CRA welcomes the Panel Report on the public consultations on charities and political activities

May 22, 2017 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: News, What's New from the Charities Directorate of CRA, Canadian Charity Law, Ethics and Canadian Charities

In a press release entitled "Minister Lebouthillier welcomes the Panel Report on the public consultations on charities and political activities" CRA noted the receipt of a report on charities and political activities.  That report was reflective of the vast majority of the "nearly 20,000" submissions received as part of the consultation.   

Here are some thoughts on the press release:

1) The report was received by the government around March 31, 2017.  It took them about 5 weeks to publicly release the report and put out a 1 page press release!  I might think that this is strange but I am sure that some in government will assure me that this is quick for a large organization.  On the other hand a press release that can garner so much unquestioning positive feedback without actually doing anything is a testament to the importance of public relations professionals and press releases!  

2) There are confidentiality provisions of the Income Tax Act (Canada) which prohibit CRA from releasing certain information including the names of charities under investigation or which charities have received a notice of intention to revoke.  In light of the confidentiality provisions I think that CRA has to be even more careful in its press releases about giving the wrong impression or providing selective information because the public unfortunately has limited tools to be able to verify that information.  We have called for greater transparency especially when there are allegations that a charity has been involved in significant non-compliance.  Here is an example of a recent submission to Finance.  

3) Perhaps the most interesting paragraph in the press release is as follows:

As an immediate first step to respond to the Panel’s recommendations, Minister Lebouthillier has asked the CRA to suspend all action in relation to the remaining audits and objections that were part of the Political Activities Audit Program, initiated in 2012. 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.

First a little bit of background.  The Political Activities Audit Program from 2012, a Harper overreaction foisted on the CRA, was initially funded to conduct audits on 60 charities over a number of years. The CRA in fact started 52 audits over a 3 year period. This is what is known as the Political Activities Audit Program.  What is not discussed in the press release is that during the last 4 or so years there have been approximately 3200 other audits initiated by the CRA but they are not under the Political Activities Audit Program.  They relate to all facets of compliance and non-compliance.  If one were to guess that 2% of regular audits might have to deal with political activity type issues then there would be 64 audits that include political activities from the last few years that are not part of the Political Activities Audit Program.  The Ministers statement only relates to the Political Activities Audit Program and not the other CRA audits that deal with political activities.

I asked the Minister's office on May 5, 2017 for a couple clarifications on how many charities are affected by this "suspension" and how many charities are being proposed to be revoked.  I received a response on the same day:

"Only 12 of the original 54 audits are impacted by the suspension. This includes the 5 open audits and the 7 files under objection." [my emphasis]

Perhaps it would have been better to mention in the press release that this "suspension" affects 12 charities.

There are two ways of viewing the paragraph in the Minister's press release.  

First, is to view the press release in a literal sense as a "suspension will be in effect until the government officially responds to the Panel’s report."  Such response is expected in June or about 4-6 weeks after the press release.  Therefore the suspension is for 4-6 weeks. In other words this paragraph is saying from CRA's boss to CRA wait about 1-2 months, until around late June, when CRA will properly respond before moving forward with any further actions.  As these processes often take 5 years, a couple months is not that important, but it does sound impressive in a press release.  

It is possible that the Charities Directorate will get instructions to review the revocations for any changes that the government makes to political activities.  So let us say the government decides that charities can do 49% political activities then the government will suggest to CRA to review the cases currently under audit/objection and see if this has any impact on the audits.  Let us say a large charity did 15% political activities rather than the 10% allowed.  Then perhaps CRA should change its approach to that charity in light of the new rules.  

However, here is the clincher.  As CRA has already previously announced In January 2016 "To date, of the 30 completed political activities audits, only 5 resulted in a determination to revoke registration, all of which were primarily based on factors that were beyond their involvement in political activities."   So even if the Liberals abolished all the rules on political activities (which is not likely), still many if not all of these organizations would still be revoked "primarily based on factors that were beyond their involvement in political activities".  

