INSTITUTE for MEDIA, POLICY and CIVIL SOCIETY THE LAW OF ADVOCACY BY CHARITABLE ORGANIZATIONS THE CASE FOR CHANGE Richard Bridge b.a., ll.b. for IMPACS - Institute for Media, Policy and Civil Society, Vancouver, B.C. IMPACS INSTITUTE for MEDIA, POLICY and CIVIL SOCIETY THE LAW OF ADVOCACY BY CHARITABLE ORGANIZATIONS THE CASE FOR CHANGE Richard Bridge b.a., ll.b. for IMPACS - Institute for Media, Policy and Civil Society, Vancouver, B.C. September 2000 I M PAC S ISBN 0-9687913-0-1 Canadian Cataloguing in Publication Data Bridge, Richard The law of advocacy by charitable organizations Includes bibliographical references. 1. Charity laws and legislation—Canada. I. Institute for Media. Policy and Civil Society. II. Title. KE3542.B74 2000 346.71’.064 C00-911150-6 KF1388.B74 2000 © 2000 IMPACS - Institute for Media, Policy and Civil Society Any reproduction, modification, publication, transmission, transfer, sale, distribution, display or exploitation of this information, in any form or by any means, or its storage in a retrieval system, whether in whole or in part, without the express written permission of the individuals copyright holder is prohibited. Published in Canada by IMPACS 910-207 West Hastings St Vancouver, BC V6B 1H6 Tel (604) 682-1953 Fax (604) 682-4353 Email: media@impacs.org Website: www.impacs.org September 2000 IMPACS gratefully acknowledges the support of Endswell Foundation, Tides Canada Foundation, and the Law Foundation of British Columbia in producing this paper. Contents Executive Summary..................................................................................... .................. I A. Introduction............................................................................................ .................. 3 B. What is a Charitable Organization?.................................. .................. 4 C. The Voluntary Sector....................................................................... .................. 5 1). the Problem............................................................................................... .................... 6 E. the Current Law.................................................................................... .................. 7 i) The Common Law 7 11) The Income Tax Act 9 111) Revenue Canada’s Administrative Policies 10 Categorization of Political Activity Spending Limits - The 10 Percent Rule Revenue Canada’s Draft Publications iv) Summary of the Current Law 12 F. 1) Difficulties Arising from the Current Law................ ................ 13 1) The Courts 13 11) The Administration of Charitable Organizations 14 111) Public Policy Debate in Canada 14 iv) Inconsistent Treatment Advocacy by Business is Encouraged by the Tax System 16 v) Tax Treatment of Political Donations 17 vi) Types of Advocacy 18 G. Lessons From Other Jurisdictions........................................ ................. 19 l) The American Model 19 a) Definitions b) Expenditures Limits on Permissible Lobbying II) the English Model 21 111) Australia 21 IV) other countries 22 11. Options ................................................................................. ................ 2 3 l) The Broadbent Panel 23 II) |Joint Tables Report 23 ill) Advocacy as a Charter Right 24 1. Conclusions Appendix ............................................................................ ................ 26 summary of Bibliography Canadian cases................................... .................. 27 .......................................................... ................ 31 Executive Summary t is widely agreed by those active in this Distilled to its basics, the law of advocacy field that the law governing advocacy by by charitable organizations is: charitable organizations is in need of reform. It is a need identified as a high priority by • education must not amount to two recent high-calibre reports on Canada’s promotion of a particular point of view large and vital voluntary sector, the or political orientation, or to Broadbent Panel and the Joint Tables Report. persuasion, indoctrination or The basic problem is a lack of clarity in propaganda; and the law. It is difficult to determine what will • a charity cannot have political be deemed to be permissible charitable purposes; but activity and what will be categorized as • it may devote some of its resources to unacceptable political activity. Violation of political activities as long as: these unclear rules can lead to a refusal to • they are non-partisan; they remain grant or a loss of charitable status, which “incidental and ancillary” to the means loss of tax exemption and tax receipt charity’s purposes; issuing capacities - very serious implications • and - substantially all (“90 percent”) for organizations in this sector. of the charity’s resources are devoted Canada's charity law has three sources: to charitable activities. i) decisions of the courts (the common law); ii) the federal Income Tax Act-, and iii) the These rules are not easily applied, and administrative policies of the Canada many argue that they are unduly restrictive Customs and Revenue Agency (Revenue for charitable organizations. These rules Canada1. create a number of practical problems: for The common law of charity originated in Revenue Canada as it attempts to administer Elizabethan England, and the most this field; for the courts as they adjudicate frequently cited case is from the English disputes between Revenue Canada and House of Lords in the Victorian era. While charitable organizations and applicants for the world has changed immensely since then, charitable status; and for those who manage the common law concepts of charity have charitable organizations and risk loss of changed little. The Income Tax Act does not charitable status should they make mistakes add clarity to the common law, and Revenue in this uncertainty. Canada's administrative policies, which In addition, the advocacy rules impede attempt to interpret the common law and critical public policy debates by preventing Parliament's limited intrusion into this field, the full participation of charitable are also inadequate organizations, which often possess great I I M PA C S 2 • THE LAW OF ADVOCACY BY CHARITABLE ORGANIZATIONS expertise and understanding in their fields of endeavour. This loss of informed voices is particularly problematic at a time when the relationships between public, private and voluntary sectors are in fundamental change It can be argued that these titles in effect impede the freedom of expression of charitable organization - a freedom enshrined in the Charter of Rights and Freedoms. Other countries have resolved this problem. The most helpful example In the American model which recognizes in the charities can add to public policy debate It provides greater latitude and clarity as to what is, acceptable activity and how much of it can be undertaken It established definitions and quantifiable limits that reduce confussion and subjectivity Canada's parliament should build on the work of the Broadbent Panel and the Joint Tables to change and modernize Canadian charity law by providing, among other reforms; • a clear legal determination of permissible advococy • clear quantifiable spending rules for advocacy activities to replace the 10 percent rule; • flexable regulatory options for the enforcement of the new rules; • greater transparency on the part of the federal regulations of this field; and • increased financial disclosure requirements for charity A. Introduction t is clear from judgments of the Federal Court of Appeal and the I Supreme Court of Canada, and the works of academic and other commentators, that the law governing advocacy by charitable organizations in Canada needs reform.1 It is also clear that such reform is a high priority for many leaders within the charitable community. The basic problem is a lack of clarity in the law which causes difficulties for all involved - the Courts, Revenue Canada,2 charitable organizations, those who depend upon the services delivered by charitable organizations, and arguably the entire community. This paper describes the law in this field, examines its shortcomings, considers practices in other countries, and argues for changes to the existing law. B. What is a Charitable Organization? anada’s Income Tax Act creates A second advantage of registration is that three types of registered charities: it provides automatic exemption from charitable organizations, public foundations income tax under the Income Tax Act. Other and private foundations. Very briefly, advantages include favourable treatment charitable organizations devote their with respect to the Goods and Services Tax, resources to carrying out “charitable exemption from other taxes in some activities,” while foundations are primarily provinces (for example corporate income tax funders of charitable activities. Private and retail sales tax in Ontario) and the ability foundations differ from public foundations to obtain a bingo or lottery license.3 in that their governance is more tightly Charitable organizations are distinct controlled (often by a family) and their under the law from non-profit organizations. sources of capital are not as diverse. A non-profit organization is defined by Two other closely related types of the Income Tax Act as “a club, society or organizations are national arts service association that, in the opinion of the organizations and registered Canadian Minister, was not a charity within the athletic associations. meaning of subsection 149.1(1) and that was The focus in this paper is on charitable organized and operated exclusively for social organizations, although many of the issues welfare, civic improvement, pleasure or addressed are of importance to public and recreation or for any other purpose except private foundations as well. profit, no part of the income of which was "Registration" means that the charity has payable to, or was otherwise available for met Revenue Canada's requirements and is the personal benefit of, any proprietor, in compliance with the Income Tax Act. member or shareholder thereof...”4 which brings significant tax advantages. Charitable organizations and non-profit Firstly, it allows the charity to issue receipts organizations are both income tax exempt, to donors which enables donors to deduct but non-profit organizations are unable to the donation for income tax purposes. This issue tax receipts for donations. Application is vitally important to charities’ fund raising to and approval by Revenue Canada is activities. Donations to registered charities required to obtain charitable status, and the are simply more attractive to donors than regulator}- burden is greater than for non­ gifts to unregistered organizations. profit organizations. C 4 C. The Voluntary Sector he term “voluntary sector” has These difficult facts of life have led to become increasingly popular to describe some innovative adaptation by the sector.8 Canada’s charities, non-profit organizations, They have also contributed in large part to and other voluntary church, trade and much impressive recent work to understand the professional associations. 