Topics: What's New from the Charities Directorate of CRA, Canadian Charity Law, Political Activities and Canadian charities
Here is an excerpt from a speech by Cathy Hawara, Director General of the Charities Directorate of the CRA on the issue of Canadian charities and political activities.
“Let me now turn to some of the highlights of Budget 2012 that relate to registered charities. As you know, the 2012 Budget proposes several measures related to compliance and transparency with respect to political activities carried on by registered charities and RCAAAs. Changes have also been introduced to the qualified donee provision for charitable organizations outside Canada to which Her Majesty in right of Canada has made a gift.
I should clarify at the outset that these are two separate, independent measures. We have seen some media reports that have mistakenly linked the two together – the implication being that foreign charities not operating within the “national interest of Canada”, would no longer be considered a qualified donee. I will speak to each of these changes and explain exactly what has been proposed.
First, for political activities, there is no change to the existing legislation setting out the allowable limits, which is generally 10% of resources for non-partisan political activities that further a charity’s purposes. However, a charity that funds another qualified donee for the purpose of enabling political activities would now be required to count that donation against its own 10% limit.
In addition, new intermediate sanctions will be introduced for violating the rules governing political activities and for failing to provide a complete and accurate information return. Currently, the only legislative sanction available to the Charities Directorate for dealing with non-compliance in the context of political activities is revocation. These new intermediate sanctions will give the Directorate an additional tool with which to encourage charities to comply with existing legal requirements. In the case of excessive political activity, in other words, devoting more than 10% of resources to political activity, or engaging in partisan political activity, which might involve supporting or opposing a candidate in an election, the sanction would be a 1-year suspension of receipting privileges. If a charity fails to provide a complete and accurate information return, its ability to issue official donation receipts could be suspended until the filing deficiency is corrected.
So those are the changes being proposed to the ITA itself.
Budget 2012 also proposes to increase transparency by requiring more information about political activities, including the extent to which funding from foreign sources is used to carry on political activities. In order to accomplish this task, we will be making changes to the Registered Charity Information Return (Form T3010).
• We currently ask whether the charity carried on any political activities during their fiscal period. If the answer is yes, we will now require the charity to complete a new political activities schedule.
• We already ask charities to disclose the total amounts received from foreign sources. Of that, we will now also ask the charity to enter the amount received from foreign sources for political activities.
• Next, the financial information sections of the Return (Section D for small charities and Schedule 6 for large charities), will also be slightly changed to include information about the total amount of gifts to qualified donees that were intended for political activities.
• The Qualified Donees Worksheet that is used to document gifts to QDs will also be amended to include information about gifts intended for political activities. For each such gift, charities will be required to identify the dollar amount, as well as provide a description of the political activity.
• The most significant change will be the introduction of a political activities schedule (though this might more accurately be referred to as a “re-introduction” since there was a political activities schedule in the 2002 version of the T3010 return). Three components to the schedule are contemplated:
o First, if the charity devoted resources (financial, human, or property) to political activities in the year, we will ask the charity to indicate the types of activities involved. We will also provide a list of examples for the charity to consider, including media ads, demonstrations, calls to action, social media campaigns, etc.
o In addition, we will ask the charity to explain the relationship between its political activities and its charitable purposes.
o Finally, if the charity received money from foreign sources specifically to carry on political activities, the charity will be asked to indicate:
? the amount it received;
? the nature of the political activity; and
? the country of origin of the donor (using the existing country codes contained in the Activities Outside Canada schedule)
If all goes according to plan, we hope to have the revised return available early in 2013. And that’s a quick overview of our current thinking on the T3010 changes related to increased reporting and transparency.
The Budget also announced that the Charities Directorate would be provided with additional resources to allow us to enhance our education and compliance activities in the area of political activities; I’d like to take a few moments to outline some of our plans in this area.
Let me first say that as the rules relating to political activity apply to all registered charities, our efforts in this regard will extend to the charitable sector as a whole. Secondly, our approach to increasing compliance in the sector has always focused on the entire compliance continuum. This includes education and outreach, monitoring, and then verification and audit activities. Our approach to the issue of political activities will be no different.
Some very preliminary thoughts on the issues at hand - in 2010, fewer than 500 charities reported having conducted any political activity in the year. Without having done a lot of analysis as yet, that number seems low to us. Does this mean that some charities may not understand the rules, or understand the difference between a charitable expenditure and an expenditure on political activities? That distinction can be a very fine one in some circumstances. I believe that we have an important role to play in providing charities with the information and tools that they need to understand the rules under which they must operate. That will be our focus in these early days.
We also want to take this opportunity to try different approaches to compliance, using a combination of individualized outreach and audits.
We’ll be looking to develop simple and practical self-assessment tools, to help charities better understand the rules relating to political activities. These could include a suite of examples, illustrating what is a political, as opposed to charitable, activity, as well as helpful information about how to calculate and report the expenditure. We will also ensure the content of our current program of charity information sessions and webinars is updated to include these tools. Information sessions devoted to the issue of political activity will also likely be organized, to ensure that charities have timely and ready access to the information and resources they need to comply with the rules.
We also plan on conducting more proactive monitoring of charities’ political activities and where we have concerns with what we are seeing, we will use some of our existing tools – for example, sending out an educational letter to remind charities about the rules relating to acceptable political activity.
We also intend to expand our use of restricted books and records audits. As some of you may know, we primarily use these restricted scope audits for educational purposes with newly registered charities. The objective is to make sure the charity is on the right track and has the information it needs. For the first time, we will use this approach for dealing with activities issues, specifically political activities.
These activity reviews could be initiated for a number of different reasons, including as a result of voluntary disclosures or of our own monitoring of charities. Our hope is that these reviews will accomplish a number of different objectives:
• Allow us to gather more information with respect to political activities in charities and what’s actually happening on the ground;
• Provide charities with an opportunity to better understand the rules and bring themselves into compliance with the Act.
As with other areas of our program, where there are serious concerns of non-compliance, full audits remain an important compliance tool. Where warranted, these reviews can evolve into more comprehensive audits. In the case of political activities, we would be looking at issues like partisan political activity or excessive expenditure of resources.
We are also very much aware of the attention the issue of political activity has garnered in the past few months and I can assure you that we intend to conduct ourselves with fairness, professionalism, and integrity.
For those who are interested in learning more about the rules relating to political activities and registered charities, I encourage you to view the webcast on political activities that is available on our Web site. I also encourage you to recommend the webcast to your clients.”
Here is the full text of Cathy Hawara’s comments on the CRA website:
Here is some recent material that I have posted on Canadian charities and political activities:
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.