Second, and probably the more common view, is to view the press release as indicating that the CRA is backing off the audits and letting the 5 (now 7) charities that were proposed for revocation continue as charities.  Some progressives may view this as positive and others will view this as negative as it is directly opposed to the strong Liberal opinion expressed when they were in opposition (and also while in government) that political bosses should not determine who is audited and revoked by CRA.  To quote the Minister on January 20, 2016 “The independence of the Charity Directorate's oversight role for charities is a fundamental principle that must be protected. The Minister of National Revenue does not and will not play a role in the selection of charity audits or in the decisions relating to the outcomes of those audits.”  

The Minister could argue that she is not breaching this fundamental principle.  She is not selecting charities for audit and not making a decision as to the final outcome of those audits.  However, the Minister's office did not take that tack.  Here is a response on May 8, 2017 from her press secretary to myself:  "What prompted the Minister to reverse course regarding the audits, seemingly contrary her January 2016 comments?‎ Over the past year, the Minister had the opportunity to engage with the charitable sector and hear directly from them on a number of issues. Moving forward she is committed to working collaboratively with the sector to recognize their important contribution to the public debate while ensuring they are treated fairly."  That is not much of a response to what the Minister had described as a fundamental principle but perhaps we will hear more about this.  

4) For the conspiracy theorists it is interesting that CRA released this press release on the same day that President Trump in the US according to the NYT "signed an executive order Thursday aimed at weakening the enforcement of a law that bars churches and tax-exempt groups from endorsing political candidates."  Here is another NYT article Trump’s Order on Religious Liberty Pleases a Few, but Lets Down Many Conservatives which goes into greater detail.

The CRA Panel report does not call for partisan activities to be allowed but it does call for a number of recommendations which will expand the ability charities to carry on political activities to such an extent that I am concerned that the public confidence in the charity sector will be eroded over time.  I think that charities should do more political activities - but such non-partisan political activities should only be a small part any charity's work and the charity should be more importantly doing lots of charitable activities.  These changes will be used by 50-100 'charities' who are already conducting lots of political activities to justify doing even more.  It may also turn many other charities off being engaged in allowable political activities altogether.  

On the bright side certainly if the government were to accept those recommendations then every progressive in Canada would have to stop arguing that certain right wing think tanks such as the Fraser Institute are breaking the rules - because then they will be operating within the rules in terms of political activities!  Ah the irony of progressive organizations doing the bidding of the Fraser Institute and a host of lesser known but well funded conservative think tanks.  

Since 2012 the whole political activity issue has been a giant smelly red herring wrapped around the charity sector milked by the Conservatives, a small number of registered charities (some of whom are not really 'charities') and now the Liberals are continuing to milk it.  

It is a giant diversion from many many real issues within the charity sector.  99% plus of charities can conduct far more political activities under the current rules than they do.  About 50 -100 charities are probably truly constrained by these rules and that accounts for about 1/10 of 1 percent of charities.   Unfortunately we have weak and confused sector organizations who are either silent or going along with the party created by the press release.   

While I believe that many charities should be doing more political activities I am not so naive as to think that the political activities of charities are going to be the main selling feature of the charity sector in the public's mind.  It is the charitable activities of the charity sector that are really the source of the legitimacy and public trust in the sector.   Focusing for 6 years (and it is not over) on the role of charities and political activities as a central feature of the discussion of charities will in the long reduce public trust in the sector, and make fundraising harder.

Some will argue that the Liberals are allowing charities to do more political activities because they think that the charity sector is progressive and will support the agenda of the Liberals. This is similar to Trump wanting to allow US churches to do more political activities because it appears that he believes that many of them will support him.  If true this is short-sighted. 