5 The most recent nature of this sector and its many challenges. estimates6 are that Canada’s voluntary The first was the Panel on Accountability sector consists of approximately 175,000 and Governance in the Voluntary Sector, organizations of which close to 80,000 are chaired by Ed Broadbent (the “Broadbent registered charities. Panel”) and including several other This sector employs approximately 1.3 prominent Canadians. After more than a year million people or roughly 9 percent of the of analysis and public consultations across national workforce, pays more than $40 Canada, the Broadbent Panel produced a billion annually in salaries and benefits, and landmark report that identifies problems and accounts for approximately 1/8 of Canada’s makes a series of recommendations for new Gross Domestic Product. initiatives, legislative, regulatory and policy Not only is this sector large, it is vitally reforms, as well as new institutions to improve important to the health of the nation and the sector’s strength and performance.9 its communities. Sometimes called the “third The second major recent work in this field sector,” it delivers a huge array of services to was the August 1999 Report of the Joint Canadians, including services that the private and Tables, a group consisting of leaders from public sectors cannot or will no longer deliver. the sector and key federal government The environment for much of the officials with expertise and responsibility in voluntary sector has been very challenging the field. Entitled “Working Together - A in recent years as a result of broad changes Government of Canada/Voluntary Sector in the roles of governments at all levels. Fiscal Joint Initiative” (the “Joint Tables Report”), pressures and political agendas have led this work picked up in part on the Broadbent governments to retreat from and abandon Panel Report and addressed three basic some social policy fields in part or completely. issues: building a new relationship; The roles, responsibilities and relationships strengthening capacity; and improving the between the public, private, and voluntary regulatory framework.10 sectors have changed dramatically. This has These two impressive works have resulted in funding shortages for a sector that identified and improved the focus on the key relies on government for 60 percent of its issues facing the sector. As will be discussed funding,7 has greater demands on its in more detail below, a key issue identified services, and increased expectations as to its in both works is confusion in the law of capacity to deliver results. advocacy by charities. T 5 D The Problem he Joint Table* Report defined Similaly an organization devoted to advocacy in general term* a* the act public health issues that is seeking charitable of speaking or of disseminating information status might be denied by Revenue Canada intended to influence Individual behaviour if a significant tint portion of its activities consists or opinion, corporate conduct or public of advocating for the adoption of new policy and law."11 this definition helps make community health care practices based on clear why advocacy is an important issue for innovation systems proven successful in many charitable organizations Europe for example, a charitable organization the same problcms exist for organization devoted to assisting Hepatitis C victims might dedicated to protecting the environment support the establishments of a needle for future generations. If, for example, exchange to reduce contamination among their activities includes attempting to influence intravenous* drug users it might engage in a public opinion, legislation or government campaign of discriminating information to policy in relation to habitat or species users and the public and lobbying politicians protection pollution standards and to gain support for the idea and to achieve enforcement or other basic issues, they could change to government policy to allow an violate the current charity rules and lose or exchange in be established the problem is be denied charitable status. Indeed, these problems exist for organizations in all areas that the law governing advocacy by charities is unclear and confusing. and the charitable organization could lose its charitable status tor pursuing such a course of action T E. The Current Law here is no single source of the law of the list in the preamble of the statute and advocacy by charitable organizations. that in the Vision of Piers Plowmen, a poem There are instead three sources: i) the from circa 1377.”15 decisions of the Courts (the common law); It seems striking, but this Victorian-era ii) the Income Tax Act; and iii) the categorization of charitable purposes, that administrative policies of Revenue Canada. drew on the law of the Elizabethan period, Each is examined below. and perhaps even the poetry of the fourteenth century, is more than an historical interest. I) THE COMMON LAW “This overall approach to determining if an The best known and most often cited case in object is charitable remains the judicial and the evolution of charity law in the administrative approach today.”16 Indeed, Commonwealth is Pemsel’s Case, a decision the four categories: of the English House of Lords from 1891.12 This case approved the classification of • relief of poverty charitable purposes that has shaped the field • advancement of education since. The decision established that: • advancement of religion • other purposes beneficial to the “Charity” in its legal sense comprises community four principal divisions: trusts for the relief of poverty; trusts.for the are still used by the Canadian Courts and advancement of education; trusts for Revenue Canada to determine whether a the advancement of religion; and trusts purpose is charitable and whether an for other purposes beneficial to the organization should be granted charitable community, not falling under any of the status. preceding heads.13 The common law is evolutionary or organic - it changes over time as courts apply The origins of this categorization link legal precedents and principles to new facts, directly back nearly 300 years earlier to new circumstances, and in changing social Elizabethan England and the preamble to the environments. In the case of charity law, it is Statute of Uses, 1601.14 This is the fount of widely agreed that the field is rather static, charity law, and the starting point for largely due to the four categories of virtually every case dealing with this field. charitable purposes from Pemsel’s Case. The The preamble is a list of charitable purposes fourth category (other purposes beneficial to which reads rather like poetry. Indeed “some the community) has provided the greatest scholars have noted the similarity between latitude for the courts to be creative and to T 8 • THE LAW OF ADVOCACY BY CHARITABLE ORGANIZATIONS add new charitable purposes, but the approach has generally been restrictive. As Frances Boyle observes: The category has been restricted by statements that not all objects of benefit to the community are necessarily charitable so that, in addition to being beneficial, the purpose of activity must be “recognized by the law as charitable”. This latter requirement has tied the fourth head back to the Preamble by decisions which state that for the purposes to fall within the fourth head they must be within the “spirit and intendment” of the Preamble, so that an analogy to the Preamble or recourse to previous precedent must be found.17 For the purposes of this paper, two important themes, and sources of friction, arise from the cases. The first is that the courts have held that political Determining whether objects are not charitable objects under the fourth category of activities amount Pemsel’s Case. Organizations to charitable education created for the purpose of advocating or lobbying for changes or political advocacy in the law will nor be considered has been and charitable by the Courts, regardless of the public benefits that may flow remains difficult. from their advocacy efforts. - The reasoning used by the Courts is summarized in a passage from another House of Lords decision, this one from 1917 19 ’After determining that a society seeking charitable status was advocating changes to the law and that these activities were ‘political.’ the House of Lords stated: Equity has always refused to recognize such objects as charitable... not because it is illegal, for even- one is at liberty to advocate or promote by any lawful means a change in the law, but because the Court has no means of judging whether a proposed change in the law will or will not be for the public benefit, and therefore cannot say that a gift to secure the change is a charitable gift. The second important theme and source of friction from the cases involves the second category from Pemsel’s Case - the advancement of education. Generally, the Courts have distinguished between education, which is charitable, and advocacy which is often deemed to be political activity and not charitable. To be charitable, education must involve “formal training of the mind” or “the improvement of a useful branch of human knowledge...”,20 and must be objective and balanced. Simply providing information is not enough. Activities intended to change people’s behavior or their opinions will only be deemed to be charitable if they are balanced. Distributing incomplete or biased information or efforts “to influence general opinion in favour of some theory, view or aspiration...”21 will not be considered charitable. Two examples from the case law may be helpful. In one case the Notre Dame de Grace Neighbourhood Association, an organization devoted to the interests of the urban poor, was denied charitable status. The reasons were that its information and letter writing campaigns, lobbying, and efforts to defend the rights of the poor were deemed to be political, not educational.22 In another case, an organization dedicated to changing the laws governing pornography was denied charitable status on the grounds that this was a political purpose.23 In a more recent case, the Supreme Court of Canada partially expanded the meaning of “education” in this context. Mr. Justice lacobucci concluded that the treatment of education by Canadian courts “seems unduly restrictive.” The Current Law • 9 To limit the notion of “training of the mind” to structured, systematic instruction or traditional academic subjects reflects an outmoded and under inclusive understanding of education which is of little use in modern Canadian society.... So long as information or training is provided in a structured manner and for a genuinely educational purpose - that is, to advance the knowledge or abilities of the recipients - and not solely to promote a particular view or political orientation, it may properly be viewed as falling within the advancement of education.24 While this more modern view of education is helpful, determining whether activities amount to charitable education or political advocacy has been and remains difficult. In sum, it is evident from the case law that the courts struggle to determine what is charitable, largely due to the inadequacy of the Pemsel’s Case categories in changing times. The number of cases where the issue of charitable status has been addressed by the Federal Court of Appeal or Supreme Court of Canada is not large, and a summary of each of the key recent decisions is attached in the Appendix. II) THE INCOME TAX ACT Charitable law does not have its own statute. The federal Income Tax Act, an extremely complex document, includes provisions dealing with tax exemption and the tax deductability of donations to charities, and is the critical statute in the charitable field. Importantly, the Income Tax Act docs not define charitable purposes. This is left to the courts. In relation to the issue of advocacy by charitable organizations, the key section of the Income Tax Act is 149.1(6.2), which states: Charitable activities. For the purposes of the definition “charitable organization” in subsection (1), where an organization devotes substantially all of its resources to charitable activities carried on by it and (a) it devotes part of its resources to political activities, (b) those political activities are ancillary and incidental to its charitable activities, and (c) those political activities do not include the direct or indirect support of, or opposition to, any political party or candidate for public office, the