A number of Canadian charities have recently come under scrutiny by the Canada Revenue Agency (CRA) regarding their charitable status. In Canada, a registered charity pays no income tax and is able to issue tax receipts to its donors. Those receipts are then used for non-refundable tax credits or deductions. The Canadian Press has reported that many registered charities in Canada, ranging from environmental to international aid and human-rights groups, have recently been subjected to political-activity audits by the CRA. The CRA has apparently budgeted approximately $13 million for these audits.1
In this context, we provide some insight into the Canadian law on registration for charitable status in light of a recent Supreme Court of New Zealand decision.
Current Canadian law on political activities and charitable status
Under Canadian law, registered charities are not allowed to have political purposes.
However, subsections 149.1(6.1) and (6.2) of the Income Tax Act (ITA) state that where a corporation, trust, or any other organization devotes substantially all of its resources to charitable purposes, it may also devote a part of its resources to political activities, and continue to meet the definition of charitable foundation or charitable organization, provided that those political activities are ancillary and incidental to its charitable purposes and do not include the direct or indirect support of, or opposition to, any political party or candidate for public office. The CRA interprets "substantially all" in subsections 149.1(6.1) and (6.2) to mean 90% of resources, including financial assets, equipment, premises and human capital.
The Canadian jurisprudence in this area of law was largely established by the Federal Courts in the mid-1980s, inspired by a 1917 decision from House of Lords, Bowman v Secular Society Ltd.2 In Bowman, it was held that, "A trust for the attainment of political objects has always been held invalid." Canadian courts, following Bowman, have adopted a similar position. In 1999, this was confirmed by the Supreme Court of Canada in Vancouver Society of Immigrant and Visible Minority Women v Canada (Minister of National Revenue).3
The CRA has issued guidance, which does not have force of law, clarifying how the CRA may interpret the ITA provisions. Guidance issued in 2003 provides that, "Any purpose that suggests convincing or needing people to act in a certain way and which is contingent upon a change to law or government policy (for example, 'the abolition of' or 'the total suppression of animal experimentation') is a political purpose."4 This guidance further states that the CRA will presume an activity to be political if a charity:
- explicitly communicates a call to political action (...)
- explicitly communicates to the public that the law, policy or decision of any level of government in Canada or a foreign country should be retained (...), opposed, or changed; or
- explicitly indicates in its materials (...) that the intention of the activity is to incite, or organize to put pressure on, an elected representative or public official to retain, oppose, or change the law, policy, or decision of any level of government in Canada or a foreign country.5
Nearly 10 years later, the CRA issued additional guidance, titled "How to Draft Purposes for Charitable Registration."6 This guidance was intended to provide insight on how the Charities Directorate will determine whether or not a charity has been constituted for charitable purposes. It provides, among other things, that an analysis of an organization's activities and operations may reveal it is furthering an "unstated non-charitable purpose" that is not eligible for registration as a charity under the ITA. To illustrate this point, the CRA specifies that an organization devoting the majority of its resources to "political activities" would be ineligible for charitable registration, because in such case, the organization's purpose would be political rather than charitable.
Recent developments abroad: Re Greenpeace of New Zealand Inc.
In a recent decision,7 Greenpeace New Zealand Inc. sought recognition as a "charitable entity" under the Charities Act 2005 (NZ). The Charities Commission ruled that Greenpeace could not register as a charity because two of its purposes were not charitable: 1) the promotion of disarmament and peace and 2) the promotion of "legislation, policies, rules, regulations and plans which further [Greenpeace's other purposes] and support their enforcement or implementation through political or judicial processes as necessary."
The commission held that these purposes were not merely ancillary to its charitable purposes; they were independent, political, purposes. As in Canada, the jurisprudential doctrine developed in New Zealand in the 1980s was based on Bowman.
