Finance Legislative Proposals Notice of Ways and Means related to charities and political activities

October 28, 2018 | 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

On October 25, 2018 the Department of Finance posted Legislative Proposals Notice of Ways and Means Motions and Explanatory Notes which among other things change the rules for Canadian charities carrying out political activities.

Essentially the Income Tax Act is amended to deem that "charitable activities includes public policy dialogue and development activities carried on in furtherance of a charitable purpose;" and that "public policy dialogue and development activities carried on by an organization, corporation or trust in support of its stated purposes shall be considered to be carried on in furtherance of those purposes and not for any other purpose."  This is a major change and CRA has therefore withdrawn guidance provided only a few weeks before.   We will be writing more about this development. 

Here is the text of the Explanatory Notes:

Clause 17 Qualified Donees

ITA 149.1

Section 149.1 of the Act provides the rules that must be met for charities to obtain and keep registered status. A registered charity is exempt from tax on taxable income and can issue receipts which entitle donors to claim tax relief in respect of their donations to the registered charity.

Definitions

ITA 149.1(1)

Subsection 149.1(1) of the Act contains definitions that are relevant for the purposes of sections 149.1 and 149.2 and Part V of the Act. Certain definitions are amended or repealed for clarification purposes or as consequential amendments.

"charitable activities"

The new definition "charitable activities" provides that charitable activities include, without limitation, public policy dialogue and development activities carried on in furtherance of a charitable purpose. 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. Under this definition, such activities will be considered charitable activities provided they are carried on in furtherance of a charitable purpose (e.g., the relief of poverty or the advancement of education). An organization could therefore, for example, meet the test in new paragraph (a.1) of the definition "charitable organization" where some or all of its activities are public policy dialogue and development activities carried on in furtherance of a charitable purpose.

The new definition is deemed to have come into force on January 1, 2008 in respect of organizations, corporations and trusts that were registered charities on September 14, 2018. In any other case, the new definition is deemed to have come into force on September 14, 2018.

"charitable organization"

The definition "charitable organization" sets out the conditions that must be met for an organization to be a charitable organization. The definition is amended to clarify that a charitable organization must be constituted and operated exclusively for charitable purposes.

This amendment is deemed to have come into force on January 1, 2008 in respect of organizations that were registered charities on September 14, 2018. In any other case, the amendment is deemed to have come into force on September 14, 2018.

"charitable purposes"

The definition "charitable purposes" provides that charitable purposes include the disbursement of funds to qualified donees, other than a gift the making of which is a political activity. Consequential on the amendments to subsections 149.1(6.1) and (6.2), the definition "charitable purposes" is amended to remove the exclusion of gifts the making of which is a political activity.

As a result of the amendment to the definition "charitable organization", the definition "charitable purposes" will be relevant to the determination of whether an organization is a charitable organization.

"political activity"

The definition "political activity" is repealed consequential on the amendments to subsections 149.1(6.1) and (6.2). 

The amendment to the definition "charitable purposes" and the repeal of the definition "political activity" are deemed to have come into force on June 29, 2012 in respect of organizations, corporations and trusts that were registered charities on September 14, 2018 and in respect of associations that were registered Canadian amateur athletic associations on September 14, 2018. In any other case, the amendments are deemed to have come into force on September 14, 2018.

Exclusions

ITA 149.1(1.1)

Subsection 149.1(1.1) of the Act excludes certain amounts from being included in determining if a registered charity has satisfied its annual disbursement quota. 

The preamble to subsection 149.1(1.1) is amended to correct a reference not previously updated. The existing incorrect reference to paragraph 149.1(21)(a) of the Act is corrected by changing that reference to subsection 149.1(21) of the Act.

This amendment comes into force on Royal Assent.

Paragraph 149.1(1.1)(b) of the Act is repealed consequential on the amendments to subsections 149.1(6.1) and (6.2).

This amendment is deemed to have come into force on January 1, 2008 in respect of organizations, corporations and trusts that were registered charities on September 14, 2018. In any other case, the amendment is deemed to have come into force on September 14, 2018.

Devoting resources to charitable activity

ITA 149.1(6)

The definition "charitable organization" in subsection 149.1(1) of the Act requires an organization to devote all its resources to charitable activities carried on by the organization itself. Subsection 149.1(6) of the Act provides that, under certain circumstances, when a charitable organization makes a disbursement to a qualified donee, the charitable organization will be considered to be devoting resources to charitable activities carried on by it.

Consequential on the amendments to subsections 149.1(6.1) and (6.2), paragraphs 149.1(6)(b) and (c) of the Act are amended to remove references to income disbursed by way of a gift the making of which is a political activity.

These amendments are deemed to have come into force on June 29, 2012 in respect of organizations that were registered charities on September 14, 2018. In any other case, the amendments are deemed to have come into force on September 14, 2018.