organization shall be consid­ ered to be devoting that part of its resources to charitable activities carried on by it. This section was added to the Income Tax Act in 1986. It provides some clarity and guidance, for it states conclusively that partisan political activity is not charitable, and that some political activities are considered charitable. However, this section also has some significant short-comings. It does not define or give much guidance as to what is “political activity,” nor does it provide a clear guide as to how much of such activity will be “incidental and ancillary” to an organ­ ization’s charitable activities, and therefore permissible. In an Act full of mathematical formulae for the determination of tax liabilities in all sorts of different circumstances, this section is remarkably devoid of precision. It is vague and subjective, and does little to help charitable organizations and their accountants categorize and quantify their activities and expenditures as charitable or not. 10 • THE LAW OF ADVOCACY BY CHARITABLE ORGANIZATIONS Ill) REVENUE CANADA’S ADMINISTRATIVE POLICIES Revenue Canada is responsible for administering Canada’s charitable system. Revenue Canada staff interpret the common law and the provisions of the Income Tax Act to determine whether organizations will be granted charitable status, and whether that status will be revoked. While Revenue Canada’s administrative policies are not of the same legal weight or consequence as the common law and the Income Tax Act, they are certainly relevant to the field. In this administrative role, Revenue Canada balances several important factors. One factor is that they are responsible for preserving the integrity of the federal income tax base. If tax exemption and other benefits are granted incorrectly, they shift the tax burden unfairly to others. This is an enormous responsibility, for an income rax system that is fair and efficient is essential to the financial health of the nation. Another factor is that the decisions Revenue Canada makes in relation to charitable status have very serious implications for the organizations seeking to obtain or preserve that status. Denial or loss of charitable status can be extremely detrimental or fatal to the organizations and the objectives they are pursuing..Althrough decisions of this kind can he appealed to the courts, the cost of rang so is high, so the power Revenue Canada wields in this regard is substantial. A third factor xs the confused stare of the law that Revenue Canada must apply. Administration of a complex and important field is very difficult when the rules are not clear, as is the case here. Uncertainty, frustration, disagreement, and inconsistency are almost inevitable consequences. Perhaps as a result of these factors. Revenue Canada has attempted to clarify the rules. Information Circular 8“-l “Registered Charities - Ancillary and Incidental Political Activities,” issued in 1987, is an attempt to explain the law and Revenue Canada’s administration of it. The Circular is not itself “the law” - it is an expression of Revenue Canada’s view of the law intended to reduce the confusion. Its most important contributions are its categorization of types of political activity, and its quantification of the limitations on such activity. CATEGORIZATION OF POLITICAL ACTIVITY Revenue Canada has three categories of political activities. The first and clearest is partisan politics (supporting or opposing a candidate or party, etc.). This category is already clearly prohibited by s. 149.1(6.2). A second category are those activities which Revenue Canada will consider to be charitable. The Circular states: Although activities designed to persuade government to adopt a particular viewpoint can be considered political (see Appendix A)25 the department views । a ) oral and written representations to the relevant elected representatives (e.g. Members of Parliament, Members of Legislative Assembly, Municipal Councillors, the involved Minster of the Crown) or a public servant to present the charity ’s views or to provide factual information; (b) oral and written presentations or briefs containing factual information and recommendations to the relevant government bodies, commissions or committees; and (c ) the provision of information and the expression of non-partisan views to the media, to fall within the general ambit of charitable activities as long as the devotion of resources to such activity is reasonable in the circumstances The Current Law • 11 (i.e., is intended to inform and educate by providing information and views designed primarily to allow full and reasoned consideration of an issue rather than to influence public opinion or to generate controversy). All resources used directly to prepare or substantiate the representations or presentations in (a) to (c) above (such as the cost of research) will be treated as resources devoted to charitable activities. This category allows charitable organ­ izations to provide material to a limited audience to “inform” and “educate” them, but not to persuade or influence them or to influence the public. It amounts to a very restricted form of advocacy. It is clear who can be so informed, but it is not clear how much is “reasonable in the circumstances” or where informing ends and persuading begins. A third category consists of “political activities allowed within expenditure limits.” These are not charitable themselves, “but are subordinate to bona fide charitable purposes,” and are permitted under the spending limits discussed below. Examples are: (a) publications, conferences, workshops and other forms of communication which are produced, published, presented or distributed by a charity primarily in order to sway public opinion on political issues and matters of public policy; (b) advertisements in newspapers, magazines or on television or radio to the extent that they are designed to attract interest in, or gain support for, a charity’s position on political issues and matters of public policy; (c) public meetings or lawful demonstrations that are organized to publicize and gain support for a charity’s point of view on matters of public policy and political issues; and (d) mail campaign - a request by a charity to its members or the public to forward letters or other written communications to the media and government expressing support for the charity’s views on political issues and matters of public policy. This category also increases clarity, but it underscores an issue of particular concern to many charitable organizations - the limitations on their ability to advance or seek support for their views “on matters of public policy.” This key issue is explored in more detail below. SPENDING LIMITS THE 10 PERCENT RULE Circular 87-1 creates quantifiable limits on political activities. It says that the requirement in s. 149.1(6.2) of the Income Tax Act that “substantially all” of a charitable organization ’s resources be spent on charitable activities means “90 percent or more.” This means that 10 percent “of all the financial and physical assets of the charity as well as the services provided by its human resources” is the maximum that can be spent on “permitted political activities.” This is the third category listed above. The Circular states that the 10 percent rule “would normally be measured over a charity’s taxation year, although the Department would consider applying the calculation over a longer base (for example, five years) where justified.” There is no indication of how the more flexible longerterm approach is to be justified.26 There is a second, more complicated spending limit described in the Circular. It relates to the general requirement that charitable organizations spend at least 80 percent of their receipted donations of the previous year on charitable activities. 12 • THE LAW OF ADVOCACY BY CHARITABLE ORGANIZATIONS The second category of political activity can be included in the calculation to meet the 80 percent spending quota. That is, those activities are deemed to be charitable for this purpose. Activities from the third category, however, cannot be included in the calculation of the 80 percent spending quota. The language in the Circular addressing the spending limits is a helpful improvement over the imprecise language in s. 149.1(6.2). However, the tests are complicated, and much still turns on the difficult distinction between “education” and “advocacy.” Education is not limited, but advocacy cannot exceed 10 percent of a charitable organization’s activity. REVENUE CANADA’S DRAFT PUBLICATIONS In addition to Information Circular 87-l. Revenue Canada produced draft publication “RC4107- Registered Charities: Education. Advocacy and Political Activities* a seccod draft of which became available on Alarm 3, 2000 via Revenue Canada’s website it appears to have been an attempt to simplify the previous explanation of these rules, with express references to the case law. its thrust is the same as the Circular. as sum arized above. The second draft, which is which a response to the concerns expressed about the confusion in the held. uses a questions and answer format to attempt to classify due law and Revenue Canada's administration positions. It provides more discussion of political activity. uses clearer and includes more examples to attempt to illustrate distinctions. As an attempt to simplify and communicate, the second draft is an improvement over the first draft and Information Circular 87-1, and will be of practical help to charitable organizations. However, it takes some license with the common law and Income Tax Act by filling gaps and creating a sense of logic and consistency that really does not exist in the underlying law. IV) SUMMARY OF THE CURRENT LAW This combination of sources creates a complex field of law that is not easily simplified. However, an impressive and concise summary is found in a Supplementary Paper to the Joint Tables Report It states that “[generally, the rules may he summarized as follows: • education must not amount to promotion of a particular point of view or political orientation, or to persuasion, indoctrination or propaganda; and • a chanty’ cannot have political purposes; but • it may devote some of its resources to political activities as long as: • they are non-partisan; they remain “incidental and ancillary” to the charity ’s purposes; • and - substantially all (“90 percent”) of the charity’s resources are devoted to charitable activities. F. Difficulties Arising From the Current Law he current law in this field creates Then at page 13, after reviewing the opinions of the appellants in question, problems for the courts, for the he stated: administration of charitable organizations, and for public policy debate in Canada. It is not easy to Any determination by this Court as to whether the I) THE COURTS determine whether propagation of such views is When a decision of the Minister of National a proposed activity beneficial to the community Revenue (Revenue Canada) as to whether an and thus worthy of temporal activity is charitable or political is challenged, will be deemed by support through tax it becomes a matter for the courts to decide. Revenue Canada exemption would be This is a role with which the courts have essentially a political expressed difficulty. charitable or political. determination and is not Revenue Canada appropriate for a court In the Human Life International in to make. Canada Inc. v. The Minister of National has broad discretion Revenue, a 1998 decision of the Federal in making these Finally, on page 16, in response Court of Appeal, the issue was whether the to the appellant’s argument that the appellant’s actions were charitable, either determinations, law limiting political activities by under the education category or the general