Topics: News, What's New from the Charities Directorate of CRA, Canadian Charity Law, Ethics and Canadian Charities
We have blogged about the CRA Program Update 2015 separately but wanted to focus here on what the update provides in terms of information on the political activity audits of CRA's Charities Directorate. CRA should be commended for publishing a program update. I am certainly not aware of any regulatory requirement that they need to, but the program update does provide useful information for the charity sector. In the program update you have to read pretty far into the 5000 word document to see the "Charities and Political Activities" update but it is important so we have created a separate blog post.
The summary is:
"As of March 31, 2015, we completed 21 audits, 28 were underway, and another 11 will be started before the end of the project. The audits completed to date have resulted in six education letters, eight compliance agreements, five notices of intention to revoke, one voluntary revocation, and one annulment."
The highlight of this is that 5 notices of intention to revoke have been issued. CRA does caution that the issuance of the notice of intention to revoke does not mean that the charity will ultimately lose its charitable status.
"A notice of intention to revoke does not always result in a revocation. For example, if a charity disagrees with a notice of intention to revoke, it may file an objection with the CRA’s Appeals Branch. The outcome of this objection may be appealed to the Federal Court of Appeal."
Some of these appeals could take many months or even years. I was expecting 2-3 revocations, so 5 is higher than I expected. On the other hand, a good part of CRA's determination as to whether a group is revoked relates to the extent that the charity is indicating it is prepared to be compliant with the legal requirements of the Income Tax Act. From some of the statements I have seen from a small number of charities, there is no acceptance that they should operate within the rules and they view it as either a free speech issue, a constitutional powers issue or the 'end justifies the means' type of argument.
With respect to the six education letters that were issued –there may have been some concerns raised by CRA, however the group was willing to make changes so they were issued an education letter. With respect to the eight charities that received compliance agreements, it is likely that these charities were found to have significant non-compliance issues but were willing and agreeing to make changes to keep their charitable status.
CRA notes that:
“In addition to our regular audit program that does about 800 audits per year, we are doing about 15 political activity audits per year, for a total of 60 over the four-year period covered by the review.”
This provides a little context. When reading or listening to the media right now, it would appear that the only charity audits CRA is conducting are on political activities. In fact, political activity audits are a small number compared to the larger number of audits being conducted on charities' books and records, inaccurate T3010 filings, receipting problems, and lack of direction and control for foreign activities.
In terms of transparency and the new Schedule 7 on the T3010 dealing with political activities, CRA notes:
· 485 charities responded yes to line 2400, indicating they engaged in political activities.
· Some charities are not filling out the annual return correctly. For example, on line 2400 they indicated that their charity did not carry out any political activities. However, on line 5030 they gave us an amount in dollars that was spent on political activities.
· Seven charities reported an amount on line 5032, indicating they had received funds from outside of Canada intended for political activities.
· Charities now identify the way they carry out political activities. The most frequently reported, in descending order, are:
1. Internet, including website, and social media (Twitter, YouTube)
2. Media releases and advertisements
3. Conferences, workshops, speeches, or lectures
4. Publications (printed or electronic)
5. Letter-writing campaigns (printed or electronic)
6. Rallies, demonstrations, or public meetings
7. Petitions and boycotts (calls to action)
8. Other (such as, meeting with ministries and preaching)
9. Gifts to qualified donees for political activities”
What we can learn from these figures, is that despite a lot of yelping by some individuals who know little about the charitable sector, there were not many charities receiving funds from abroad for political activities. Also, the CRA results seem to confirm that registered charities are slacktivists and most commonly using the internet and social media for political activities. It is important for charities to ensure that their internet and social media activities are handled by an adult who understands the difference between partisan activities, legitimate political activities related to the objects of the charity, and charitable activities. I admit that my advice in the past that every charity should have a 13 year old to help with technology transformation and the use of social media might not have been the best idea when it comes to political activities. I will now be more specific – have a 13 year old help you with social media, but don’t let them select the content!
"Some charities are not filling out the annual return correctly. For example, on line 2400 they indicated that their charity did not carry out any political activities. However, on line 5030 they gave us an amount in dollars that was spent on political activities."
Yes that is true and obviously many of these errors in the annual return are honest mistakes. Just as often I see charities ticking off that they do political activities and then complete the Schedule 7 and say they do no political activities or that it is not applicable. Also, some organizations don't tick off political activities but provide detailed information on the political activities that they are involved with! The biggest and most troubling mistake of course is charities who are doing significant political activities but insist that they are not. I deal with that issue in this article How accurate are the T3010 charity returns when it comes to political activities?
In the discussion around the audit screening process there were a number of interesting points. CRA clarified that the political audits did not all result from emails from PMSH or Ezra Levant/Ethical Oil. Ok that is my commentary. Apparently, the process was more complicated than some would have us believe and included:
researching and analyzing:
- Form T3010 returns
- complaints and concerns from the public about the political activities of registered charities
- referrals from other divisions of the Charities Directorate
- files transferred from within the Directorate’s Compliance Division
- related files found during an audit
- charities identified through the media or other publically available sources
- charities identified at registration as engaging in political activities.