Charitable purposes

ITA149.1(6.1)

The Act requires a charitable foundation to be constituted and operated exclusively for charitable purposes. Subsection 149.1(6.1) of the Act provides that a charitable foundation may use its resources, within defined limits, for ancillary and incidental political activities in support of its charitable purposes, as long as those activities do not involve the direct or indirect support of, or opposition to, a political party or candidate for public office. 

Subsection 149.1(6.1) is amended to remove the reference in the provision to non-partisan political activities and to the "substantially all" condition in relation to the resources a charitable foundation may devote to political activities in furtherance of its charitable purposes. The effect of this amendment is to remove the existing limits on the extent to which a charitable foundation can engage in non-partisan political activities. Where a charitable foundation carries on public policy dialogue and development activities, subsection 149.1(10.1) and the definition "charitable activities" in subsection 149.1(1) also apply. The prohibition against a charitable foundation devoting resources to the direct or indirect support of, or opposition to, any political party or candidate for public office is maintained.

This amendment is deemed to have come into force on January 1, 2008, in respect of corporations and trusts that were registered charities on September 14, 2018. In any other case, the amendment is deemed to have come into force on September 14, 2018.

Charitable purposes

ITA 149.1(6.2)

Subsection 149.1(6.2) of the Act provides that a charitable organization may use its resources, within defined limits, for ancillary and incidental political activities in support of its charitable purposes, as long as those activities do not involve the direct or indirect support of, or opposition to, a political party or candidate for public office.

Subsection 149.1(6.2) is amended to remove the reference in the provision to non-partisan political activities and to the "substantially all" condition in relation to the resources a charitable organization may devote to political activities in furtherance of its charitable purposes. The effect of this amendment is to remove the existing limits on the extent to which a charitable foundation can engage in non-partisan political activities.  Where a charitable organization carries on public policy dialogue and development activities, subsection 149.1(10.1) and the definition "charitable activities" in subsection 149.1(1) also apply. The prohibition against a charitable organization devoting resources to the direct or indirect support of, or opposition to, any political party or candidate for public office is maintained.

This amendment is deemed to have come into force on January 1, 2008, in respect of organizations that were registered charities on September 14, 2018. In any other case, the amendment is deemed to have come into force on September 14, 2018.

Activities of Canadian amateur athletic associations

ITA 149.1(6.201)

A Canadian amateur athletic association has the promotion of amateur athletics in Canada on a nation-wide basis as its exclusive purpose and exclusive function and is required to devote all its resources to that purpose and function. Subsection 149.1(6.201) of the Act provides that a Canadian amateur athletic association may engage in non-partisan political activities, within defined limits, that are ancillary and incidental to its promotion of amateur athletics in Canada on a nationwide basis.

Subsection 149.1(6.201) is amended to remove the reference in the provision to non-partisan political activities while maintaining the prohibition on a Canadian amateur athletic association devoting resources to the direct or indirect support of, or opposition to, any political party or to a candidate for public office.

This amendment is deemed to have come into force on January 1, 2012 in respect of Canadian amateur athletic associations that were registered on September 14, 2018. In any other case, the amendment is deemed to have come into force on September 14, 2018.

Deemed charitable activity

ITA 149.1(10)

The definition "charitable organization" in subsection 149.1(1) of the Act requires an organization to devote all its resources to charitable activities carried on by the organization itself. Subsection 149.1(10) of the Act provides that when a charitable organization pays an amount that is not out of the organization's income to a qualified donee, the charitable organization will be considered to be devoting its resources to charitable activities carried on by it, unless the amount paid is a gift the making of which is a political activity.

Consequential on the amendments to subsections 149.1(6.1) and (6.2), subsection 149.1(10) is amended to remove the reference to amounts paid by way of a gift the making of which is a political activity.

This amendment is deemed to have come into force on June 29, 2012 in respect of organizations that were registered charities on September 14, 2018. In any other case, the amendment is deemed to have come into force on September 14, 2018.

Public policy activities

ITA 149.1(10.1)

New subsection 149.1(10.1) of the Act provides that public policy dialogue and development activities carried on by a charity in support of its stated purposes shall be considered to be in furtherance of those purposes and not in furtherance of any other purposes. Public policy dialogue and development activities of an organization generally involve seeking to influence the laws, policies or decisions of a government, whether in Canada or a foreign country.

The purposes of a charitable foundation or a charitable organization must be exclusively charitable, as required in the definitions "charitable foundation" and "charitable organization" in subsection (1). New subsection (10.1) ensures that, where some or all of the activities of a charity are public policy dialogue and development activities carried on in support of its stated purposes, those activities will not be considered to reflect a separate political purpose (which could cause it to fail to meet the relevant "exclusively charitable purposes" test).

The subsection will not apply where a charity devotes resources to the direct or indirect support of, or opposition to, any political party or candidate for public office.

The new subsection is deemed to have come into force on January 1, 2008 in respect of organizations, corporations and trusts that were registered charities on September 14, 2018. In any other case, the new subsection is deemed to have come into force on September 14, 2018.

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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