Should a registered charity be permitted to engage in advocacy? What if that advocacy — letter-writing, advertising, contacting Members of Parliament — is the best way for the charity to achieve its charitable purpose and benefit the community?
On July 16, the Ontario Superior Court of Justice released the judgment of Justice Morgan in Canada Without Poverty v. AG Canada, which wrestled with this question.
Justice Morgan ultimately concluded that certain provisions of the Income Tax Act (Canada) are unconstitutional due to the limits they impose on a charity’s ability to engage in political activities. This article explains the historical context in which this case arose and then examines the court decision in some detail.
Traditionally, charity law has distinguished between conducting charitable activities and advocating for policy change—even when these activities are all intended to serve the same charitable purpose (e.g. relieving poverty).
Subsection 149.1(6.2) of the Income Tax Act specifically provides that non-partisan political advocacy is permissible, provided it only constitutes a small proportion of the total activities of a charity. This section requires a charity to devote “substantially all” of its resources to non-advocacy. In CRA Policy Statement CPS-022, the CRA states that it considers “substantially all” to mean “90% or more” of a charity’s activities. In other words, a charity could not devote more than 10% of its activities to advocacy.
How Did We Get Here?
In the 1985 Federal Budget, the federal government made changes to rules pertaining to political activities in the Income Tax Act. The amendments were intended to recognize that incidental advocacy activities that supported a charitable cause were an appropriate use of a charity’s resources. The Budget also asserted that partisan political activities — such as activities in support of a particular political party or candidate — were impermissible. These 1985 amendments were at issue in the Canada Without Poverty decision.
In the 2012 Budget, the federal government made numerous changes to charities rules in the Income Tax Act, in part over concerns that there should be additional compliance regarding political activities of charities.
The 2012 Budget changes and ensuing CRA audits led to a flurry of highly publicized interactions between charities and the federal government. The Toronto Star reported audits of charities focused on foreign aid, human rights and poverty. The CBC reported that Oxfam had a dispute with the CRA, in which the CRA apparently took the baffling position that the relief of poverty was acceptable, but preventing it was not. It appears the CRA’s reasoning was that one has to be allowed to fall into poverty before being lifted out. Predictably, these kinds of interactions created considerable political scrutiny.
In response to these criticisms, the head of the Charities Directorate at CRA indicated that the Directorate was attempting to ensure that it was not focusing audits on either side of the political spectrum, but rather was taking a balanced approach.
The Court Case
The Canada Without Poverty case appears to have its genesis in the charities audits that commenced in 2012. Specifically, in 2015, the CRA conducted a political activities audit of the Canada Without Poverty organization and concluded that virtually all of the activities were based in political engagement and public policy advocacy. Thus, the CRA took the position that Canada Without Poverty was offside of CRA’s interpretation of subsection 149.1(6.2) of the Income Tax Act requiring a charity to devote no more than 10% of its resources to political activities.
In the judgment, Justice Morgan noted this 90% percent rule stems from a CRA Policy Statement, rather than from the jurisprudence or the Income Tax Act itself. Other case law has established that the Tax Court of Canada may accept lower thresholds for what constitutes “substantially all,” such as 80 per cent (see Louiseville Automobile Lte´e c. R., 2010 TCC 505).
The CRA objected to Canada Without Poverty’s campaign entitled “Dignity For All: The Campaign for a Poverty-Free Canada”. The CRA noted that the campaign “features a call for vigorous and sustained action by the federal government to combat the structural causes of poverty in Canada” (cited at para 40). Justice Morgan, however, concluded that this “activity is, of course, squarely within the charitable purpose of relief of poverty” (para 41).
In finding for the charity, Justice Morgan made repeated reference to the 2017 Report of the Consultation Panel on the Political Activities of Charities, assembled by the Minister of National Revenue. This Consultation Report addressed the political activities of charities in Canada. It recognized that charities have an important role in public policy dialogue and could be seen as “an essential part of the democratic process” (cited at para 25). The 2017 Consultation Report also recommended amendments to the Income Tax Act which would delete any reference to non-partisan political activities, thereby allowing charities to fully engage in non-partisan public policy in order to further their charitable purposes (para 26). Justice Morgan was concerned that the CRA’s interpretation of subsection 149.1(6.2) restricts “virtually all aspects of the Applicant’s communications to the public regarding law reform or policy change” (para 23). Moreover, Canada Without Poverty led evidence that it was dependent on charity status for its financial viability (para 32), while the Attorney General appears to have filed no evidence to undermine that assertion (para 43).
The Declaration of Unconstitutionality
It is rare for a section of the Income Tax Act to be held unconstitutional. Yet, Justice Morgan held that subsection 149.1(6.2) of the Income Tax Act violates the freedom of expression guaranteed by paragraph 2(b) the Canadian Charter of Rights and Freedoms and is not saved by section 1, which imposes reasonable limits on rights as prescribed by law.
Justice Morgan further ordered that the phrase “charitable activities” used in subsection 149.1(6.2) be read to include political activities without quantum limitation (para 71). He also made a declaration that paragraphs 149.1(6.2)(a) and (b) are of no force and effect pursuant to section 52 of the Charter. Finally, Justice Morgan concluded that the exclusion from charitable activities of partisan political activities found in paragraph 149.1(6.2)(c) remains in force and is not contrary to the Charter.
Political Activity in Support of What Purposes?
As Donald Bourgeois has noted in The Law of Charitable and Not-For-Profit Organizations, the parameters of “the box of acceptable engagement in public policy” has been unclear. The Canada Without Poverty decision is of particular importance as it suggests that broader political engagement may now be permissible for registered charities.
One of the driving forces behind this decision seems to have been the broad acceptance for the charitable purpose at issue: the relief of poverty. Justice Morgan expressed no doubts that this was a charitable purpose beneficial to the community. Justice Morgan’s decision was bolstered by reliance on the 1995 UN Copenhagen Declaration and Programme of Action, as well as a more recent standing committee report from the House of Commons and the above-mentioned 2017 CRA Consultation Report on political activities of charities.
It will be interesting to see how this judgment is applied to other fact scenarios, in which the alleged charitable purpose and benefits to the public are more contested.
The courts have in fact addressed such issues in the past. In 1998, the Federal Court of Appeal in Human Life International In Canada Inc. v. Minister of National Revenue, rejected a similar argument advanced by a pro-life charity that had engaged in political advocacy.
The Court concluded that the promulgation of pro-life views was not necessarily a purpose beneficial to the community, and that this was not an appropriate decision for a court to make:
Any determination by this Court as to whether the propagation of such views is beneficial to the community and thus worthy of temporal support through tax exemption would be essentially a political determination and is not appropriate for a court to make.
Here, we see the contrast between the two decisions and the difficult tax policy issues that underlie such disputes. Which views should be subsidized and which should not? It will be interesting to see if and how political activities in support of more controversial purposes are upheld by the courts and Parliament.
The federal government filed notice of appeal on August 15, 2018. In a related press release, the government citing the need to address uncertainty created by “significant errors of law” in the decision of Justice Morgan. Notwithstanding the appeal, Minister of Finance, Bill Morneau, and Minister of National Revenue, Diane Lebouthillier, reaffirmed the federal government’s intention to amend Income Tax Act to allow for non-partisan political activities, in line with the 2017 Consultation Report. Those changes are expected in fall 2018.
This article first appeared in Taxes and Wealth Management Newsletter (Issue 11-3, October 2018). © 2018 Thomson Reuters Canada Limited. Reproduced with permission.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.