Over the last couple of years the media has been filled with stories and there has been much fretting in the voluntary sector about the Canada Revenue Agency (CRA)’s auditing of registered charities’ Political Activities. It is unclear as yet, however, how much regulatory compliance action will be taken based on isolated or individual acts of the groups being examined – as opposed to impugned work that was seen and undertaken by the organization as closely linked to advancing its mandate. That is, groups having what at common law would be called an unstated political purpose.
Leaving aside partisan political behaviour, which is in a category by itself, CRA should avoid sanctioning organizations for one-off or incidental political conduct. Here is why.
As has been noted in this column before, common law concerning charity issues generally turns on construction and interpretation of an entity’s purpose(s). While the meaning of charity at common law and the technique used so that meaning can evolve – reasoning by analogy from what the courts have in past held to be charitable – are adopted for regulation of registered charities under the Income Tax Act (ITA), the story doesn’t end there.
Frequent references to “activities” in the ITA have clouded the jurisprudence and have often lead to troubling rulings. Leaving aside partisan political behaviour, which is in a category by itself, CRA should avoid sanctioning organizations for one-off or incidental political conduct. Here is why. Unhappily, the primacy of purpose or purposes in assessing eligibility for status as a registered charity is apt to be lost when the courts, as they frequently do, delve into the minutiae of an organization’s day-to-day operations as part of their assessment of whether it ought to be given preferential tax treatment.
An emphasis on regulation of activities – presumably motivated by the same fiscal integrity considerations – has also begun to crop up in CRA guidance documents. For example, CRA has issued guidance on “Research as a Charitable Activity” and has commented in some of its materials on “Providing information as a charitable activity”. In this commentary, focus on the purpose(s) for which the activity was undertaken is given short shrift.
However, as Justice Iacobucci stated at paragraph 152 of his majority decision in Vancouver Society of Immigrant and Visible Minority Women v Minister of National Revenue, [1999] 1 SCR 10 an activity needs to be assessed on the basis of the purpose it is undertaken to advance, and not against other criteria:
While the definition of “charitable” is one major problem with the standard in s. 149.1(1) , it is not the only one. Another is its focus on “charitable activities” rather than purposes. The difficulty is that the character of an activity is at best ambiguous; for example, writing a letter to solicit donations for a dance school might well be considered charitable, but the very same activity might lose its charitable character if the donations were to go to a group disseminating hate literature. In other words, it is really the purpose in furtherance of which an activity is carried out, and not the character of the activity itself, that determines whether or not it is of a charitable nature…
This suggests that for an activity of an organization to taint its charitable nature, one of four problems must be evident with the activity:
- notwithstanding the group’s purpose (or purposes) being charitable, the activity manifestly does not advance the purpose or purposes, or the activity is too remote from the purpose(s) for it to be reasonably said that the activity is furthering the purpose(s);
- the activity constitutes, because of its quality or quantity, a collateral non-charitable purpose of the entity;
- the activity is illegal (including being in breach of provisions of the Income Tax Act governing the conduct of registered charities) or contrary to public policy; or
- the activity entails impermissible private benefit or impermissible distribution of the entity’s assets or resources.
Thus, the ITA 149.1 “activities” provisions can, and ought, to be read in keeping with these narrow disqualification criteria. Not as authorizing regulatory micro-management.
If provincial constitutional authority over charities’ day-to-day operations and the broader context of federal charity regulation is taken into account, a more legally consistent, better and fairer way to interpret the statute becomes possible.
For example, in describing entities that potentially qualify for charitable registration, the ITA differentiates between, and imposes different regulatory requirements on, operational charities and funder charities. Certain of the “activities” provisions, therefore, are included to distinguish between groups that do charitable work and groups that pay for it.
For charities working through non-charity intermediaries either domestically or abroad, however, these provisions are sometimes taken to mean that they must be the legal actors undertaking the work. An examination of the legislative intent that prompted introduction of the “activities” language in these sections of the Act strongly suggests that this is not the proper reading of the statute. Rather, what is required is that they be something more than a mere funder.
Other references to “activities”, such as sections 149.1(6), (6.1),(6.2) and (10), deal with, among other matters, non-partisan political engagement, carrying on a business related to a charity’s purpose(s), gifts to qualified donees or other work that could potentially be characterized as non-charitable, and deem these undertakings charitable for purposes of the ITA. If the ITA regime reflects the common law, then these provisions ought to be viewed as safe harbours that provide certainty with respect to ITA treatment of conduct that could qualify as charitable.
Finally, some references to “activities” are included to identify and distinguish the reporting and regulatory treatment of investment or administrative expenditures from those related to gifting, programming or other direct spending to advance the charity’s purpose(s). This makes sense in the context of promoting transparent and timely use of funds that have enjoyed preferential tax treatment.
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