Today’s blog comes to you from Student-at-Law, Jake Woloshyn
In the 2018 Ontario Superior Court of Justice case, Canada Without Poverty v AG Canada, 2018 ONSC 4147 (Canada Without Poverty), Morgan J. held that the Canada Revenue Agency (CRA) interpretation of the ‘substantially all’ condition in s. 149.1(6.2) of the Income Tax Act (ITA) – an interpretation that requires a charitable organization to use substantially all (no less than 90%) of its resources for non-political activities – was unconstitutional contrary to s. 2(b) of the Canadian Charter of Rights and Freedoms (Charter). Having decided that the s. 2(b) violation could not be properly saved by s. 1 of the Charter, Morgan J. declared ss. 149.1(6.2)(a) and (b) to be of no force and effect pursuant to s. 52(1) of the Constitution Act, 1982.
In the wake of Canada Without Poverty, the Department of Finance released draft legislative proposals regarding the political activities of charitable foundations, charitable organizations and registered Canadian amateur athletic associations (the Proposals). Among the Proposals is an amendment to s. 149.1(6.2) of the ITA. Presently, s. 149.1(6.2) states that:
For the purposes of the definition of charitable organization in subsection 149.1(1), where an organization devotes substantially all of its resources to charitable activities carried on by it and
- it devotes part of its resources to political activities,
- those political activities are ancillary and incidental to its charitable activities, and
- those political activities do not include the direct or indirect support of, or opposition to, any political party or candidate for public office
the organization shall be considered to be devoting that part of its resources to charitable activities carried on by it.
The Proposals, for their part, purport to replace the current s. 149.1(6.2) with:
For the purposes of the definition charitable organization in [s. 149.1(1)], an organization that devotes any part of its resources to the direct or indirect support of, or opposition to, any political party or candidate for public office shall not be considered to be constituted and operated exclusively for charitable purposes.
Notably, the Proposals remove the ‘substantially all’ condition from s. 149.1(6.2) in a manner that renders moot the above-mentioned CRA interpretation. If passed, this removal will enable a charitable organization to devote its resources, without statutorily-imposed restriction, to political activities that further its charitable purposes; the extent to which a charitable organization might engage in political activities will be determined by reference to the common law. Simultaneously, the requirement that charities be constituted and operated for exclusively charitable purposes would be retained, and charities would still be prohibited from expending their resources to support, directly or indirectly, a political party or candidate for public office.
In response to the Proposals, the CRA published a draft guidance, Charities and Public Policy Advocacy (the Draft Guidance), on October 2, 2018. The Draft Guidance explained how the CRA planned to interpret, administer and enforce the Proposals. As an example, the CRA intended to change ITA terminology such that ‘political activities’ would be referred to as ‘public policy advocacy’, and it identified ‘public policy advocacy’ as those activities that “seek to influence the laws, policies, or decisions of a government, in Canada or in any foreign country.” Furthermore, the CRA proposed to allow Canadian registered charities to carry out public policy advocacy activities that are incidental to their charitable purposes, and it clarified that an ‘incidental activity’ is:
any activity that is subordinate to a charity’s charitable purposes and helps or supports a charity in carrying out its charitable purposes. Any resources devoted to incidental activities are considered to be devoted to charitable activities. An incidental activity cannot become a purpose in itself, or the charity’s reason for operating.
To that end, the CRA confirmed that where charities must engage exclusively charitable purposes, they cannot engage any ‘political purpose’. A ‘political purpose’ was described in the Draft Guidance to be any purpose that “furthers the interests of a particular political party; or support a political party or candidate for public office; or retain, oppose or change the law, policy or decision of any level of government in Canada or in a foreign country.” Accordingly, “a charity’s communications should only address the policy issue under discussion, and never a candidate or political party.” Key indicators that the CRA would look for to determine whether a charity has a political purpose would include whether the charity’s public policy advocacy activities are unrelated to a charitable purpose, whether those activities are disproportionate in terms of the resources used for such activities relative to the resources used for the delivery of a public benefit, and/or whether the activities are politically partisan.
On October 25, 2018, the Department of Finance again addressed its changes to the rules for charities and political activities in its Explanatory Notes Relating to the Income Tax Act and to Other Legislation (the Explanatory Notes). The Explanatory Notes state that the ITA will be amended such that ‘charitable activities’ will include:
public policy dialogue and development activities carried on in furtherance of a charitable purpose… [and that] 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.
With that, the release of the Explanatory Notes was followed the next day by a CRA withdrawal of the Draft Guidance, and no replacement guidance has yet been provided.
If passed, the Proposals will apply retroactively to CRA objections that relate to charities’ suspended political activities. If the Proposals are passed as drafted, the expansion of charities’ ability to engage in public policy advocacy (incidental to their charitable purposes, to be sure) will be significant. The point after which some activity would be considered ‘political’ will be difficult to determine, where today’s social and political climate is one in which an array of causes and issues fall along very partisan lines. It is not a stretch to suggest, for example, that the Proposals would enable organizations to retain their ‘charitable’ status while devoting a substantial portion of their resources to causes that are suggestive of partisan support. For the time-being – that is, until such time as any ITA amendments are legislated with respect to this matter – charities should remain cautious about changing the way they engage in political activities.