A battle has been waging in Canada since 2012 over “political activities” by registered charities. The previous Federal Government initiated an audit by Canada Revenue Agency (CRA) of 60 registered charities, which was discontinued in 2017 by the current government. On July 16, 2018, the Ontario Superior Court of Justice struck down the limitations as unjustifiable restriction of a charity’s freedom of expression. On August 15, the Government of Canada appealed and promised to introduce new legislation in the fall.
The Canada Without Poverty case struck down the so-called “10% rule” for political activities. Section 149.1(6.2) of the Income Tax Act states a charitable organization must devote “substantially all of its resources to charitable activities”. CRA and Finance have defined “substantially all” as meaning 90%. Hence, a charitable organization can only devote up to 10% of its resources to political activities, as long as they are not “partisan” in nature.
While the charity world is divided on issues, yesterday’s appeal came as no surprise to the legal community. The Canada Without Poverty ruling largely ignored charity law, the Income Tax Act and jurisdictional issues. It treated a registered charity as if was an person with charter rights.
The counter view is that an organization that decides to be a tax-exempt, receipt-issuing charity must accept the limits. Without the tax advantages, it can do whatever it likes.
What does this mean for estate donors and planning? At the moment, very little.
For the activist donor who wants to support legislative or social change, greater flexibility for registered charity would be welcome. Fewer restrictions on political activity would be beneficial for environmental, animal welfare and social issues (on both sides of the political spectrum). Advocacy can produce real systemic change, which is often blocked by the common law of charity.
The August 15th Appeal and legislative promise suggests the issue is not yet resolve. There will remain a difference between what is “political” and what is “charitable”.