A. Budget amendments

The Budget 2012 amendments to the ITA were introduced “to ensure that charities devote their resources primarily to charitable, rather than political, activities, and to enhance public transparency and accountability.”[1] It is important to note that these amendments did not result in significant changes to the political activities rules, i.e., subsections 149.1(6.1) and (6.2) were not amended. Rather, the definition of “political activities” was added to subsection 149.1(1) to include gifts from one registered charity to another when the purpose of the gift may reasonably be considered to support the political activities of the recipient registered charity. The definition of “charitable purposes” in subsection 149.1(1) was expanded to prevent gifts that further political activities from counting as a charitable purpose.[2] The amendments also empowered the Minister to suspend a registered charity’s receipting privileges for a one year period for failing to report information on its Form T3010, Registered Charity Information Return or for excessive political activities, i.e., the use of more than 10% of its resources.[3]  

B. Additional budget 2012 initiatives

Budget 2012 included an $8 million funding commitment (which has now been expanded to a $13.1 million commitment)[4] from the federal government, which directed CRA to “[e]nhance its education and compliance activities with respect to political activities by charities” and “[i]mprove transparency by requiring charities to provide more information on their political activities, including the extent to which these are funded by foreign sources.”[5]

Budget 2012 also connected these transparency and accountability measures to the previously mentioned Standing Committee study, as initiated by the federal government.[6] These two factors are noteworthy insofar as they indicate CRA did not initiate the political activities compliance program, but was directed to do so by the federal government. In particular, the information CRA has publicly provided prior to[7] and during its implementation of the Budget 2012 initiatives stated that it had not received any political interference concerning how it is to carry out those initiatives.    

C. CRA’s Implementation of budget 2012 Initiatives

CRA’s implementation of the Budget 2012 initiatives has resulted in a mix of educational measures and increased compliance activities by the Charities Directorate.[8] For example, CRA has established a team in the Charities Directorate’s “Compliance Division to carry out audits that focus specifically on political activities”[9] and developed web based resources including a self-assessment tool, a series of short videos, and an online list of questions and answers.[10] However, it is the increase in compliance activities that is drawing the most attention from the press and the sector. In this regard, Cathy Hawara, the Director General of the Charities Directorate of CRA, made the following statements concerning how its compliance activities are carried out:              

...the Charities program is managed in a fair and impartial manner, without political direction as to which charities should or should not be subjected to review and audit. This is critical to our role as a credible and effective regulator of the charitable sector. CRA employees act with the utmost integrity and professionalism in carrying out their responsibilities to administer and apply the provisions of the Income Tax Act that relate to registered charities.[11]

We recognize the need to be as transparent and accountable as possible about how we administer our program. This doesn’t come as a surprise to us. When we began implementing the measures announced in Budget 2012, we were very deliberate in articulating our framework and the underlying principles related to our compliance program – we were going to stay true to those principles as we embarked on our work related to political activities. As I have made clear in the past, the process for identifying which charities will be audited (for any reason) is handled by the Directorate itself and is not subject to political direction.[12]

In addition to CRA’s public statements, the current Minister, whose responsibility for CRA is set out in the Canada Revenue Agency Act,[13] has recently provided statistical information concerning the number of political activities audits to be undertaken. In particular, the Minister advised that:

As a result of Budget 2012, the CRA will conduct 60 audits related to the political activities of charities over a four year period. As of October 21, 2014 [...] 40 political activity audits were underway (this includes some which commenced prior to Budget 2012). Of these audits, 13 have been completed.[14]

The Minister’s statistical information also revealed that the number of formal complaints regarding the political activities of registered charities spiked from under 27 a year in 2008-2009, 2009-2010, and 2010-2011 to 139 in 2011-2012 and 159 in 2012-2013.[15] This more than fivefold increase in formal complaints occurring over the 2011-2012 period indicates the increased interest in political activities by the public likely resulted from the statements of federal government representatives in the period leading up to Budget 2012, rather than from a pre-existing public concern requiring a legislative remedy. As such, these statistics underscore the fact that prior to Budget 2012 the political activities of registered charities were not high on the public’s radar, which, in turn, suggests that the controversy over political activities has been a construct of the federal government, as opposed to a CRA initiative or government response to public outcry. 

D. Conclusion

Although the legislative framework and regulatory history relating to the political activities of registered charities is longstanding, public comments by various representatives of the federal government prior to the implementation of Budget 2012 have contributed to the current climate of fear surrounding political activities. In this regard, it is important to differentiate between the political manoeuvrings of those who created the current climate and those tasked with undertaking the administration and enforcement of the Budget 2012 initiatives. As well, CRA itself is effectively absent from the debate, due in large part to the confidentiality provisions of the ITA, which prevent CRA officials from disclosing taxpayer information except in certain circumstances.^[16]

Despite the stated importance of charities needing to be part of public policy debate in Canada,[17] the federal government’s unjustified allegations in recent years about charities purportedly misusing their statutory right to participate in political activities, fewer charities are prepared to enter the risky arena of political activities. This is a regrettable development notwithstanding CRA’s recent efforts at providing educational resources about what registered charities can do with regard to political activities. In trying to separate fact from fiction concerning the debate about political activities by charities over the last three years, the facts point back to the unwarranted allegations made by the federal government on an issue which for almost 10 years had been a topic of little, if any, discussion or debate within the sector, the public, or  CRA.

Terrance S. Carter, B.A., LL.B, TEP, Trade-mark Agent – Managing Partner of Carters, Mr. Carter practices in the area of charity and not-for-profit law, is counsel to Fasken Martineau on charitable matters.  Mr. Carter is a co-author of Corporate and Practice Manual for Charitable and Not-for-Profit Corporations (Carswell), a co-editor of Charities Legislation and Commentary (LexisNexis Butterworths, 2015), and co-author of Branding and Copyright for Charities and Non-Profit Organizations (2014 LexisNexis Butterworths).  He is recognized as a leading expert by Lexpert and The Best Lawyers in Canada, and is Past Chair of the CBA National and OBA Charities and Not-for-Profit Law Sections. He is editor of www.charitylaw.ca, www.churchlaw.ca and www.antiterrorismlaw.ca.

Linsey E.C. Rains, B.A., J.D. - Called to the Ontario Bar in 2013, Ms. Rains joined Carters Ottawa office to practice charity and not-for-profit law with a focus on federal tax issues after more than a decade of employment with the Canada Revenue Agency (CRA). Having acquired considerable charity law experience as a Charities Officer, Senior Program Analyst, Technical Policy Advisor, and Policy Analyst with the CRA’s Charities Directorate, Ms. Rains completed her articles with the Department of Justice’s Tax Litigation Section and CRA Legal Services.