On July 16, 2018, the Ontario Superior Court of Justice delivered a major victory to Canadian charities that devote all or a portion of their resources to non-partisan political activities.
In Canada Without Poverty v. Attorney General of Canada, the Court held that non-partisan political activities constitute charitable activities for the purposes of the Income Tax Act (Canada) (the Act), provided that they are carried out in furtherance of an organization’s charitable purposes. Accordingly, a registered charity may devote significantly more than 10% of its resources to such activities, contrary to long-standing Canada Revenue Agency (CRA) policy.
This decision is of particular interest to registered charities that have been the object of increased audit activity from the CRA for having engaged in political activities. Depending on the specific circumstances at issue, the decision may forge a path to a successful outcome for those involved in administrative audits with the CRA or legal proceedings before the courts.
Canada Without Poverty (the Applicant) is a registered charity under the Act whose charitable purpose is the relief of poverty. Contrary to most registered charities with a similar vocation, the Applicant generally does not fulfill its purpose through the provision of housing, food, or other tangible benefits. Instead, it engages in public advocacy for policy and attitudinal.
Although registered charities are permitted to engage in political activities, paragraph 149.1(6.2) of the Act sets out significant restrictions. In short, the provision provides that a registered charity may carry on political activities, provided that (i) it devotes “substantially all” of its resources to “charitable activities” (ii) the political activities are ancillary and incidental to its charitable activities, and (iii) the political activities are non-partisan.
Following an audit of the Applicant’s 2010-2012 fiscal years, the CRA concluded that the Applicant did not meet the conditions set out under paragraph 149.1(6.2) because it devoted virtually all of its resources to political activities and therefore did not meet the “substantially all” test. The Applicant challenged the CRA’s conclusion before the Court.
Position of the Parties
The thrust of the Applicant’s position was that paragraph 149.1(6.2), and the CRA’s interpretation thereof, infringed its right to freedom of expression guaranteed by section 2b) of the Canadian Charter of Rights and Freedoms because:
- with respect to the latter, the CRA’s interpretation of “substantially all” as meaning 90% or more was an arbitrary bright-line test that significantly limited its ability to engage in public policy advocacy, which is its central purpose; and
- with respect to the former, the impugned provision draws an artificial and incoherent distinction between “charitable activities” and non-partisan “political activities” that prevents the latter from properly being included in the former.
The government, however, argued that paragraph 149.1(6.2) of the Act does not infringe the Applicant’s freedom of expression because the denial of a tax benefit such as charitable status is not akin to denying freedom of expression.
The Court ruled in favour of the Applicant. It held that “the charity registration platform created by the [Act] exists to support charitable works, and enforcement of s. 149.1(6.2), in burdening freedom of expression, seriously impairs those works.”
It found that the Applicant “has a right to effective freedom of expression – i.e. the ability to engage in unimpaired public policy advocacy toward its charitable purpose” and concluded that the “the burden imposed by the impugned section of the [Act] and by the policy measure adopted by CRA in administering that section runs counter to that right,” the infringement of which could not be justified in a free and democratic society.
In 2012, the Canadian government launched the Political Activities Audit Program, which led to a significant number of CRA audits of registered charities engaged in political activities.
However, in March 2017, registered charities breathed a sigh of relief when the Consultation Panel on the Political Activities of Charities, appointed by the Minister of National Revenue in September 2016, released a report recommending that charities be permitted to fully engage in non-partisan public policy dialogue and development, while maintaining an absolute prohibition on partisan political activities.
The Canadian government has expressed a willingness to act on the Panel’s recommendations, but no legislative action has yet been initiated. The Canada Without Poverty decision will likely hasten the process of charity law reform, but until such time, charities should consider using the decision to resolve any outstanding disputes with the CRA or proceedings before the courts.
Nicolas Simard is a Partner with Fasken's Tax group based in Montreal and may be reached at 514-397-5288 or at email@example.com.
Nicolas Simard est associé du groupe de fiscalité de Fasken à Montréal et peut être joint au 514-397-5288 ou à firstname.lastname@example.org.