On May 4, 2017, the Honourable Diane Lebouthillier, Minister of National Revenue (the “Minister”), issued a news release announcing the Panel Report (the “Report”) released by the Consultation Panel on Charities and Political Activities (the “Consultation Panel”). The National Lead of our Social Impact Group, Susan Manwaring, was one of five experts selected nationally as a member of the Consultation Panel.
The Consultation Panel received more than 20,000 submissions regarding the rules surrounding political activities carried on by charities. Approximately 550 of 86,000 charities currently report political activities on their annual taxation returns to the Canadian Revenue Agency (“CRA”).
The Report provides four recommendations:
1. Revise the CRA’s administrative position and policy (including its policy guidance, CPS -022 Political Activities) to enable charities to fully engage in public policy dialogue and development.
This recommendation is to amend CRA policy to explicitly allow charities to engage in public policy dialogue and development in furtherance of the charity’s charitable purpose. The recommendation is to retain the prohibition on partisan political activities. It also includes a welcome recommendation to remove the requirement to quantify and track resources on political activities.
2. Implement changes to CRA’s administration of the Income Tax Act (Canada) (the “Act”) in the following areas: compliance and appeals, audits, and communication and collaboration to enhance clarity and consistency.
This recommendation outlines suggestions to implement clear administration policies with respect to communications during audits and appeals to avoid unnecessary confusion and uncertainty during audits. These recommendations would allow for increased understanding and collaboration between CRA and charities regarding the compliance and audit process.
3. Amend the Act by deleting any reference to non-partisan “political activities” to explicitly allow charities to fully engage, without limitation, in non-partisan public policy dialogue and development, provided that it is subordinate to and furthers their charitable purposes.
This recommendation supports the engagement of charities in non-partisan dialogue in furtherance of a charitable purpose. While the requirement that charities will operate exclusively for a charitable purpose and not for a political purpose will be retained, the Report recommends retiring the term “political activities” and providing a more clear meaning to “public policy dialogue and development.”
4. Modernize the legislative framework governing the charitable sector (the Act) to ensure a focus on charitable purposes rather than activities, and adopt an inclusive list of acceptable charitable purposes to reflect current social and environmental issues and approaches.
In modernizing the legislative framework, the laws surrounding the taxation of Canadian charities will shift their focus from activities to charitable purposes. It recommends providing a charity with the opportunity to appeal a refusal to register or revocation to the Tax Court of Canada, instead of the Federal Court of Appeal. Also welcome to the sector are the suggestions to consider removing the need for “direction and control” of non-qualified donees and accommodating the use of social enterprise and social finance models.
As a result of the Report, the Minister instructed CRA to suspend all audits and objections relating to the Political Activities Audit Program, initially implemented in 2012. The news release provided that:
The Report indicates that “numerous consultation submissions noted that this program has resulted in a pervasive “chill” on the public policy and advocacy activities of charities”. This suspension will be in effect until the government officially responds to the Panel’s report.
Overall, this is a positive report that will benefit the charitable sector to the extent it is adopted and implemented. Full details of the Report are provided here.