Topics: What's New from the Charities Directorate of CRA, Canadian Charity Law, Political Activities and Canadian charities
The CRA recently released a question and answer document on the December 2018 political activity changes and the new guidance on public policy dialogue and development activities by charities. Here is the Q&A.
Here is the text of the CRA document:
Canada Revenue Agency
Public policy dialogue and development activities by charities
The following questions and answers provide a general overview of the changes to the rules governing the political activities of charities that were introduced in Bill C-86 on October 29, 2018 and received Royal Assent on December 13, 2018. They are not a substitute for the law.
For more information on the changes, please refer to the Canada Revenue Agency (CRA) guidance document CG-027 - Public policy dialogue and development activities by charities (Guidance). This document provides general information, including examples, on how the CRA will administer the changes.
Q1. What are the former rules governing a charity's political activities?
Under the former quantitative limits specified in the Income Tax Act, a charity could devote a limited portion of its resources (generally, about 10%) to non-partisan political activities that were ancillary and incidental to its charitable purposes.
The Income Tax Act also specified that if a charity made a gift to another qualified donee that was intended to support the political activities of the recipient, this gift was considered to be a political activity for the donor charity. In addition, expenditures made by a charity on political activities were not considered in determining whether it had satisfied its annual disbursement quota.
Q2. What are the changes to the rules governing the political activities of charities?
The rules governing the political activities of charities have been amended to remove the quantitative limits on the resources a charitable organization or charitable foundation can devote to political activities that do not directly or indirectly support or oppose a political party or candidate for public office.* Similar amendments were made to the rules governing Canadian amateur athletic associations.
The definition of “charitable organization” in the Income Tax Act was also amended to clarify that, as is similarly required of a charitable foundation, a charitable organization must be constituted and operated exclusively for charitable purposes.
Furthermore, the Income Tax Act was amended to specify that charitable activities include public policy dialogue and development activities that further a charitable purpose, and to ensure that public policy dialogue and development activities carried on by a charity in support of its stated charitable purposes are considered to be in furtherance of those purposes and not in furtherance of any other purposes.
As a result of these changes, charities may now pursue their stated charitable purposes by carrying on unlimited public policy dialogue and development activities in furtherance of those purposes. For an explanation of the meaning of “public policy dialogue and development activities,” see Question 3.
*Note that the rules prohibiting charitable organizations, charitable foundations and Canadian amateur athletic associations from devoting any part of their resources to the direct or indirect support of or opposition to a political party or candidate for public office remain in effect.
Q3. What is the difference between public policy dialogue and development activities, and direct or indirect support of or opposition to a political party or candidate for public office?
Public policy dialogue and development activities generally involve seeking to influence the laws, policies or decisions of a government, whether in Canada or a foreign country.
A charity cannot, however, devote resources to the direct or indirect support of, or opposition to, any political party or candidate for public office. A charity is explicitly prohibited from such activities both under the previous and new rules.
For more information on these topics go to the Guidance under Public policy dialogue and development activities and Meaning of direct and indirect support or opposition.
Q4. Are there any other changes to the Income Tax Act?
The definition of “political activity” and all references to that definition have been removed from the Income Tax Act. Specifically:
• The rule that provides that the definition of “charitable purposes” includes the disbursement of funds to a qualified donee has been amended to remove the exclusion for disbursements that are gifts made to the qualified donee as a “political activity."
• The rules that exclude certain amounts from counting towards a registered charity’s annual disbursement quota have been amended to remove the exclusions for expenditures on “political activities” (in other words, expenditures on public policy dialogue and development activities that are carried on in furtherance of the charity’s charitable purposes will now be included in determining if it has satisfied its annual disbursement quota).
• The rules that provide that a charitable organization is considered to be devoting its resources to charitable activities carried on by it when it makes certain disbursements have been amended to remove exceptions for amounts disbursed by way of gift if the disbursement is made as a “political activity.”
• The rule that allowed the Minister of National Revenue to suspend the tax-receipting privileges of registered charities and registered Canadian amateur athletic associations if they devote resources to “political activities” in excess of the former quantitative limits has been replaced with a new rule. That new rule allows the Minister to suspend their tax-receipting privileges when they devote any part of their resources to the direct or indirect support of, or opposition to, any political party or candidate for public office.
Q5. Under the changes, can a charity carry on unlimited public policy dialogue and development activities?
As long as a charity’s public policy dialogue and development activities are carried on in furtherance of its stated charitable purposes, the Income Tax Act places no limits on the amount of such activities that a charity can engage in. In this context, a charity may devote up to 100% of its total resources to public policy dialogue and development activities that further its stated charitable purposes.
A registered charity must be able to show that any public policy dialogue and development activities it carries on further a stated purpose that meets the criteria established by the courts to be considered charitable.
For more information on the criteria go to the Guidance under Annex A - Categories of charity.
Q6. Will the changes affect the remaining audits and objections that were part of the Political Activities Audit Program, initiated in 2012 and that are currently suspended?
Yes, as the changes apply retroactively to organizations, corporations and trusts that were registered charities, or associations that were registered Canadian amateur athletic associations, on September 14, 2018, they will apply to the audits and objections that are currently suspended.
Q7. Where can I get more information on the changes?
The CRA provides the latest information on the changes on Canada.ca. Taxpayers should check online regularly for updated forms, policies, guidelines, questions and answers, and guidance.
For details on the legislative proposals, taxpayers can consult the Department of Finance Canada website.
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.