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What does the proposed federal budget hold in store for Canadian charities and non-profit organizations?

The federal government’s 2012 budget includes some measures that deal with charities. The one that I’ll focus on here is intended to improve transparency at affected organizations and limit their ability to undertake political activity. Others deal with gifts to foreign charitable organizations and charitable donation tax shelters. If passed, the budget would amend the charitable organization provisions of the Income Tax Act.

In Chapter 4 (Sustainable Social Programs and a Secure Retirement) of the government’s budget overview, under the heading, “Sustainable Management of Public Finances,” you will find the item, “Enhancing Transparency and Accountability for Charities,” which “proposes measures to ensure that charities devote their resources primarily to charitable, rather than political, activities, and to enhance public transparency and accountability in this area.”

Currently, charities are allowed to treat gifts to qualified donees (e.g., other charities or non-profit organizations) as expenses related to its charitable purposes and activities. The changes would allow the Canada Revenue Agency to consider the purpose of a gift from a charity or non-profit to another organization when determining if organizations have allocated their funds appropriately. If such a gift is intended to support political activities, the CRA will consider it an expenditure on political activities. Those organizations that undertake any political activities—even if those activities are not explicitly political or partisan—should take note.

According to the government:

Canadians have shown that they are willing to donate generously to support charities, but want to be assured that charities are using their resources appropriately. In this regard, charities are required by law to operate exclusively for charitable purposes and to devote their resources exclusively to charitable activities.

Given their unique perspectives and expertise, it is broadly recognized that charities make a valuable contribution to the development of public policy in Canada. Accordingly, under the Income Tax Act charities may devote a limited amount of their resources to non-partisan political activities that are related to their charitable purposes.

So, charities can legally undertake non-partisan political activities, but they must ensure those activities are acceptable to the Canada Revenue Agency. One of the government’s concerns is that Canadian charities are accepting significant funding from foreign groups and individuals with the expectation that the money be used for political activity (e.g., lobbying for environmental stronger protection) in Canada.

Specifically, the budget aims to:

  • Enhance the CRA’s education and compliance activities with respect to political activities by charities, registered Canadian amateur athletic associations and other organizations that issue charitable receipts
  • Improve transparency by requiring charities to provide more information on their political activities
  • Require organizations to report the amounts of grants that they receive from foreign sources
  • Restrict the extent to which charities may fund the political activities of other qualified donees
  • Introduce new sanctions for charities that exceed the limits on political activities, or that fail to provide complete and accurate information in relation to any aspect of their annual return

The government estimates that these “administrative changes” would cost $5 million in 2012–13 and $3 million in 2013–14. The Parliamentary Budget Officer has not confirmed these estimates.

You might find these proposed changes perfectly acceptable, or you might suspect that the government is attempting to discourage political activism against projects it supports. In either case, there is surely nothing wrong in seeking greater accountability, expect for the administrative burden it will inevitably place on affected organizations. Indeed the current government itself has instituted a number measures aimed at improving accountability with respect to government practices, for example the Parliamentary Budget Officer, whose mandate is:

To provide independent analysis to Parliament on the state of the nation’s finances, the government’s estimates and trends in the Canadian economy; and upon request from a committee or parliamentarian, to estimate the financial cost of any proposal for matters over which Parliament has jurisdiction.

Moreover, Canadians are right to wonder whether charitable and not-for-profit organizations are spending their money on unacceptable political activities. Of course, many Canadian charitable donors give money with the explicit intent to influence government policy.

Lawyer Robert Hayhoe of Miller Thomson LLP believes that despite being merely administrative changes, these measures are intended to limit public dissent against large-scale projects that will likely have significant effects on the environment. However, with $8 million dedicated in the budget to auditing organizations for excess and inappropriate political activity, the Canada Revenue Agency will surely look for contraventions beyond environmental activism. Nonetheless, Hayhoe believes that the changes are not terribly significant, the do not alter the law in a substantive way and organizations should continue to undertake their advocacy, but they should be more careful in their reporting, if not more circumspect in their speech.

The proposed penalties include:

  • For political activities in excess of 10 percent, an immediate one-year suspension of receipting privileges
  • For inaccurate T3010 (Annual Information Return, where organizations will record foreign donations) reporting, a suspension of receipting privileges for the lesser of one year or the date the return is corrected

Not surprisingly, Hayhoe recommends organizations consult with legal counsel when preparing the T3010.

The budget hasn’t passed through the Senate yet, but if it does, it will be interesting to see how this measure plays out.

Adam Gorley
First Reference Internal Controls and Compliance Editor

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Adam Gorley

Editor at First Reference
Adam Gorley, B.A. (Phil.), is a researcher, content provider and editor. He contributes regularly to First Reference Talks and Internal Control blogs, HRinfodesk and other First Reference publications. His areas of focus include broad human resources issues, corporate social responsibility, corporate governance and government policies, information technology and labour market trends.Read more
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