Greenpeace appealed this decision, arguing charitable status was not being considered on the correct basis. A majority of the Supreme Court allowed the appeal, holding that "(...) 'charitable' and 'political' purposes are not mutually exclusive if the political purpose is itself charitable because of public benefit within the sense the law regards as charitable. A 'political purpose exclusion' as a matter of law is not necessary."8 In its reasons, the court emphasized that the doctrine of exclusion of political purposes was relatively recent, based on little authority, and has not been necessary or beneficial.
The court further stated that a case where the promotion of views is properly regarded as charitable in itself is possible.
"More importantly, it is difficult to see that all advocacy for legislative change should be excluded from being recognised as charitable. Promotion of law reform of the type often undertaken by law commissions which aims to keep laws fit for modern purposes may well be properly seen as charitable if undertaken by private organisations even though such reform inevitably entails promotion of legislation. Such advocacy may well constitute in itself a public good which is analogous to other good works within the sense the law considers charitable."9
Although recognizing that such a case would be unusual, the court felt a "blanket exclusion" would create rigidity in an area of the law that should be responsive to the way in which society works.
"Just as the law of charities recognised the public benefit of philanthropy in easing the burden on parishes of alleviating poverty, keeping utilities in repair, and educating the poor in post-Reformation Elizabethan England, the circumstances of the modern outsourced and perhaps contracting state may throw up new need for philanthropy which is properly to be treated as charitable."10
Relevance to the Canadian context
Although not binding in Canada, the Supreme Court of New Zealand's decision is of interest. Since the law in both Canada and New Zealand is derived from Bowman, it could be used by Canadian charities determined to be ineligible for charitable registration or facing revocation of such status.
Moreover, the New Zealand decision is in line with the Australian stance on charitable status, which also does not exclude political purposes from qualification as a "charity." In Australia, the Charities Act, 2013 (Cth) codified the common law to better define the definition of charity and expand the meaning of "charitable purpose" to better address the needs of the contemporary not-for-profit sector.11 The codified definition was expanded to include purposes advancing social or public welfare, culture, or promoting or protecting human rights, amongst others.12
Furthermore, it does not exclude political purposes broadly; rather, it specifically excludes from registration entities whose objects involve "promoting or opposing a political party or a candidate for political office."13 This appears to be in line with the Supreme Court of New Zealand's reasoning.
The Supreme Court of New Zealand has recently concluded that the political purpose exclusion is outdated, not necessary nor beneficial, as well as lacking in legal basis. If given the opportunity, perhaps Canadian courts will re-evaluate whether a political purpose can be in fact be considered charitable in Canada.
The author wishes to thank Carole Gilbert, articling student, for her help in preparing this legal update.
1. The Canadian Press, "Pen Canada hit with political-activities tax audit" (July 21, 2014), online : CBC News, http://www.cbc.ca/news/politics/pen-canada-hit-with-political-activities-tax-audit-1.2713637; http://www.thestar.com/news/canada/2014/08/10/foreignaid_charities_join_together_to_challenge_canada_revenue_agency_audits.html
2. Bowman and others v. Secular Society Ltd.,  AC 406 [Bowman].
3. 1 R.C.S. 10.
4.Canada Revenue Agency, "Political Activities," Policy Statement CPS-022 (September 2, 2003), online: CRA, http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cps/cps-022-eng.html#N1025F.
5. Ibid at s.6.2.
6. Canada Revenue Agency, "How to Draft Purposes for Charitable Registration," Guidance CG-019 (July 25, 2013), online: CRA, http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/drftprpss-eng.html.
7.Re Greenpeace of New Zealand Inc  NZSC 105
8.Ibid at paras 113-116.
9. Ibid at para 62.
10.Ibid at 69.
11. Chris Beeny and Julian Smith, "Charities Act
2013 takes effect: meaning of "charity"
clarified" (February 28, 2014), online: Maddocks, http://www.maddocks.com.au/reading-room/a/charities-act-2013-takes-effect-meaning-of-charity-clarified.
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