Achieving charitable registration status is a significant step, and a significant benefit, to any organization. The organization itself becomes exempt from income tax and, in addition, is able to issue tax receipts for donations made to it, which allow donors to claim a federal and provincial tax credit based on the amount of such donations. The ability to issue such tax receipts gives a charitable organization a measurable advantage when it comes to fundraising.
The other, less tangible, benefit of becoming a registered charity is that such organizations are more likely to be (correctly) perceived as legitimate charities, having undergone a degree of scrutiny by the Canada Revenue Agency (CRA) in order to obtain registered charity status, and being subject to ongoing reporting requirements in order to maintain that status.
In order to obtain and retain status as a registered charity, an organization must fulfill a number of requirements. Specifically, as outlined on the CRA website, any organization functioning as a registered charity must be resident in Canada, must be established and operated for charitable purposes, and must devote its resources (funds, personnel, and property) to charitable activities.
In relation to the requirements for “charitable purposes” and “charitable activities”, an organization must generally have purposes that include one or more of the following: the relief of poverty, the advancement of education, the advancement of religion, and other purposes that benefit the community (where such purposes have been found by the courts to be charitable in nature).
The devil, as always, is in the details, and the types of activities which charities can engage in in the pursuit of those charitable purposes has always been a subject of discussion and, often, dispute between the charitable sector and the CRA. In particular, there is something of an ongoing dispute with respect to the extent to which charities can engage in activities which are political (in a non-partisan sense) in nature. Such non-partisan political activity, while allowed, is subject to strict limits under specific provisions of the Income Tax Act and the CRA policies interpreting those provisions. The Act requires that a registered charity devote “substantially all” of its resources to charitable activities, but provides that where the charity devotes part of its resources to non-partisan political activities and those non-partisan political activities are “ancillary and incidental to its charitable activities”, the resources devoted to such activities will be considered to be used in charitable activities. As a matter of administrative policy, the CRA has taken the position that no more than 10% of a registered charity’s resources should be expended on partisan political activity or, put another way, that at least 90% of its resources should be devoted to non-political charitable activities. A recent Court decision, however, has thrown most of those rules around non-partisan political activities of charities into doubt.
The case began when, in 2016, a registered charity — Canada Without Poverty — challenged the CRA’s administrative policy limiting registered charities to using no more than 10% of their resources for political activities related to their charitable purposes. That challenge was based on the argument that the organization could not achieve its charitable purposes without engaging in political activity, and that the restrictions placed by the CRA’s policies on the extent of such activities were a violation of the right to free expression granted by the Canadian Charter of Rights and Freedoms.
The Court agreed with the charity which brought the challenge and held that the CRA’s view that a charity could spend only up to 10% of its resources on non-partisan political activities was a violation of the Charter and that the entire provision of the Income Tax Act which restricted non-partisan political activities and therefore political expression by a registered charity was also contrary to the Charter, and that there was no justification for such restriction.
The Court did emphasize that it was not speaking of partisan political activities, which remain out of bounds for registered charities. However, as the law now stands following the Court’s decision on July 16, charities are able to engage in non-partisan political activities without regard for the limits which were formerly imposed by the Income Tax Act and by the CRA’s administrative policies in enforcing that Act.
It is likely that, given the potentially significant consequences which follow from the Court’s decision, the federal government will appeal that decision to a higher Court, seeking to have it reversed. That process of appealing the Court decision is one which will take at least several months, if not longer, but it’s a process that will be closely followed by many organizations and individuals working in the charitable sector.