but the law and charitable organizations should be category from Pemsel’s Case. Strayer J.A. declared void for vagueness, he stressed the difficulty he had with the courts administrative states: being asked to determine whether advocacy policies they apply of opinions on important social issues was I would heartily agree that this for a purpose beneficial to the community. have gaps and area of the law requires better He said at page 12: elements of definition by Parliament which is the body in the best Courts should not be called upon to subjectivity that position to determine what make such decisions as it involves are problematic. kinds of activity should be granting or denying legitimacy to what encouraged in contemporary are essentially political views: namely Canada as charitable and thus what are the proper forms of conduct, tax exempt. But I am not prepared to though not mandated by present law, say that the vagueness here is of a to be urged on other members of the degree in excess of the constitutionally community? permissible. T 1 4 • TH E L AW of Advocacy by Charitable Organizations This judgment cxpresses a clear frustration with the impercise and confusing nature of the law in this field and seeks Parliaments leadership to rectify it II) THE administration of CHARITABLE ORGANIZATIONs The existing rules sur ounding advocacy create practical problems that make it dif icult to administer charitable organizations A fundimental problem is that the rules create confusion. It is not easy to determine whether a proposed activity will be deemed by Revenue Canada cheritable or political a fundamental problem is that the There is a sense among charitable organizations that Revenue Canada applies these ill-defined advocacy rules in an inconsistent, arbitrary or discriminatory manner, These perceptions, whether justified or not rules create confusion. It is not easy to determine either a proposed activity will be deemed by Revenue Canada charitable or political. Revenue Canada has broad discretion in making these determinations but the law and administration policies they apply have gaps and elements of subjective that are problematic. The lack of clarity makes it difficult for charitable organizations to make decisions in this area, and creates frustration among managers and boards. This in turn consumes time and resources in some cases legal options are sought to determine whether a proposed action that would normally exacerbate the confusion and create current rules. Unfortunately because of tension and distrust the uncertain and another practical problem is that the confusion in the field makes it difficult for charitable. organizations to raise funds for as activities involve advocacy. Leaders in the field mandate that charitable foundations, which are critical sources of funds for charitable organizations are generally very leery of funding projects that might become entangled in a dispute with Revenue Canada over the nature and limits of advocacy, charitable activities and activity. As a it result, worthy projects may not attract funding from understandably cautious charitable foundations. finally there is a sense among charitable organizations that Revenue Canada applies these ill-defined advocacy rules in an incostis tant arbitrary or discriminatory manner, these perceptions whether justified or not exacerbate the confusion and create tension and distrust. To be fair consistant application of imprecise law is difficult for Revenue Canada personnel and contract auditors. Unlike traditional financial audits, where the accounting principles are generally agreed upon, audits of charitable organizations for complience with the advocacy rules involve subjective classification of a broad range of activities in an often complex and changing enviroment. Without clear definitions, the auditing process will inevitably be subjective and arbitrarily even with the best intentions and care of the part of the auditors. be a straightforward management decision is permissable under the complex state of the law conclusive legal options are difficult to offer. In addition to frustration there is an element of fear caused by this confusin because the stakes are very high. Revenue Canada can revoke charitable status if charitable organizations step out of bounds in this area a very serious and potentionally fetal punishment. III) Public Policy Debate in Canada It is agreed that full and informed public debate on all issues is a key element of civil society and democracy, and will lead to better public policy decision-making. Public expectations of such debate appears to be growing to issues of all kinds and at all levels - local to to international. The third problem with the advocacy Difficulties Arising From the Current Law • 15 rules is that they impede critical public policy debates by preventing the full participation of charitable organizations. In many cases these organizations possess extraordinary understanding of their fields of endeavour and can enrich the debates. But as Shira Herzog observes, our system “... can mute the strongest and most knowledgeable voices on a wide range of issues.”30 Opportunities are being lost in terms of the quality of public debate and decision-making because of this muting. Herzog provides clear examples to illustrate the illogical nature of the current law: • A group that provides wheelchairs and crutches for the disabled can register as a charity, while another group that advocates safer workplaces and changes to bylaws governing the workplace might be denied charitable status. • An organization that counsels bereaved families whose children were killed by a drunk driver can register as a charitable organization, while another dedicated to changing public behaviour around drinking and driving may be denied or lose charitable registration if that work is not deemed to be a “reasoned and balanced” presentation of ideas.. This muting of voices is particularly troublesome in light of the fact that the relationships between the public, private, and voluntary sectors are undergoing dramatic, fundamental shifts. Governments’ retreats have resulted in increased expectations and burdens on charitable organizations, yet these organizations are restrained, in part, from attempting to shape government or public opinion on such issues. There is a compelling argument that in these times of rapid and massive structural change in all sectors, the full engagement of the voluntary sector in the public debate is essential as a source of creativity and solutions. The traditional public sector is of limited utility as a source of innovation, while the private sector is not the source of answers to non-market problems. A vocal and engaged voluntary sector can fill the void between the market- driven private sector and the diminished public sector. Charitable organizations have a major role to play in this regard. This view of the role or charitable organizations in public policy debate is not shared by all. There is a compelling Some view advocacy as the domain argument that in of political parties, not charitable organizations. For example, these times of rapid Hamilton Ontario Liberal M.P. and massive John Bryden has complained that “what we have done is create a structural change whole edifice in charities and non­ in all sectors, the profit organizations on the government payroll to prepare full engagement briefing notes to government.”31 of the voluntary He argues for a more restrictive approach to advocacy by charitable sector in the public organizations. debate is essential as A full recital and critique of Bryden’s reasoning and conclusions a source of creativity is not attempted here. However, it and solutions. is worth recognising that char­ itable status does not mean an organization is “on the government payroll.” Rather, it means that the organization, and the funds it generates from the community, are exempt from taxation. While governments do provide funding for and purchase services from many charitable organizations, many others operate completely independently of government. Ultimately, Bryden’s arguments do not change the writer’s conclusions that charitable organizations have a great deal to add to public policy debate, and that they should be permitted to devote a portion of 16 • THE LAW OF ADVOCACY BY CHARITABLE ORGANIZATIONS their energy and resources to advocacy without losing their charitable slants IV) INCONSIStent TREATMENT ADVOCACY BY BUSINESSES is ENCOURAGED by the TAX SYSTEM While charitable organization can lose their charitable status for engaging in advocacy activities, corporations and other tax payers are in effect encouraged to do so under Canadian tax law section 20 of the income tax act in computing a exporting company taxpayers income for a taxation year These provisions o/ the a business or property there be deducted such of the following amounts Income Tax Act have the peculiar effect of encouraging lobbying of government by commercial and private interests, and hindering lobbying by non commercial entities that are often pursuing a broader interest 20(I)(cc) Expenses of representation an amount paid by the taxpayer in the year as or on account of expenses incurred by the taxpayer in making any representation relating to a business carried on by the taxpayer, (I) to the government of a country province or state of to a manciple or public body performing a function of government in Canada of (ii) to an agency of a government or of a municipal or public body referred to in subparagraph (i) that has authority to make rules regulations or by laws relating to the business carried on by the taxpayer including any representation for the purpose of obtaining a licence permit franc haise or trademark relating to the business carried on by the taxpayer . this ability to deduct lobbying expense exacerbated the public policy debate problem described above. For example, a charitable organization dedicated to the protection o west coast marine environments and species may oppose the animal herring roe fishery as destructive and wasteful. This charitable organization would need to be very caution; about how it raised its concerns, opinion; and options. with the public and the federal Department of Fisheries and Oceans for feat of running a foul of advocacy rules. In contrast, a herring roe processing and exporting company could engage in a lobbing, effort in have the season extended or catch limitations, and then deduct the expenses of these efforts from their income tax purposes. Similarly, a charitable organization dedicated to the relief of poverty that wants a provincial government to increase the minimum wage must be very careful how it advocates for such change . Yet a meat parking company that opposes such a change can lobby the expenses, and pay less income tax An additional unfairness is that as individual employee of the company who wanted to lobby government for changes to employment standards or safety legislation Would have to pay for it with after-tax dollars these provisions of the Income Tax Act have the peculiar effect of encouraging lobbying of government by commercial and private interests and hindering lobbying by non commercial entities that are often pursuing a broad public interest. “The argument has been made that, since these deductions air also being diverted from public coffers, the treatment might be made more equal' another related anomaly is that the income tax act also allows businesses to deduct advertising expenses from income, thus reducing their tax burden. This creates Difficulties Arising From the Current Law • 17 a form of tax incentive for businesses to lobby the public through advertising, with no restriction as to what they can say. Charitable organizations do not enjoy such an incentive or freedom. In