An even more cynical perspective is that the more that charities are empowered to be involved in political activities and the more that the public trust of charities is reduced (perhaps to levels similar to political parties) the easier it is for the Liberals to cut tax incentives for donations to charities even further or to discredit charities that oppose their policies.  The Liberals have already canceled two major tax breaks for donating to charity, namely, related to donations to charities after the sale of private company shares and real estate.  

If the Liberals were to cut the tax incentives for donations they would get a lot a positive support from columnists like Andrew Coyne of the National Post who has written two articles on the subject. His argument is less about taking away the charitable incentive but more that if all non-partisan political activities is now viewed as being charitable then that type of "charity" and the charitable sector as a whole sector should not receive these significant tax incentives.  His recent article is Take the politics out of charity? Far better to just cancel the tax break.  An earlier and more detailed article is Problem with charities isn't their politics, it's their generous tax credit.  

The key thing to look at over the next year is less about whether the Liberals loosen the rules on political activities but more about whether public trust in the sector is reduced and whether tax incentives for donations to charities are reduced as the Liberals need to pay for important social programs and they may share the NDP concern that really tax incentives for donations do more to help the wealthy than regular Canadians.

I have highlighted a piece by David Callahan entitled “Second Thoughts: Why I Changed My Mind About Philanthropy and Public Policy” which highlights some of the dangers of having US charities too involved in US political activities.  I would hope that Canada can learn from the lessons of the US that having politics and the culture wars flood the charity sector is not good for democracy.   

  

Here is the text of the release:

Minister Lebouthillier welcomes the Panel Report on the public consultations on charities and political activities
News Release

From Canada Revenue Agency

May 4, 2017 Ottawa, Ontario Canada Revenue Agency

Charities play a key role in Canadian society and provide valuable services to Canadians. The Government of Canada recognizes the vast experience they bring to public debate and to the formulation of public policy. In response to the needs of this sector, our Government has committed to clarifying the rules that govern the participation of charities in political activities.

As part of this commitment, in late 2016, the Government held extensive online and in-person consultations with the public and the charitable sector. A Consultation Panel, composed of five experts in the charitable sector reviewed the consultation feedback and presented its Report to the Minister of National Revenue at the end of March 2017.

As an immediate first step to respond to the Panel’s recommendations, Minister Lebouthillier has asked the CRA to suspend all action in relation to the remaining audits and objections that were part of the Political Activities Audit Program, initiated in 2012. 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.

Minister Lebouthillier welcomed the Report and thanked the Consultation Panel for their work and their suggested changes to the Canada Revenue Agency’s (CRA) administration of the regulations under the existing legislation. The Report also contains suggestions for changes to the Income Tax Act. Accordingly, Minister Lebouthillier has shared the report with her colleague, the Minister of Finance.The Government is carefully reviewing the Panel’s report to help inform its regulation of charities going forward.

Recommendations brought forward through the consultation process and by the Panel will help the Government of Canada better understand the challenges faced by, and the needs of, the charitable sector when contributing to public policy debate.

Quotes

"The Panel Report represents a significant milestone in the consultation process we began last year and I thank the Panel for its work. The Government remains committed to clarifying the involvement of the charitable sector in public policy dialogue and development."

The Honourable Diane Lebouthillier, Minister of National Revenue

Quick Facts

The CRA held its online consultation on Clarifying the rules governing charities’ political activities from September 27 to December 14, 2016.

The in-person consultations with representatives from the charitable sector took place in Winnipeg, Calgary, Vancouver, Montreal, Halifax, Toronto, and Ottawa between November 29 and December 13, 2016.

The Consultation Panel received nearly 20,000 submissions.

The members of the Consultation Panel were Marlene Deboisbriand (Chair), Shari Austin, Susan Manwaring, Kevin McCort and Peter Robinson.

Of the approximately 86,000 registered charities in Canada, about 550 report carrying out political activities on their annual information return to the CRA.

Do you require legal advice with respect to Canadian or Ontario non-profits or charities?

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Charity Lawyer Mark Blumberg

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.

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