On March 29, 2012, the government introduced the 2012
Federal Budget ("Budget 2012"). While the 2011 Federal Budget had introduced
extensive changes affecting registered charities, Canadian amateur athletic
associations and other qualified donees, Budget 2012 focuses largely on
measures dealing with the perceived lack of transparency and accountability
concerning charities devoting their resources to political activities. Some of
the more important proposals affecting registered charities in Budget 2012 are
political activity provisions
In relation to limits on political activities, Budget 2012
states that "concerns have been raised that some charities may be exceeding
these limitations and that there is currently no requirement for a charity to
disclose the extent to which it receives funding from foreign sources for
These comments refer to recent media coverage concerning the
debate in the Senate around alleged donations to Canadian registered charities
by foreign donors that are thought to use those funds for political
In response, Budget 2012 provides the Canada Revenue Agency
with the authority to suspend for one year
the tax-receipting privileges of charities which exceed the limitations
contained in the Income Tax Act
(Canada) ("ITA") on political activities. In addition, a one year
tax-receipting suspension can also be applied by CRA to charities that provide
inaccurate or incomplete information on their T3010-1 annual returns.
While this amendment does not refer explicitly to political
activities, it can be assumed that this will provide CRA with a new sanction to
apply to charities which inaccurately report their political activities or fail
to disclose gifts received from foreign donors. As well, Budget 2012 indicates
that charities will be required to provide more information concerning their
political activities, including the extent to which they may be funded by
foreign sources, although no details are provided concerning what this
requirement will actually involve.
Budget 2012 also proposes to amend the ITA in order to
restrict the perceived funding of political activities by registered charities
through gifts to other qualified donees. In order to do so, Budget 2012
proposes to amend the definitions of both "charitable purposes" and "political
activity," as well as other collateral amendments to the ITA.
Specifically, the definition of "political activity" will be
amended to indicate that it "includes 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 donee." The definition of charitable
purposes is also proposed to be amended so that it excludes a gift, "the making
of which is a political activity." However, there is no indication what the
phrase "can reasonably be considered" will actually mean in practice.
These changes regarding political activities will apply on
Royal Assent to the enacting legislation.
New rules for
eligible foreign donees
Currently, the ITA recognizes as qualified donees certain
registered foreign charitable organizations outside Canada that have received a
gift from Her Majesty in right of Canada. In accordance with the 2011 Federal
Budget, the Charities Directorate maintains a listing of these organizations in
Attachment to IC84-3R, Gifts to Certain Charitable Organizations Outside Canada.
However, Budget 2012 proposes to modify the rules for the
registration of foreign charitable organizations that have received gifts from
the Government of Canada, by replacing organizations outside of Canada that
have received a gift from Her Majesty in right of Canada with designated
foreign organizations. In this regard, Budget 2012 proposes that foreign
charitable organizations that receive a gift from the Government of Canada may
apply for qualified donee status if they pursue activities related to disaster
relief or urgent humanitarian aid, or in the national interest of Canada.
In addition, the Minister of National Revenue will have the
discretionary power, after consultation with the Minister of Finance, to grant
qualified donee status to foreign charitable organizations that meet the above
criteria. These measures will apply to applications made by foreign charitable
organizations on or after the later of January 1, 2013 and Royal Assent of
the enacting legislation.
Penalties for tax
Budget 2012 proposes that, in cases dealing with charitable
donation tax shelters, the penalty to the promoter will be the greater of
the amount determined under the existing rules and 25 per cent of the
amount asserted by the promoter to be the value of property that tax
shelter participants in the tax shelter can transfer to a donee.
Budget brings new
While Budget 2012 is not as sweeping in scope as was the
2011 Federal Budget, there will nonetheless be new challenges for registered
charities to be concerned about in conducting political activities. In particular, it is not clear how proposed
amendments to the ITA which will deem certain charitable activities to be
political activities will apply, or what kind of due diligence will now be
necessary for charities making a gifts to other qualified donees to ensure that
the charity is not caught by the deeming provision, or what sort of reporting
requirements will be required of charities concerning political activities,
including disclosing "funding from foreign sources."
Restricting the designation of foreign organizations
would not affect those organizations that are currently listed. However, some
of them may no longer qualify after that time. As well, this new restriction
will limit the type of organizations that would qualify, making an already
short list even shorter.
Ryan Prendergast was called to the Ontario Bar in 2010 and
joined Carters to practice in the
areas of charity and not-for-profit law, corporate and commercial law, and
human rights law.
Ryan graduated from the University of Ottawa,
Faculty of Law, in 2009. While articling with Carters, Ryan acquired experience
in the areas of charity and not-for-profit law, corporate/commercial law, civil
litigation, wills and estates, and human rights law. In addition, he
contributed to several Charity Law Bulletins and other publications.
Mr. Carter is also editor of www.charitylaw.ca,
www.churchlaw.ca and www.antiterrorismlaw.ca and a consulting editor of
Charities Legislation and Commentary 2009 Ed.