summary, there is inconsistency and unfairness in the tax treatment of lobbying, advertising and advocacy by businesses, charitable organizations and individual citizens. V) TAX TREATMENT OF POLITICAL DONATIONS Another provision of the Income Tax Act that highlights the inconsistency of tax policy and broader public policy in this field is section 127(3), which addresses contributions to registered parties and candidates. It provides that: There may be deducted from the tax otherwise payable under this Part for a taxation year in respect of the total of all amounts each of which is an amount contributed by the taxpayer in the year to a registered party or to an officially nominated candidate at an election of a member or members to serve in the House of Commons of Canada (in this section referred to as “the total”), (a) 75% of the total if the total does not exceed $100, (b) $75 plus 50% of the amount by which the total exceeds $100 in the total exceeds $100 and does not exceed $550, (c) the lesser of (i) $300 plus 331/3% of the amount by which the total exceeds $550 if the total exceeds $550, and (ii) $500, if a receipt from the party or candidate is provided. Most provincial legislation mirrors this provision. For example, see section 20 of British Columbia’s Income Tax Act. Note that these provisions provide for a deduction from “the tax otherwise payable” rather a deduction from income for the purposes of determining income tax payable as with lobbying expenses. Political parties and candidates are provided with very favourable tax treatment in Canada. The point made here is not that deductability of donations to political parties or candidates is wrong or benefits only corporations; indeed, this development can be viewed as important encouragement for citizen participation in public processes. The intention here is to again point out the complexity, inconsistency, and at times irrationality of income tax policy in this area. As one observer states: The fact is that the tax system provides groups, businesses and individuals all manner of fiscal benefits, ranging from favourable tax treatment to direct subsidies, without restricting or limiting their political involvement. Whether special provisions for deduction of expenses in earning business income, or full deduction of losses against income, or special treatment of capital gains, or political tax credit for contributions to registered parties and candidates, the state invariably uses the tax system to promote a range of economic, social and political goals. The argument that registered charities must be prevented from significantly engaging in political activity, either through support for (or opposition to) candidates or through developing and advocating particular policies and laws, dissolves in the face of the extent to which the state supports all sorts of individuals and groups, including business, without restricting their involvement 33 18 • THE LAW OF ADVOCACY BY CHARITABLE ORGANIZATIONS fl) TYPES OF ADVOCACY mother anomaly from the current law is ad istinction that appears to bc made between advocacy directed toward: a) public a opinion b) politicians and c) the courts the two onus of advocacy. are restricted as described above, but the rules appeal to be much more There is some irony here, for in the age of the charter of rights and freedoms, changes to the law can in many circumstances be brought about most effectively through the courts rather than by lobbying politicians or attempting to sway public opinion. It seems inconsistant to allow change through the courts to limit change through other avenues, G. Lessons from Other Jurisdictions • Importance of an issue to an organization is a relevant factor in determining permissible lobbying activity.35 I) THE AMERICAN MODEL There are lessons to be learned from the American experience with this issue. Through legislation passed in 1976 and detailed regulations issued by the U.S. Internal Revenue Service (“IRS”) in 1990, the United States adopted a system that provides much greater latitude and clarity for charitable organizations involved in advocacy or lobbying.34 Prior to 1976, the IRS applied a “substantial part” test to all charities involved in lobbying. Similar to the 10 percent rule enforced by Revenue Canada, this test prevented charities from engaging in “substantial” lobbying - an ill-defined and uncertain standard. The charitable group Independent Sector, which educates charities “about the important and appropriate role lobbying can play in achieving their missions,” identified the following weaknesses with this test in brief terms: These problems are very similar to the difficulties faced by Canadian charities under the existing Canadian rules. According to Troyer, this restrictive test led to denials of charitable status and “a good deal of anxiety in the charitable community.”36 This in turn led to years of work by charities and Congress to devise an alternative approach, which is now well established. The current system is optional for charities, which can choose to be bound by the old “substantial part” test, or opt into the new system. The two fundamental elements of the new system are: a) that it provides clear definition of the concept of permissible lobbying, and b) that it establishes easily understood expenditure limits for permissible lobbying. • Organizations operate under vagueness and uncertainty over possible dire tax results of engaging in lobbying. • Quantitative and qualitative standards of measuring lobbying activities. • No certain and definitely allowable amounts of lobbying expenditures. • No safe harbor exceptions. • A single year violation may result in loss of tax exempt status. • Managers of non-electing organizations may become subject to penalty tax due to an organization’s lobbying activities. A) DEFINITIONS “Lobbying” or “attempting to influence legislation” means: I. Any attempt to influence any legislation through an effort to affect the opinions of the general public or any segment thereof (grass roots lobbying), and 2. Any attempt to influence any legislation through communication with any member or employee of a legislative 19 I M PA C S 20 • THE LAW OF ADVOCACY BY CHARITABLE ORGANIZATIONS or employee who may participation in the formulation of legislation (direct lobbying). The definition goes on to state that “attempting to influence legislation' does not include the following, activities 1. Making available the results of nonpartisan analysis, study or research It, 2. Examining and discussing broad social, economic and similar problems, 3. Providing technical advice or assistance (where the advice would otherwise constitute the influencing of legislation) to a governmental body or to a committee or other subdivision tin mid m response to a written request by that body or subdivision, A Appearing before or communicating with, any legislative body about a possible decission of that body the members to urge nonmembers to attempt to influence legislation as explained earlier this definition efforts goes a long way to clarifying what charities can do in this field. They can attempt influence legislation, but thru expenditures on these activities must not exceed the limits discussed below. activities I through 5 above are expressly slated to fall outside the definition of "attempting to influence legislation” so charities may engage in them without limit limitations Expenditures on activities 1 through me not part of the calculation to determine whether charities have complied With the lobbying expenditure limits. Expenditures LIMITS on permissible LOBBYING The American system creates a relatively Simple formula that prescribes the expenditure limits on lobbying by charities. The basic of the formula are these these: might affect the existence of the organization its powers and duties, Its tax exempt status, of the dedction of charities can spend up to 20% of the first $500000 of their "exempt contributions to the organization, in purpose expenditures” (essentially their 5 Communicating with a government annual budget). official employee, other than • as a charity "exempt purpose a, A communication with a member or expenditures rise above $500,000, the employee of a legislative body (when percentage of these incremental dollars die communication would otherwise that i an bc spent on lobbying falls in constitute the influencing of stages from 20% to 5%. legislation of • the maximum that can be spent by any h, A communication with the principle charity on lobbying is $ 1,000,000 purpose of influencing legislation annually. This requires an annual budget of over $17,000,000. the IRS goes on to explain that [a]|lso •the formula also sets the limits for excluded are communications between an "grassroots” lobbying efforts, which organization and its bona fide members are lobbying, expenditures that are about legislation or proposed legislation of made to influence legislation by direct to the organization and the attempting to affect the opinions of the members, unless these communications general public or any segment thereof.” directly encourage the members to attempt to influence encourage theylegislation form partorofdirectly the general lobbying to outage limits. Lessons from Other Jurisdictions • 21 Exceeding these limits does not automatically result in a loss of tax exempt charitable status. Rather, the excess lobbying expenditures become subject to a 25% excise tax. Tax exemption will only be lost if the sum of a charity’s lobbying expenditures exceeds the limits imposed by the formula by more than 50% over a moving four year period. The following benefits of this new system have also been summarized by the charitable group Independent Sector: • Tax certainty for charities engaged in lobbying; • Strictly quantitative standards for measuring permissible lobbying activities; • Certainty as to the allowable amount of lobbying expenditures; • Safe harbor expenditures; • No jeopardy to tax-exempt status for a single year’s violations; • Managers of electing organizations never become subject to a penalty tax by reason of an organization ’s lobbying activities; and • Importance of an issue to an organization is not a relevant factor in measuring permissible lobbying activities. In summary, there are important common themes between the American and Canadian experiences with the issue of advocacy or lobbying by charitable organizations. The problems that are now becoming acute in Canada existed in the United States prior to 1976. They led to a cooperative effort between American charitable organizations and legislators, which resulted in creative solutions to the problems. A similar cooperative approach is due in Canada. II) THE ENGLISH MODEL The most important lesson available from the English model is its administrative structure. While thorough treatment of the issue of optimum administrative structure would require a separate major paper, this model is worth brief mention here. The Charity Commission for England and Wales is a government body consisting of non-elected members responsible for “registering, monitoring, supervising and advising charities, promoting the effective use of charitable resources and promoting and making In France, nonprofit effective the work of the charity in organizations receive meeting the needs designated by its trusts.”38 It is a product of the favourable tax Charities Act, 1993, and is separate treatment, but there from Inland Revenue, which is responsible for tax collection. are no prohibitions Boyle credits the Charity on their political Commission with a “combination of a consultative approach and activity. careful reasoned decisions.” “Decisions are made in a consul­ tative, open process frequently involving input from the applicant and Inland Revenue with involvement from the larger