After a few years of a chill being felt in the charitable sector, things may be thawing out a bit, in early January no less. The CRA has recently issued a news release titled “Minister Lebouthillier announces winding down of the political activities audit program for charities”. This is the first response of what we hope to be many arising out of the Ministerial mandate letter issued shortly after the election last fall from Prime Minister Trudeau to the Minister of National Revenue directing her to “allow charities to do their work on behalf of Canadians free from political harassment”.
This audit activity by the CRA started a few years ago. Apparently only a few hundred charities were reporting on their T3010 annual returns that they were involved in any political activities. The wisdom of the day (maybe the Harper government, maybe the Charities Directorate – there was much speculation but seems we will never know) thought surely there must be more political activity by more charities than what was disclosed. So the CRA embarked upon audits of approximately sixty (60) apparently randomly selected charities and found substantial compliance with the rules regarding charities involvement in political activities. There were only five (5) revocations of registered charities as a result of the audit and as the release stated, “all of which were primarily based on factors that were beyond their involvement in political activities”.
While the audit activity was under way, there were many comments and much chatter on social media about the motive behind these audits and the whole thing took on an air of cloak and dagger at points when the Minister of National Revenue at the time and the Director General of the Charities Directorate was called upon to defend their audit motives and activities toward certain charities, especially those who had protection of the environment as one of their charitable purposes. Things took a darker turn when the news media published information that the government had denied one charity’s request for auditor’s guidelines on political activities. Apparently the CRA did not want to reveal how they were doing these audits. This added fuel to the fire. (http://www.theglobeandmail.com/news/politics/canada-revenue-agency-refuses-to-divulge-grounds-for-audit-of-pen-canada/article19884201/)
In the end all is well that ends well and the program is officially over. The audits that are underway will be wound down and audits that were to be done will not be done anymore (at lease under the auspices of the Political Activities Audit Program). General audits of registered charities will continue as usual as 1% of them get audited every year by the CRA in the normal course anyway.
Throughout all this, the law never changed. Charities have always been and still are able to legally devote a small amount (10%) of their resources to be used for political activities. The problem always was, and still remains, is how exactly one defines political activities. One good thing arising out of this is that, as requested by the Prime Minister, Minister Lebouthillier is going to embark upon a discussion with key stakeholders and the CRA’s Charities Directorate is being tasked with finding ways, to clarify the rules governing a charities involvement in political activities. It is expected that the consultations will revolve around the policy statement CPS – 022 (http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cps/cps-022-eng.html#N101D0) which deals with political activities and allowable limits for charities to engage in political activities under the Income Tax Act. Some clarity around distinguishing between political and charitable activities will be welcome and the public discussion should be very interesting, even if it will no doubt take on an academic overtone. However, since the news release itself still reports that only a few hundred charities are reporting political activities on their T3010, it begs a question as to what kind of resources are really needed to put against this supposed problem.
Perhaps the CRA Charities Directorate’s efforts will be devoted to a new problem that might someday be the subject of the next audit project. Since the 2015 Federal Budget proposed that a registered charity may invest in limited partnerships without it being considered to be carrying on a business, there will be a new question inserted in the T3010 return. The following question must be answered: “Did the charity have direct partnership holdings at any time during the fiscal period? Yes or No”. No doubt the CRA Charities Directorate will be tracking answers to this question and we may one day hear “Surly more charities have partnership interests! Maybe we should audit them all?”