You may have seen that a small anti-poverty charity, Canada Without Poverty, won a landmark court challenge against the Canada Revenue Agency (CRA) regarding political-activity audits and wondered what that means. Or maybe you saw ads on how charities’ involvement in public policy has been limited by an out-of-date law and had questions. You are not alone. There is limited awareness about how our charity law works and why it needs to change. That’s why we have put together some answers to some common questions on this issue. We hope they are helpful.
Q: What is the charity law and who enforces it?
The ‘charity law’ is part of the Income Tax Act and it is the Canada Revenue Agency (CRA) that is responsible for interpreting and enforcing it. The Canadian Department of Finance is responsible for the Income Tax Act. Charity law also includes “common law” which is made up of the decisions of courts on cases dealing with charity. These cases sometimes date back hundreds of years.
Q: Are Canadian charities allowed to conduct political activities?
Yes, within certain restrictions. The Income Tax Act restricts Canadian registered charities in the type and quantity of political activity. Charities can be involved in non-partisan political activities as long as it helps accomplish the charity’s purposes. See below for a definition of what “political” activities actually entail. You will be surprised.
Q: What’s the difference between “political” and “partisan political” activities?
The current law limits the amount of resources charities can devote to “political activities.” However, this use of “political” is different from the way most people use the word. To most of us, “political” means electoral politics, and the back and forth between Conservatives, Liberals, the NDP, etc.
According to the CRA’s interpretation of the Income Tax Act this includes:
1) calling for political action like contacting a member of government.
2) expressing to the public that a law should be kept, changed or removed.
3) explicitly saying that the point of something it is doing is to put pressure on government.
This means that when a charity works on drinking and driving and asks its supporters to write to their Member of Parliament (MP) about the need for better laws or when a health charity calls on the public ask for new investments in life saving equipment, this activity is called “political”. We are asking the government to update the law to allow charities to take a greater role in public policy discussions.
In contrast to “political” there is “partisan” which refers to supporting or opposing a political party or candidate. We agree that charities should remain non-partisan, which means that charities cannot promote any political parties or candidates.
Q: Isn’t lobbying “bad”? Shouldn’t it be banned?
“Lobbying” is when someone meets with their MP or senior civil servant to discuss a public policy issue. These conversations are how MPs and government find out a lot of their information about the implications of a law or policy that they may be considering. If lobbying is banned, politicians may not have the information that they need to make smart policy decisions. Your MP is not an expert on health care or the environment, that’s why these meetings are essential.
Q: How is corporate lobbying different from what’s done by charities?
Corporations and industry associations spend millions on lobbying and are doing so to convince governments to enact policies that favour them and their industries (they are required to do this by the nature of their own legal obligation to make money for their shareholders). There are no legal restrictions on the amount of lobbying they can do. In contrast, charities must, by law, undertake lobbying that is in the broader public interest, and are currently highly restricted in the amount of lobbying they can do, which limits the voice of their supporters.
Q: Do charities pay taxes and what does that have to do with free speech?
Charities do not pay corporate income taxes but their employees pay income tax like any other worker. Charities are also prohibited from making a profit.
The free speech issue is related to the current rules which prohibit charities from engaging the public to seek better laws and policies to protect human rights, health and the environment. This means that the citizens that donate to the charity have very little ability to have their voice reflected in advocacy for appropriate laws and policy.
It is critical that supporters of a charity’s efforts be able to write to their Members of Parliament (MPs) or Members of the Provincial Parliament (MPPs) to ask for action. If charities cannot inform their members about these issues, Canada will be a less democratic and less successful country. The playing field is not even because corporations face no such restrictions.
Q: What is the difference between how charities and corporations are treated concerning public policy advocacy and tax breaks?
Citizens get to reduce some of their income tax that they have to pay by donating to a charity (you would have seen this on your income tax form when you filed it after giving to a charity). The more donations a charity receives, the more resources it has to work on public policy issues.
Corporations, by contrast, can spend unlimited amounts of money opposing or supporting a public policy issue and deduct these expenses from their gross income, and therefore, lower the amount of income tax they are paying. This is similar in the scale of tax benefit to what a citizen gets from contributing to their RRSP — that it is a larger tax benefit than what would be received from donating to charity. Citizens are subsidizing this corporate activity because of these rules.
Q: Why does the law need to be updated?
Canada’s charity law is behind most other western countries. Charity laws in places like Australia, the United Kingdom, Europe and New Zealand enshrine the ability of charities to undertake advocacy to further their charitable purpose. Philanthropy is able to fund policy (not partisan electoral) advocacy with few exceptions. This is important, as funding advocacy is one of the most effective ways for philanthropy to protect the environment, human health and human rights.
Q: I saw that the Court ordered the CRA to stop setting political limits on charities’ activities. What does this mean?
An Ontario Superior Court judge has ruled that the Income Tax Act infringes on charities’ constitutional right to free expression. This means that a longstanding rule which limits the resources any Canadian charity is permitted to devote to political activities to 10 per cent has been overturned. This decision does not alter the prohibition against charities engaging in partisan activities (see above for the difference between political and partisan activities).
Q: The judge declared that the offending sections of the Income Tax Act have “no force and effect”— does that mean that the existing law needs to change or does his ruling effectively do that?
Right now, the ruling means there’s no limit on charities’ abilities to undertake non-partisan political activities. However, the ruling decision can be appealed to the Ontario Court of Appeal by the federal government. If this happens, it’s a clear signal that the Prime Minister has abandoned his promise to “allow charities to do their work on behalf of Canadians free from political harassment, and modernize the rules governing the charitable and not-for-profit sectors.”
Our hope is that given this ruling and an earlier recommendation from an expert panel (which the judge cited in his ruling), that the government finally fulfills its promise and updates Canada’s charity law.