community being sought in cases where public input would be helpful.”39 Further, the Commissioners themselves expressly boast that they “have the capacity to respond to changing circumstances and needs of charities.”40 The benefits of the Charity Commission have been well recognized in Canada. Ill) AUSTRALIA Like Canada, Australia inherited the English common law system, and scholars, lawyers and courts in both countries often look to the other for lessons or guidance on legal and public policy issues. Unfortunately, Australia’s handling of the issue of advocacy by charitable organizations does not appear 22 • THE LAW OF ADVOCACY BY CHARITABLE ORGANIZATIONS to provide an example lor Canada to emulate. A textbook that provides a comprehensive <■ analysis of non-profit law around the world states that in Australia "the legal and regulatory treatment of non profit associations is lax and muddled."" On close scrutiny, it is evident that Australia many of Canada’s problems in this field, but has not yet implemented solutions their political activity , as long as the bylaws of the organization permit it, and the activity is not seditious.1' Permissible activities include 1 active participation in legitimate campaign activities 2 active lobbying for legislation with the government or ; raising money for political campaigns IV) OTHER countries The legal concept of charity asit sused in Canada is generally shared by In in countries with legal systems based on the English common law in the Other countries where variety regarding the underlying organizations akin legal principles history rest of the world there is great to Canadian charities variety regarding the underlying receive favourable tax legal principles history terminology administration and ax treatment of activities called charitable under the common law. treatment but are Despite these differences and the not restricted from resulting complications it is interesting to see how other countries deal engaging in advocacy with this issue of advocacy by include Israel, organizations akin to charities and to see that some countries provide Spain, Japan and far more latitude than Canada South Africa, For example in France non profit organizations receive favourable tax treatment but there are no prohibitions on their political activity as long as the bylaws of the organization permits itand the activity is not seditious permissable activities include similarity there are no restrictions on non profit organiztons in the Netherlands with regards to lobbying, advocacy, or other political activities. Organizations that are involved in these activities receive the same tax treatment as other nonprofit organization. The only limitation is that it is forbidden to have a purpose or preform activities that undermine the public order the same approach applies in Italy, where according to salamon, the absence see how other political activity has resulting in increased advocacy by nonprofit organizations participation those dedicated to inproving healthcare " Other countries where organizations akin to Canadian charities receive favourable tax treatment but are not restricted from engaging in advocacy includeIsreal,Spain,Jap n and South Africa H. Options n order to better understand the models and options in this field, it may be helpful to view them on a spectrum. At one end (the restricted end) is a complete prohibition against any advocacy activities by charitable organizations. At the other end of the spectrum (the unrestricted end) there are no limits on advocacy activities by charitable organizations. The current approach in Canada would fall to the restricted end of the spectrum, while the American approach is closer to the unrestricted end. Below are three other approaches that represent different points on the advocacy spectrum. I I) THE BROADBENT PANEL REPORT The Broadbent Panel Report included, a wide range of recommendations. One bears directly on the issue of advocacy, discussed under a heading “Proposals for Better Regulation.” The Panel suggested that government: Reaffirm and maintain the legitimacy of space for non-partisan political advocacy. While partisan activities should continue to be forbidden, the right to bearing a public witness on an issue affecting the very purpose of a charitable organization should be affirmed. The rules governing advocacy activity need to be clarified in ways that against arbitrary application and that cohere with the values of a healthy civil society. In particular, the 90/10 rule has to be regarded as only an approximate standard since allocations under it are extremely difficult for a registered organization to calculate or Revenue Canada to measure. The important tests are that the rule not be applied in an arbitrary or unduly restrictive manner.47 The Panel does not provide a draft of new definitions or rules to deliver clarity, nor does it provide a specific alternative to the 10 per cent rule created by Revenue Canada. Instead, the Panel has flagged these as important issues and left more detailed recom­ mendations for a later stage. In terms to the advocacy spectrum, the Panel Report approach would be less restrictive than the current approach in Canada. However, it is not a radical move to the other end. II) JOINT TABLES REPORT The Joint Tables Report advanced some of the Broadbent Panel’s recommendations, providing a new and clearer definition of advocacy. It stated: 24 • THE LAW OF ADVOCACY BY CHARITABLE ORGANIZATIONS Instead of the current definition, section 149 of the Income Tax Act should be changed to permit “political activities” by charities, provided that: a. the activities relate to the charity’s objects, and there is a reasonable expectation that they will contribute to the achievement of those objects; and b. the activities: i. are non-partisan; ii. do not constitute illegal speech or involve other illegal acts; iii. are within the powers of the directors of the organization; iv. are not based on information that the group knows or ought to know, is inaccurate or misleading; and v. are based on fact and reasoned argument. Little merit is seen in quantitative limits on the extent of political activities, whether set in law or through departmental policy, although such activities cannot become predominant. the contention here however, is that the 10 percent ceiling allow* far too narrow a scope a* a general guidance.4* This definition amounts to a modest clarification of the current Canadian law. Political activity or advocacy would be permitted, but In limited circumstances The current requirement that charities provide “balanced information” is replaced with a greater freedom to advocate based on accurate facts and reasoned argument. However, charities would not be permitted to advocate based on misleading, Inaccurate or unlawful information, ( Earnies are plagued with the uncertainly of what activities can or cannot be engaged in, as well as how much of that activity can bc done. The Joint Tables clarification is helpful on these issues, hut does not provide complete clarity. Although critical of the 10 per cent rule as too restrictive, the report does not provide an alternative as to the amount of political activity that would be permissible. I he rule that “political activities shall not become predominant” does not provide a clear line as to where predominance begins. This rule could give charities much greater latitude, replacing the 10 percent rule with a 50 percent rule, for example. the lack of quantitative limits for advocacy poses further problems. Uncertainty and the possibility of arbitrary application of limits remain. A quantitative formula to measure political activities is a strength of the American approach, as it provides an objective tool for making determinations on such activities. In turn, the quantitative formula provides greater certainty and direction for managers of charities. Further, regulatory audits will be less subjective and arbitrary when reviewing expenditure limits lor political activities. These advantages are significant. Ill) ADVOCACY AS A CHARTER RIGHT The freedom of expression is a fundamental freedom enshrined in section 2(b) of the Canadian charter of Rights and Freedoms. Professor Peter Hogg has observed that "Canadian judges have always placed a high value on freedom of expression as an element of parliamentary democracy and have sought to protect it... it is obvious that political speech is at the core of s. 2(b) of the (charter...”|l' It has been argued that the current restrictions on advocacy by charitable organizations are a violation of the freedom of expression.'’0 Edward Hyland has made the Charter argument, and suggested an administrative model in which the only restriction lor advocacy for charities “would bc a prohibition against providing any Options • 25 material or organizational or human­ resource support” in electoral campaigns.51 “|C]harities would be required to provide audited statements of disbursements, as well as an accounting of their involvement in political campaigns” to regulators and the public, but would otherwise be free to engage in political activity and advocacy as they wish. He argued that this approach would provide clarity, administrative simplicity, and accountability for all involved.52 Hyland’s model is even farther along the unrestricted end of the spectrum than the American approach, as he opposes any quantitative spending limits on political activity. The Charter argument underlying this model has not been successful with the courts. In two cases, the Federal Court of Appeal has found that no breach of freedom of expression occurred when two charities were stripped of their registered status on he grounds that they were too political. In Alliance for Life (1999), the court quoted with approval an earlier decision that made the point bluntly: With respect to the Charter argument based on alleged infringement of freedom of expression, the basic premise of the appellant is untenable. Essentially its argument is that a denial of tax exemption to those wishing to advocate certain opinions is a denial of freedom of expression on this basis. On this premise it would be equally arguable that anyone who wishes the psychic satisfaction of having his personal views pressed on his fellow citizens is constitutionally entitled to a tax credit for any money he contributes for this purpose. The appellant is in no way restricted by the Income Tax Act from disseminating any views or opinions whatever. The guarantee of freedom of expression in paragraph 2(b) of the Charter is not a guarantee of public funding through tax exemptions for the propagation of opinions no matter how good or how sincerely held.53 While the courts have not applied the Charter to overturn the existing rules governing advocacy by charitable organizations on this basis, the practical reality is that the unclear and restrictive rules impede charitable organizations from adding their often well-informed voices and opinions to the public debate. As described above, this impediment is substantial because of the potentially dire consequences for charitable organizations that violate the advocacy rules. In effect, the government is achieving indirectly thorough tax policy what it cannot do directly - explicitly prohibit charitable organizations from expressing their opinions. This conflict between fundamental principles and administrative practice should not be dismissed lightly. I. Conclusions t is dear from a review of the issues of advocacy by the charitable I organizations that the current canadian approach is inadequate and in need of significant change improvements should include: • a clear legal definition of permissible advocacy • clear quantifiable spending 10 % rules the • flexible regulatory options for the enforcement of the new