and may have a chilling effect on director recruitment or decisions to apply for registration.  Whether or not that happens, its dissemination of the document and anecdotal reports suggest that the CRA is now more actively pursuing application of the Ineligible Individual provisions.

Disaster Relief

In a different part of the regulatory landscape, the CRA has responded to questions raised during disaster relief efforts about permissible funding of recovery or restoration of for-profit small businesses by amending its Community Economic Development guidance.   The broad issue of when a charity’s programs or support crosses the line into impermissible private benefit is always a difficult one.

In the wake of the devastation caused by events such as the Fort McMurray wildfire, the CRA has updated its discussion of relief to small business in the context of such events.

As well as recognizing that help to small business can be appropriate is such circumstances, the revised guidance usefully provides some conditions for when funding or supplying resources to small business will be incidental private benefit and some information on what would put such efforts offside (see Section E of the revised guidance, especially paragraphs 89-94).

So while some of the big answers in charity regulation may still be pending, on some smaller matters we have some idea where things are going.