Registered charities: New bill amends treatment of political activity
TAX ALERT |
Changes to the laws that regulate political activities of Canadian registered charities were enacted through Bill C-86, Budget Implementation Act, 2018, No.2 on December 13, 2018. Under the new law, a charity is allowed to devote an unlimited amount of its resources to public policy dialogue and development activities so long as these activities are non-partisan and for the purpose of furthering its charitable mandate.
Charitable and non-profit organizations enjoy favourable tax treatment under the Canadian Income Tax Act (the ’Act‘). To access those favourable tax treatments, charitable and non-profit organizations must achieve and maintain their special tax status as a registered charity.
A charitable organization can receive said status from the Canada Revenue Agency (CRA) if it expends its resources to the relief of poverty, the advancement of education, the advancement of religion, other purposes that benefit the community, or a combination of those. A registered charity can issue official donation receipts for gifts received from donors, receive gifts from other registered charities, and be exempt from paying income tax and goods and services tax/harmonized sales tax (GST/HST) on many goods and services.
With all these tax advantages, a registered charity must devote all or substantially all of its resources to charitable purposes and activities, file Registered Charity Information Returns (T3010) annually, and meet its annual spending requirement, along with some additional obligations. Non-compliance with the above-mentioned obligations may result in revocation of its registered charity status and, consequently, its tax advantages.
Historically, there were limitations to the allowed extent of a charity’s political activities. A charity that has devoted all or substantially all of its resources to charitable activities was allowed to take on certain political activities as long as these were:
- ancillary and incidental to its charitable activities, and
- those political activities did not include the direct or indirect support of, or opposition to, any political party or candidates for public office.
In the past, the CRA made a formulated interpretation on the limitation to charities’ political activities. The CRA took a position that a charity should not spend more than 10 per cent of its resources on political activities since the charity has already devoted all or substantially all of its resources to charitable activities. The CRA interprets “all or substantially all” as “90 per cent or more”.
Since there is no clear definition of ’political activities‘ in the Act, the CRA’s interpretation was challenged in court by Canada Without Poverty. Canada Without Poverty is a registered charity that engages in public advocacy for policy and attitudinal change as its primary means of achieving an end to poverty. Virtually all of the activities rendered by Canada Without Poverty are communitive or expressive in a sense that all of its activities are ’political‘. As such, the CRA decided to revoke the registered charity status of the organization. Canada Without Poverty appealed with success: The Ontario Superior Court of Justice found that the activities in which Canada Without Poverty wishes to engage – public advocacy and policy change – are within the guarantee of freedom of expression which is enshrined in 2(b) of the Canadian Charter of Rights and Freedoms. Consequently, the court declared the 10 per cent threshold the CRA imposed on political activities violates the freedom of expression. Meanwhile, the court ordered that the term ‘charitable activities’ should read to include the political activities, without quantum limitation, in furtherance of the organization’s charitable purposes. The court issued the declaration and order in July 2018.
In response to the decision made by the court, the federal government proposed amendments to the rules pertaining to political activities. The amendment was enacted on December 13, 2018 through Bill C-86. Consequently, charities can now be involved in unlimited non-partisan policy activities, but any partisan political activities are still prohibited and will result in revocation of their advantageous tax status.
The new rules apply retroactively as early as January 1, 2008 to organizations, corporations and trusts that obtained registered charity status on or before September 14, 2018. The amendments are effective on September 14, 2018 for those that became registered charities after September 14, 2018. The CRA has not yet released any guidance regarding their interpretation of the new rules.
Shortly after its enactment, the CRA released Guidance CG-027 to introduce its administrative policies on the application of the new rules. As described in Guidance CG-027, a charity must keep records to demonstrate that the primary consideration for it to carry on any public policy dialogue and development activities is to further its stated charitable purpose and provide benefits to the public. Thus, charities should remain cautious and conservative when involved in public policy activities.