rules • greater transparency on the part of the federal regulators of this field and increased financial disclosure requirements concerning advocacy activities by charities The American model detailed above provides a very useful guide, and could be adapted In meet Canadian circumstances Parliament should build on the Broadbent Panel and the joint tables and make these changes as part of a modernization of the field of Canadian charity law Appendix SUMMARY OF CANADIAN CASES he following case summaries describe publishing a newspaper on issues of concern the recent Federal Court of Appeal to the aboriginal community were held to be judgments that address the issues of beneficial to the community (implied the charitable status, the Income Tax Act and community as a whole and not only the political activity. The summaries are drawn, aboriginal community) and hence charitable. with some minor changes, from Frances The Court examined the activities proposed to Boyle’s paper ‘“Charitable Activity’ Under be conducted and held that there was no the Canadian Income Tax Act: Definition, political activity, based on statements that the Process and Problems” a background paper newspaper was politically non-aligned, despite for the Voluntary Sector Roundtable, 1997, references in the society’s objects to providing at 22-26. One additional subsequent case has information on political matters which the been added, as has reference to a 1999 court characterized as related only to decision of the Supreme Court of Canada “procurement and delivery of information.” on an appeal from the Federal Court of Although hailed at the time as a “truly Appeal. Canadian definition of charity” and a ground­ breaking case |see Ellen B. Zweibel “A Truly Scarborough Community Legal Services v. Canadian Definition of Charity and a Lesson The Queen, [1985] 1 C.T.C. 98, 85 D.T.C. in Drafting Charitable Puposes: A Comment 5102 (EC.A.) on Native Communications Society of B.C. v. This decision found that political activities in M.N.R.” (1987) 26 Estates and Trusts Reports the form of participation in rallies and work 41], its impact in subsequent decisions has been to change municipal by-laws would not diminished by focus on statements in the invalidate charitable purposes because they decision relating to “the special legal position were non-essential and incidental to other in Canadian society occupied by the Indian charitable activities. This issue was addressed people.” by the amendments to the Income Tax Act in 1985-86 to permit limited political activity. Alberta Institute of Mental Retardation v. The Queen, [1987] 2 C.T.C. 70, 87 D.T.C. Native Communications Society of British 5306 (F.C.A.) Columbia v. M.N.R., [1986] 2 C.T.C. 170, the court in this case decided that commercial 86 D.T.C. 6353 (F.C.A.) activities carried on by this charitable In this case, the Court analysed the fourth foundation were acceptable on the basis that category from Pemsel’s Case within the context all proceeds went to further the principal of the “spirit and intendment” of the Preamble, objects of the foundation, the welfare of however noting that the law of charity is a persons suffering developmental handicaps. moving subject. The activities of the society in The activity in question was the collection of T 27 ( 28 •THE LAW OF ADVOCACY BY CHARITABLE ORGANIZATIONS second hand items delivered to an unrelated business entity which in turn sold the items at retail stores. The charity received a fixed minimum amount and a percentage of profits over a set amount. A factor considered by the Court was that one of the objects of the charity was to raise money lor its work with the disabled. On this basis, it held that the business activity was not an unrelated business and did not affect the foundation’s charital purposes poses Revenue Canada applied for leave to appeal this decision to the Supreme court of Canada, but leave was denied. Polish Canadian production Society p. MN,R.t |IMN7| I C.I.C, HM, MT D.T.C. 5211 (RC.A,| An organization with objects to advan ing multiculturalism, in particular the polish Canadian community, was held not to be charitable, the court gave essentially no reasons for its decision and declined to* ex pess a view as to whether such objectives are to be he considered charitable within the terms of the income tax act positive action against pornography or MNR 1988 6lHh (hC.A.) A group Involved in antipornographic lobbying and distribution of edm educational materials wax found not to be charitable the court that it did not meet the test for advancement to education since the organization merely presented selected items of information merely the selected items of information the benefits to the community test was not met either since the primary purpose and activities were political, and were mil ancillary of incidental to other purposes the decision included upon to decide what is beneficial to the community in a loose sense, but only what is beneficial in a way the law regards as charitable," Toronto Volgograd Committee v. M.N.R., 1988| I C.T.C. 165, 88 D.T.C. 6192 (EC.A.) An organization devoted to promoting peace and understanding between Toronto and Volgograd in the U.S.S.R. through education, public awareness exchanges and meetings was found not to be charitable. Although the Judge acknowledged that the Court is to consider prevailing circumstances and to look at eligibility in light of current societal conditions, the organization was disqualified under both the education and benefit to the community heads since its activities and objects were categorized as "no more than propaganda,” being “education for a political cause, by the creation of a climate of opinion.” NDG Neighbourhood Association v. Revenue Canada 1988| 2 C.T.C. 14, 88 W.C, 6279 (E.C.A ) A community organization with focuses on social Issues in the community, accessibility to community resources, development of educational facilities and services to the disadvantaged, was held not to he charitable, again on the grounds of political activity. The non exclusive assistance to the disadvantaged negated the poverty head, while providing information and conducting letter writing campaign were considered as not educational. the emphasis on lobbying efforts and “defending people's rights” made the organization too political for these activities to be incidental and ancillary. Because the organization “not only has activities beyond education but that it is in effect an activist organization“ it failed to qualify as a charity. National Model Railroad Association v. M.N R. 1989| I C.T.C. 89, D.T.C. 5133 (EC. A.) Despite pm poses that the Court found satisfactorily stated recognized charitable pm poses (education and other purposes beneficial to the community), a national association promoting model railroads and Appendix:Summary of Canadian Cases • 29 information of railways generally was found to have activities “too member-oriented to have a truly public character.” Everywoman’s Health Centre Society v. Canada, [1991] 2 C.T.C. 320, 92 D.T.C. 6001 (F.C.A.) A society with objects of providing “necessary medical services for women for the benefit of the community as a whole” and carrying on “educational activities incidental to the above” in the form of a free-standing abortion clinic was found to be eligible for registration as a charity. The Court analogized the legal health services provided to those of a hospital, and expressly disapproved Revenue Canada’s position that benefit to the community could not be found in a controversial issue where no public consensus exist, saying public consensus is not an appropriate test. The Court also found there to be no hint that the Society would be engaging in political activity. The Court’s decision was that the “Society’s purposes and activities at this point in time [i.e. the operation of the clinic] are beneficial to the community within the spirit and intendment, if not the letter, of the preamble to the Statue of Elizabeth and... the Society is a charitable organization within the evolving meaning of charity at common law...” and should be registered under the Income Tax Act. This decision is important, not just for its stance on a controversial issue, but also by virtue of the use of language of public advantage, bringing into play the view that the test has changed to one of activities which are presumptively (prima facie, in legal terminology) of public benefit. | Blake Bromley “Contemporary Philanthropy - Is the Legal Concept of “Charity” Any Longer Adequate?” In D.W.M. Waters (Ed.) Equity, Fiduciaries and Trusts 1993, Carswell, 59-981. Canada UNI Association v. M.N.R. [1993] I C.T.C. 46, 151 N.R. 4 (F.C.A.) An organization with objects of informing Canadians about the unique nature of Canada, establishing communication between Canadians and enhancing appreciation and tolerance of linguistic and cultural differences, all with special emphasis on English- and French-speaking Canadians was held not to be a charity. The Court found the organization’s objects and activities to be inherently political and virtually the same considerations applied as in the Toronto Volgograd case. The Native Communications Society case was found to be different because of the special position of natives in Canadian society. Briarpatch Inc. v. Her Majesty the Queen, [1996] 2 C.T.C. 94 (F.C.A.) This was the first case involving a full hearing of a decision by Revenue Canada to de-register a charity. The organization, which had objects including communications, media access, educational workshops and breaking down barriers, with a focus on low income people, had as its main activity the publication of a magazine, “Briarpatch.” The Court agreed with Revenue Canada that the society’s activities were no longer charitable and ordered the charity de-registered. The Court said that there was not sufficient “continuity, structure and analysis” to qualify as education in the sense of training the mind. It also found that there was no purpose beneficial to the community in general by way of analogy to the Native Communication Society case since the focus of the magazine was not exclusively of direct relevance to the poor. The comment on the special constitutional status of native people was confirmed. Vancouver Regional FreeNet Association v. M.N.R., [1996] 3 C.T.C. 102 (F.C.A.) A “Freenet” association with purposes including the development and operation of a free, publicly accessible community computer utility, education of the public in the use of computer telecommunications and related objects was held to be eligible for registration as a charity. The Court reached this decision by analogizing the “information highway” to 30 • THE LAW OF ADVOCACY BY CHARITABLE ORGANIZATIONS the highways and other public works referred to in the Preamble. Thus, despite the new test possibly evident in the Everywomen's Health Centre case, the Court has revelled to the “spirit and intendment" of the 1601 statute for its authority. Vancouver Society of Immigration and Visible Minority Women v. M.N. R., 1999 I S.C, R 10, 2 C.T.C. 85 (EC.A.) A society with objects of providing educational forums and workshops to immigrant women to help them find employment, and carrying on incidental and ancillary political activ es and raising funds for these purposes, was held not to bc eligible for registration as a bill charity the court once again limited the scope of the Native communications society case based upon the special constitiutional status aboriginal peoples and declined to find that the society;s services to groups protected by the canadian charter of rights and freedoms brought it within equivalent constitutional grounds, the decision was largely based on what the Court characterized as indefinite and vague purposes and activities which did not, which