The CRA seems to be sending out a larger number of reminder letters.
"In 2014, we sent out 26 reminder letters (including 23 for political activities – see Audit screening process for more information)."
Some people say this increases the “chill” but let me assure you that when a charity has made a mistake relating to political activities, and that is very common, it is far better to receive a letter from CRA with reminders about the basic rules rather than a full scale audit with all the attendant anxiety and costs in terms of time and dollars.
Most importantly CRA notes:
"We have completed the screening process and identified all of the charities that will be audited as part of this political activities review."
So if your charity has not yet been identified as being part of the political activities review, then it is safe to say you will not be audited as part of this project. So if your organization experienced the 'chill' and it was not just because of the brutally cold Canadian winter, then stop complaining and start carrying out appropriate political activities. Yes, charities can spend up to 10% of their resources on non-partisan political activities that are connected with their objects. While not all charities should be involved in political activities – many should. Here is a video of a presentation that I delivered to the Maytree Foundation on the why it is important for charities to be involved in political activities. It is fair to say that the involvement of charities in political activities is important for maintaining a healthy democracy. Then what does one say of the 99.5% of charities that say on their T3010 that they do not carry on any political activities? And please don’t blame it all on PMSH or CRA – 5 years ago before all the pipeline discussions and concern with “radical environmentalists”, the same number of charities were carrying on political activities. By the way I recently had a meeting with very “radical environmentalists”, who I might add like to be very radical and they are not a charity, and let me assure you they are far more fun than “stodgy conservatives”!
“Our work to increase the transparency and monitoring of charities that engage in political activities has attracted much attention in the media. We will continue our long tradition of meaningful consultation and engagement with registered charities on all issues, including this one. We will carry out our responsibilities in a professional, non-partisan manner, sharing as much information as we can to help you understand what we are doing, and why.”
Obviously the first sentence is an understatement. I agree with the second sentence in that the Charities Directorate is one of the few Federal government departments that does have meaningful consultations. In terms of the third sentence, I agree that CRA is professional and I agree that they are sharing as much information as they can. However, fundamentally S. 241 of the Income Tax Act (Canada) really restricts the ability of CRA to disclose any information on charities except their T3010s, their governing documents, notification of registration and letters sent to the charity explaining why they have been revoked, but only after the revocation takes effect. Therefore, CRA cannot provide a list of charities they have screened and charities that they have audited. CRA cannot provide letters to the charity indicating what the concerns are with the conduct of the charity as the revocation has not taken place yet. CRA cannot confirm or deny whether a particular charity is being audited. In a heightened political environment it is not unreasonable for people to want to see a list of all of the charities being audited for political activities to determine whether CRA is acting in a non-partisan way. As long as Finance does not change s.241 to allow CRA greater ability to disclose important information on the charity sector there will be a large number of people wondering “what we are doing, and why.”
CRA provides a summary of the results of the audits:
Audit findings – political activities
Many of the audits are ongoing. However, the audits we have completed reveal instances of charities:
· failing to maintain reasonable and consistent tracking and reporting of resources (financial expenditures, salaried time, capital assets, volunteer time, and donated resources) devoted to political activities
· engaging in prohibited partisan political activities, which are activities that directly or indirectly support or oppose a political party or candidate for public office
· engaging in non-partisan political activities that are more than ancillary and incidental to the organization’s charitable purpose
The audits have shown that many charities do not know what is meant by indirect support of, or opposition to, a political party or candidate. When a charity praises or criticizes the performance of an elected representative, it may be seen as indirectly supporting or opposing the representative’s political party.
Examples of normally prohibited partisan activities include:
· making public statements (oral or written) that endorse or denounce a candidate or political party
· making resources available for the use of a candidate or political party
· publishing or otherwise disclosing the voting record of selected candidates or political parties on an issue
· distributing literature or voter guides that promote or oppose a candidate or political party explicitly or by implication
· explicitly connecting the charity’s position on an issue to the position taken on the same issue by a candidate or political party
· critiquing the performance of a candidate or political party (what they have or have not done)
CRA also notes that:
The 60 political activities audits include but are not limited to an examination of a charity’s political activities. As with all audits, we review a charity’s finances and any evidence that might indicate whether or not it is satisfying all of its legal obligations under the Act and is operating for charitable purposes.
The audits revealed several other serious non-compliance issues, beyond those related to political activities. These include:
· delivery of an undue benefit to a person involved with the charity
· lack of sufficient direction and control of the charity’s resources
· gifting to an organization that is not a qualified donee
The first rule of conducting political activities, especially if the activities relate to sensitive or controversial issues, is that you need to prepare for scrutiny from those who have different views, the media, government etc. While doing an informal audit of compliance issues is a good idea for any significant charity, it is a particularly good idea for charities that will be conducting controversial 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.