Tax Insights: Ontario court strikes down 10% limit on a registered charity’s non-partisan political activities

July 19, 2018

Issue 2018-28

In brief

On July 16, 2018, the Ontario Superior Court of Justice released its decision in Canada Without Poverty v A.G. (Canada) (2018 ONSC 4147). The court ruled that:

  • the 10% limit on a registered charity’s spending on non-partisan political activities is unconstitutional
  • the definition of “charitable activities” in the Income Tax Act (ITA) includes non-partisan “political activities” if the activity is in support of the charity’s charitable mandate, and
  • partisan political activities (i.e. advocating for a political party or candidate) remain prohibited 

As a result, a registered charity may devote more than 10% of its resources on non-partisan political activities (i.e. public advocacy that supports its charitable mission) without jeopardizing its registered charity status.

The decision provides more freedom to registered charities to engage in public advocacy, which for many charities is critical to carrying out their charitable mandates. At the time of publication, the Attorney General had not appealed the court’s decision. 

In detail

Background

Generally, a registered charity must devote all of its resources to its charitable purposes or carrying out charitable activities. Subsections 149.1(6.1) and (6.2) of the ITA define the extent to which a registered charity may devote some of its resources to “political activities.” 

Pursuant to subsections 149.1(6.1) and (6.2) of the ITA and the Canada Revenue Agency (CRA) administrative guidelines (e.g. CRA Policy Statement CPS 022 “Political Activities”), a registered charity may: 

  • spend a maximum of 10% of its resources on certain non partisan public advocacy political activities
  • dedicate any amount of its resources to making government submissions 
  • not engage in partisan political activity (i.e. advocating for a political party or candidate)

A registered charity that fails to comply in respect of its political activities may receive a warning, be subject to a compliance agreement, or have its registered status revoked.

Facts

Canada Without Poverty is a registered charity under the ITA, with the stated charitable purpose of relieving poverty in Canada. The charity engaged in public advocacy for policy and attitudinal changes as its primary means of achieving an end to poverty. The charity was subject to a political activities audit for the period April 1, 2009, to March 31, 2012.

On January 9, 2015, the CRA issued a report that concluded that “virtually all of the [charity’s] activities involved political engagement in the nature of communications to the public advocating policy changes.” The CRA Charities Directorate sought to deregister the charity on the basis the charity had exceeded the 10% resource limitation on non-partisan political activities. 

The charity brought an application in the Ontario court for a declaration that subsection 149.1(6.2) of the ITA was unconstitutional. 

Issue

The issue before the Ontario court was whether the 10% limit on non partisan political activity violated the charity's right to freedom of expression under paragraph 2(b) of the Charter of Rights and Freedoms

The charity argued that public advocacy for policy change was fundamental to its charitable purpose of poverty relief. Without this component of its charitable activities, the charity could not accomplish its purpose. The charity argued that subsection 149.1(6.2) of the ITA is overly broad, confusing, difficult to define and track, and was “premised on an incoherent distinction between permitted ‘charitable activities’ and prohibited ‘political activities’.”

The court’s decision

The Ontario Superior Court of Justice agreed with the charity and struck down the 10% resource limitation on non-partisan political activities. 

In its reasoning and analysis, the court relied in part on the CRA’s “Report of the Consultation Panel on the Political Activities of Charities” (March 31, 2017), which had previously identified the same concerns and arguments raised by the charity in its application. The consultation panel recognized that “a key principle with respect to charitable activities is that public advocacy and charitable works go hand-in-hand in a modern democracy.” The panel specifically found that “the restrictions on political participation in [sub]section 149.1(6.2) of the ITA were outmoded and required legislative change.” 

The court held the 10% limit was a violation of the charity’s right to freedom of expression, and the violation could not be justified in a free and democratic society. As a result, Canada Without Poverty was entitled to engage in public advocacy to influence government decisions relating to ending poverty in Canada without jeopardizing its registered charity status. 

The takeaway

This is a helpful decision for charities whose charitable work includes public advocacy. The CRA Charities Directorate may have been taking an unnecessarily narrow view with respect to the extent a charity should be able to use its resources for political activities. This court decision provides more freedom for charities to engage in public advocacy so that they may carry out their charitable mandates. We expect this decision would also apply to registered Canadian amateur athletic associations with respect to the extent and nature of their political activities.

 

 

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Timothy Fitzsimmons

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National Personal Tax Leader, PwC Canada

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