Maiden Voyage for the New Political Communication Rules
By: Brent Randall
With the recent provincial election in Quebec, an upcoming election in British Columbia, and speculation that Ontario may do the same, charities across Canada may be considering the impact they can make in the political arena. While we previously wrote that Budget 2012 maintained CRA’s core rules regarding the political involvement of charities, it is still useful to review what has changed, what has stayed the same, and the consequences of both.
Charities cannot have political purposes, but they are allowed to engage in limited political activities that support their charitable purposes. While the definition of “political activities” is not included in the Income Tax Act, the CRA has stated that it will presume the activity of a charity to be political if:
1) the charity explicitly communicates a call to political action, such as encouraging the public to contact an elected representative;
2) the charity explicitly communicates to the public that a particular law or policy should be maintained or opposed; or
3) the charity explicitly indicates in internal or external materials that the intention of the activity is to incite or organize the public or put pressure on an elected representative to change or maintain a law or policy.[1]
In the same statement, the CRA listed the following requirements of the political activities of charities:
1) the activities must be non-partisan, in that they neither encourage support of a particular party nor elected representative;
2) the political issue must be connected to the charity’s purposes;
3) the charity’s political views must be based on a well-reasoned position; and
4) such political awareness activities must not become the charity’s primary activity.
There is also a limit on how much of its resources a charity can devote to political activities. The Income Tax Act requires that charities devote “substantially all” of its resources (financial and physical resources as well as human resources) to its charitable activities, which is generally 90%. By way of administrative policy, CRA will accept that charities with less than $50,000 in annual income may spend up to 20% of their resources on political activities, while those with income between $50,000 and $100,000 can spend up to 15%, and those between $100,000 and $200,000 can spend up to 12%.
While Budget 2012 didn’t change these rules, it did make them stricter in their application. The Director General of CRA stated that the T3010, the Annual Information Return for charities, will be changed. Charities will be required to specifically report the total amount of gifts given to qualified donees with the intention of funding their political activities. Charities engaging in political activities will also be required to set out what such activities are, and how they relate to the charity’s purposes. Those charities that receive money from foreign donors as funding for political activities will also have to report the amount received, the political activity it was for, and the country the donation came from.[2] That said, as of writing, the T3010 form in which charities would make this declaration has not yet been amended to allow this declaration.
As a result of the last budget, the definition of “political activity” in the Income Tax Act will also be amended to state that such activities will include “.a gift to a qualified donee if it can reasonably be considered that a purpose of the gift is to support the political activities of the qualified donee.” This amendment would mean that every dollar of funding that goes from one charity to another as funding for political activities will be counted against the expenditure limits of both charities. Furthermore, the inclusion of “reasonably” puts the burden on the donating charity to know exactly where its gifts are going and to ensure that is how they are used. The Qualified Donees Worksheet (T1236) will also require more disclosure, as the exact dollar amount of each gift intended for political activities will need to be included, as well as a description of the political activity to which it is contributing.
Although the rules may be enforced more strictly, CRA will also be able to impose less severe penalties if a charity’s political activities exceed the limitations or go unreported. With the new amendments to the law, CRA will be able to impose receipting suspensions ranging from the time it takes the charity to report missing information to one year.
The need for charities to exercise care and diligence when engaging in political activities should not come as a shock to anyone. What does need to be taken away from recent developments is that CRA will clearly be giving special attention to even the smallest connection that charities may have to the political sphere. Charities, like any organization, need to keep accurate, precise records. The stance of CRA only underscores this need, and will push charities to know exactly where their resources are going both internally and externally.
[1] CRA Policy Statement CPS-022
[2] Director General’s Speech at the National Charity Law Symposium, May 4, 2012