Anyone following the news over the past few months is well
aware of the Conservative government's concern about charity involvement in
what are loosely termed "political activities." In fact, that concern is not
limited just to this government. Judges have been facing this issue for many
Fundamentally, the reason that charities cannot engage in
political activity is that it would be impossible for a judge to determine if a
particular political activity was properly in pursuit of a charitable object.
For example, if a charity organized to relieve poverty lobbied to change a law
it felt relieved poverty, a judge may have to decide whether such a change to
the law would actually be charitable. This is an impossible position for a
judge, and so political activities in general have been ruled out.
Allowance, though, was made for
some political activities where those activities were a) not of a partisan
nature; b) were connected with the charity's objects; and c) ancillary to the
charity's main activities. Of these, the ancillary test is the most difficult
to quantify, as it limits a charity to using only 10% of its resources
(financial, volunteer, and otherwise) and so enforcing this rule poses
practical difficulties for the Canada
Nonetheless, even if a single
charity were limited to using only 10% of its resources for political activity,
several charities could act in concert toward the same end and each remain
within the charitable rules by using less than 10% of its resources for the
political activity. Furthermore, a single charity could, in effect, expend its
entire receipted revenues in a year on political activities by transferring a
portion of its revenues to any number of charities and directing those proceeds
to the same political activities carried on by the recipient charities.
Loose definition will impair tight sanctions
Budget 2012 attempts to correct
this mischief with a number of measures. First, it requires charities to report
the specific amounts they spend on political activities. Second, charities and
foundations will be restricted from transferring funds to other qualified
donees in order to fund their political activity. Finally, charities can now
have their charitable status suspended for engaging in political activity.
While it is clear that political
activities by charities are to be significantly curtailed, the definition of
political activity is so circular that one knows it will undercut the
enforcement of these provisions. The budget defines political activity as
the making of a gift to a qualified donee if it can reasonably be considered
that a purpose of the gift is to support the political activities of the qualified
Most of us learned in grade four
not to define a word by using that same word in the definition. Unfortunately,
what most grade-schoolers know, the drafters of the Income Tax Act
have forgotten. And so it would seem that while a
court cannot opine on the charitable nature of a specific political activity,
we may need one to help clarify the meaning of the term generally.
Foreign qualified donees
In last year's budget, significant attention was paid to
the definition in the Income Tax Act of a "Qualified Donee" (a ‘QD'). For all
intents and purposes a QD is an organization which has similar treatment to a
registered charity. So, for example, donations to a QD receive the same tax
treatment as a donation to a registered charity. The list of QDs include the federal,
provincial, and municipal governments as well as a list of foreign organizations
that is updated periodically by the CRA.
Budget 2011 took rather extreme
steps to ensure the integrity of the donation system by subjecting QDs to some of
the same rules as registered charities. Thus, it was surprising that Budget
2011 did not address the status of foreign charities which had QD status in
Canada. The law on the topic was of course known: foreign groups to whom the federal
government made gifts could receive QD status. But what was not known was the
type of gift, how the decision was made to make such a gift, and whether all
gifts sufficed or just certain ones.
Budget 2012 continues where its
predecessor left off. Now, foreign charitable organizations that receive a gift
from the government may apply for qualified donee status if they pursue
activities that are either a) related to disaster relief or urgent humanitarian
aid or b) in the national interest of Canada.
The decision to accept such an
application will be made by the Minister of Finance together with the Minister
of National Revenue and the status as QD will last for a 24 month period. Foreign
organizations currently on the QD list will continue to be qualified donees
until the expiration of the period of their current status.
Failure to file the T3010
In a surprise move, Budget 2012 gives the CRA the power to
suspend any registered charity or Registered Canadian Amateur Athletic
Association that is missing some or all of the required information in its
annual T3010 information return. The suspension would begin within seven days
of being informed of the defect and could last until the defect is corrected.
While the proposals include
measures to appeal the suspension this is (like items in last year's budget) a
dramatic increase in the reliance on the CRA's goodwill in enforcing what are
otherwise ambiguous provisions. For example, the CRA can always take the
position that the T3010 form is simply deficient in the information required. Most
charities do not even understand the T3010 form; many, if not most, charities
are filing incorrect forms.
The most surprising part about
these proposals is that the Charities
simply does not have the human resources required to review the
T3010s as they are submitted. They are not vigorously reviewed until a charity
is audited, or the information is relied upon by a donor or the media. So it
would seem, at least until the Directorate's personnel budget is increased,
that the provision is aimed at relatively superficial deficiencies in the T3010
obvious on a cursory review.
The CRA has been eminently successful in shutting down the
leveraged tax donation industry, and Budget 2012 provides additional measures
to ensure that it does not rise from the dead. Generally speaking these
measures increase the penalties on the promoters of tax shelters that the CRA
determines are offside.
Of interest to charities is an
announcement in Budget 2012 that the Minister of Human Resources and Skills
Development is modernizing the administration of grants and contributions to
reduce red tape and make it easier to access funding.
Budget 2012 also teased the
sector with an announcement that long-awaited guidance from the Government
regarding social finance will be announced by the Minister of Human Resources
and Skills Development.
Adam Aptowitzer of Drache
Aptowitzer LLP is a charity law lawyer with a national practice based in
Ottawa. He has been published in Canadian Taxpayer, Canadian Fundraising &
Philanthropy and the Not-for-Profit News. He has also published a widely
distributed study on the regulation of Canadian charities with the C.D. Howe
As a speaker,
he has presented to the National Symposium of Charity Law, the C.D. Howe
Institute, the Association of Fundraising Professionals, the Canadian Association
of Gift Planners and the Ottawa Estate Planning Council. He has also given
expert advice on Parliament Hill. Adam is an executive member of the Canadian
Bar Association's Charity and Not-for-Profit Law section.