did not clearly identify the recipient as persons in needed of charity as opposed to those in need of help I the court repeated the principle that laudable community services are not necessarily charitable at law and activities and objects of charitable at the law and activities and objects of generals public utility are not always charitable In the legal sense In February 1999 the supreme court of Canada upheld the Federal court of Appeal decision on the name grounds the purposes were too vague and indeterminate to permit the society to qualify for charitable status under the the fourth head of Pemsel While the description taken a rather narrow approach to the facts at Issue, it does urge substantial reform of charitable law by Parliament and it taken a broader, more modern view, of education than earlier cases, Alliance for life v. M.N.R., 11999] CiMNwellNai 625 (EC.A.) this case again illustrates the difficulty of distinguishing between education and political advocacy. it involved an organization that was de registered by Revenue Canada on the basis that its educational activities were in fact efforts annual activities were in fact efforts to promote its political views on pro-life issues In order to influence public attitudes. The federal court of Appeal agreed with Revenue Canada has apparently with some difficulty. After reviewing the organizations activities, stone | A. slated While it is true that some of the materials therein may be viewed as scientific or certainly not as particularly one-sided, little attempt is made to promote genuine debate on such important issues as ablution and euthanasia but, rather, to advocate strong, opposing positions... I do not find in much of the disseminated materials any real desire to ensure objectively. It is not, in my view, far fetched to regard the bulk of these materials as "political ” Bibliography CANADA Positive Action Against Pornography v. M.N.R., [1988| 1 C.T.C. 232, 88 D.T.C. 6186 (F.C.A.) Alberta Institute of Mental Retardation v. The Queen, [1987] 2 C.T.C. 70, 87 D.T.C. 5306 (F.C.A.) Scarborough Community legal Services v. The Queen, [1985] 1 C.T.C. 98, 85 D.T.C. 5102 (F.C.A.) Alliance for Life v. M.N.R. [1999] CarswellNat 625 (EC.A.) Toronto Volgograd Committee v. M.N.R.., [1988] 1 C.T.C. 365, 88 D.T.C. 6192 (F.C.A.) CASES Briarpatch Inc. v. Her Majesty the Queen, |1996] 2 C.T.C. 94 (F.C.A.) Vancouver Regional PreeNet Association v. M.N.R., [1996| 3 C.T.C. 102 (F.C.A.) Everywoman’s Health Centre Society v. Canada, [1991] 2 C.T.C. 320, 92 D.T.C. 6001 (F.C.A.) Vancouver Society of Immigrant and Visible Minority Women v. M.N.R., [1999] 1 S.C.R. 10, 2 C.T.C. 85 (F.C.A.) National Model Railroad Association v. M.N.R., [1989] 1 C.T.C. 89, D.T.C. 5133 (F.C.A.) UNITED KINGDOM Bowman v. Secular Society, [1917] A.C. (H.L.) 406 Native Communications Society of British Columbia v. M.N.R., 11986] 2 C.T.C. 170, 86 D.T.C. 6353 (F.C.A.) The Commissioners for the Special Purposes of the Income Tax Act v. Pemsel, [1891] A.C. 531 (H.L.). N.D.G. Neighbourhood Association v. Revenue Canada, [ 19881 2 C.T.C. 14, 88 D.T.C. 6279 (F.C.A.) CIRCULARS Polish Canadian Television Production Society v. M.N.R.., [1987] 1 C.T.C. 319, 8; D.T.C. 5216 (F.C.A.) Canada Customs and Revenue. Registered Charities - Ancillary and Incidental Political Activities. Information Circular 87-1, 1987, available at http://www.ccra-adrc.gc.ca/EZ pub/tp/871et/87 le.txt.html. 31 32 • THE LAW OF ADVOCACY BY CHARITABLE ORGANIZATIONS —RC4107E - Registered Charities: Education, Advocacy and Political Activities, draft publication available nt http://www.ccra-adrc.gc.cn/lVpub/tg/ rc4107eq/rc4107dc.pdf. —- Supplementary Paper A, “Education, Advocacy and Political Activity,” available at http://www.ccp.ca/inlormation/documents/ joint tnble/gd46c pa.him. TIXT8 REPORTS Boyle, Erances K., Charitable Activity Under the Canadian Income Tax Acti Process and Problems, a background paper for the Voluntary Sector Roundtable, IMU7, Hyland, Edward, ('hardies and Ibdithdl Activity: Reeonsiderinft Traditluddl Limitations and ProbibithiHh Ihipuhlhlwd paper for Centre for I he Study llf NtAte It Market, Unlveridly of Ibronto, I HI, Panel on AvvountBbUhy and Hocernanee In the Voluntary Sector, IMlring CkllwdtaNll Improving (hnmant^ and AtfiiHHtdhlllty in the Voluntary lei'lor (OttawAt Voluntary Sector HomidMblv, I MW), Available At httpi// www.wehmet/vxrtrub, Report of the ChArlty ClomiMitineN h»r England and Walei for 1W, for charities as explanation of the new rules ABA tax section May 18 1991 Bourgeois, Donald J |., I 995, The Law of charitable and Noh profit Organizations, 2nd IUI< London: Butterworths). Urai he, Arthur B.C., Q.C., Canadian Taxation of ( ha ri lies and Donations flbroiHm ( ai swell, I 999). Dl'Ache, Arthur B.C., QX\, The Charity & Not Por Profit Sourcebook (Scarborough: (.Atwell, 1999). Hogg, Priri W„ Constitutional Law of Canada Student Edition, 4th (Scarborough: Carwell, 199g), Mi (hnim k,N,, “ Public Policy, Public (199 S) Iron! N Centre, Vol. 2. No. 1, at httpi//www.u p.i a/inlormation/ documentx/k 41.him. Nalammi, I eMri M., rhe International Guide hl Nonprofit l aw ( Toronto: John Wiley & Soni, 1997), f ITATUTES CANADA hhome h/\ Ai t, R.S.C. c.l (5th Supp.). UNITED KINGDOM working together a government of Report of the Joint tables, August, 1999 available At httpi//wwwlccplCA/information/ documenti/|oint table/ gd 46 e full.pdf. Statute of charitable Uses (U.K.), 43 Eliz. 1, i.4 (also known as the Statute of Elizabeth). Notes 1 For an example of critical judicial comment on this field see the decision of Strayer J.A. of the Federal Court of Appeal in Human Life International in Canada Inc. n. The Minister of National Revenue, (1998) EC. 202 (C.A.). An example of scholarly criticism comes from Arthur B.C. Drache, Q.C. in Canadian Taxation of Charities and Donations (Toronto: Carswell, 1999). At page 1-15 he states that “the problem of charities and political activity [which includes advocacy] has been a serious one for at least ten years.” 2 In late 1999, Revenue Canada changed its name to “Canada Customs and Revenue Agency.” For the sake of familiarity and ease, “Revenue Canada” is used in this paper. 3 For a succinct discussion of advantages and disadvantages of registered status, see Donald J. Bourgeois, The Law of Charitable and Non-profit Organizations, 2nd Ed. (London: Butterworths, 1995) at pp. 177178. 4 Income Tax Act, R.S.C. c.l (5th Supp.), s. 149(1)(1). 5 See the summary entitled “What’s in a Name ‘Non-Profit, Charitable or Voluntary’” in “Working Together - A Government of Canada/Voluntary Sector Joint Initiative,” Report of the Joint Tables, August, 1999, p. 16. 6 An excellent and recent summary of the nature and scale of the voluntary sector is found in “Building on Strength: Improving Governance and Accountability in Canada's Voluntary Sector” Panel on Accountability and Governance in the Voluntary Sector, Final Report, February, 1999, p. 13. Note that the statistics summarized above include hospitals and institutions of higher learning, which account for 56 percent of the employment in the sector. 7 Ibid. 8 An example is the Enterprising Non-profits Program established by the VanCity Community Foundation. It is designed to help members of this sector develop entrepreneurial skills to survive and prosper in this new, more difficult environment. I he Broadbent Panel Report is available at http://www.web.net/vsr-trsb. 10 the Joint Tables Report is available at http:// www.web.net/vsr~sb. 11 Supplementary Paper A, “Education, Advocacy and Political Activity, ” p. 1. 12 The Commissioners for the Special Purposes of the Income Tax Act v. Pemsel [1891] A.C. 531 (H.L.). 13 Ibid., p. 583. 14 The preamble’s charitable purposes include: “ The relief of aged, impotent and poor people; the maintenance of sick and maimed soldiers and mariners, schools of learning, free schools and scholars in universities; the repair of bridges, ports havens, causeways, churches, sea-banks and highways; the education and preferment of orphans; the relief, stock or maintenance of houses of ' correction; the marriage of poor maids, the supportation, aid and help of young trades­ men, handicraftsmen and persons decayed; the relief or redemption of prisoners or captives; and the aid or ease of any poor inhabitants concerning payment of fifteens, setting out of soldiers and other taxes.” 15 Bourgeois, supra, p. 12. 16 Ibid., p. 13. 34 • THE LAW OF ADVOCACY BY CHARITABLE ORGANIZATIONS 17 Frances K. Boyle in “'Charitable A< livity' Under the Canadian Income Tax act Definition, Process and Problems".1 background paper for the Voluntary Sri lot Roundtable, 1997 p. 21. 18 Ibid., p. 25. 19 Bowman v. Secular Society, 11 17| A.<. 406 at 442 (H.L.), as quoted by Bomgrots, Ibid, at 25. 20 Briarpatch Incorporated v. I lei Ma/edy ihe Queen [1996] 2 C.T.C. 94. 21 Toronto Volgograd Committee v. Ihe Minister of National Revenue, 119881 I I t 251. 22 N.D.G. Neighbourhood Association Revenue Canada, | |9HH| ) I. EC. 14. 88 D.T.C. 6279 (EC.A.) 23 Positive Action Against Pornography 1 M.N.R., 11988) I C.T.C. ) 12. 88 |) I ( 6186 (EC.A.) 24 Vancouver Society 0/ immigration and visable Minority Women v, M N R ||9U9| | SI II para. 168, 169, 2S Appendix A to the circular is not reproduced here the second draft of the revenue Canada publication rc4107e registered Charities education advocacy and political activities described below contradicts information circular 87-1 and state that "the safe harbour provision is calculated on a yearly basis it does not apply to an amount avaeraged over two or more years." But, uncertaini=ly comes back in the next paragraph of the second draft which says "to decide whether political activity is infrequent and short term we usually look at the organization's history over several years“ p Revenue Canad's website is www.tt la adit aa/l7pnh/lg/h 4 III Ah|/ h 4 HI7dvipdt, H Supplementary paper A, education advocacy and political activity" p, 2. w Hoylv, ^iipia, p 28 Globe and mail. Monday, December 13 1999 comment section 1999, . comment section " as cited in N McClintock Public Policy. Public funds 1995 front & centre. Vol. 2. No. 2, accessible at Information/documents. ,2 Boyle, supra, p. 30. ” I Iyland, supra, p. 25. This summary of American experience relies heavily on an excellent paper by Thomas A. Troyer entitled "What the Non-Specialist Needs Io Know About the Lobbying Rules for C harties Au Explanation of the new Rides" originally prepared for a program presented by the ABA lax Section, May 18, 1991 and reproduced by Independent Sector, A National Forum to Encourage Philanthropy, Volunteering, Not For Profit Imitative and citizen Action, Washington, III (website: http://www.indepsec.org). another helpful source for this information Is a report entitled “lobbying Expenditures” lobbying on the expenditures website: http;// WWW ies.gov/prod/forms ms pubs/pubs/ p5570308. htm). this material is from a brochure published by independent.sector " Their websited is sited in notes 33 ** Suphi, p. I, M Siiphi, p. I. ” Hoyle, mpia, p. 17. •• Ibid. report of the charity commission for England and Wales lot 1997, p. I. Lester M Salamon, The International Guide Io Nonpio/il I aw, (Toronto: John Wiley & StI997) p. 62. 41 Ibid., p. Ill, Ibid. " Ibid., p. 2'1 I. " Ibid., p. 194. u Ibid. 41 Sllphl, p. 71 ’* Si 1 Supplemeintal.il Paper A - "Education, advocacy and Political Activity," p. 3. IS tri W. I logg, Conslitutional Law of Canada, student edition, 4th (Scarborough: I at swell, 1998) p. 831. Ser I I via 1 id, supra. ” Ibid., p. -18. " Ibid., p. <19. ” Alli,line /m Life v. M.N.R. [1999] < atswellN.n 625 (EC.A.) INSTITUTE for MEDIA, POLICY and CIVIL SOCIETY I M P A C S 910/207 W. HASTINGS ST Vancouver, Canada v6b ih6 TELEPHONE: 604 682-1953 FACSIMILE: 604 682-4353 email: media@impacs.org