A judgement for the ages? Ontario court decision opens up possibilities for political advocacy by charities

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Read our update on this story, Government appeal: Federal government plans to appeal recent ruling on political advocacy for charities.

Mark this date down in the charitable sector history books: July 16, 2018. If you’ve not yet heard, that’s the day a decision was rendered in an Ontario Superior Court by Justice Ed Morgan in the case of Canada Without Poverty vs. Attorney General of Canada.

The court found in favour of Canada Without Poverty, deciding that the longstanding rule in the Income Tax Act that restricts charities to a maximum of 10% of spending/resources towards non-partisan, political activities contravenes Charter rights – specifically freedom of expression.

Unsurprisingly, Canada Without Poverty hailed the decision as a watershed moment for charities across the country. Its Executive Director, Leilani Farha, called the ruling “an incredible victory...for Canadian democracy.”

In his decision, Justice Morgan eviscerated Section 149.1(6.2) of the Income Tax Act (ITA) in siding with the charity.

What happened?

In one of his summary points, the justice lays out the nugget of his reasoning:

“In a nutshell, the Applicant, a registered charity under the ITA, argues that public advocacy for policy change is fundamental to its charitable purpose of poverty relief. It contends that without this component its charitable activities cannot accomplish their purpose. It further submits that the impugned section of the ITA is overly broad, confusing, complicated to define and track, and is premised on an incoherent distinction between permitted ‘charitable activities’ and prohibited ‘political activities’ that burdens political expression. While the Applicant understands and does not challenge the prohibition on strictly partisan politics contained ins. 149.1(6.2)(c) of the ITA, it challenges the requirement that substantially all of its resources be devoted to charitable as opposed to political activities.”

Justice Morgan goes on to write:

“There is no doubt that the activity in which the Applicant wishes to engage - public advocacy of policy change - is within the guarantee of freedom of expression.”

Reading through his 16-page decision provides a detailed explanation of the legal reasoning used to get to his ultimate declaration that:

“…the interpretation and enforcement by CRA of the ‘substantially all’ requirement in s. 149.1(6.2) of the ITA by limiting to 10% a charitable organization's use of its resources for political activities, as set out in the CRA Policy Statement, violates s. 2(b) of the Charter… [and]… ss. 149.1(6.2)(a) and (b) are of no force and effect pursuant to s. 52(1) of the Constitution Act, 1982.”

Changing the sector

Imagine Canada released a statement shortly after the decision. Its president and CEO, Bruce MacDonald, said his organization was “pleased” with the ruling.

“It is in line with recommendations made by charities from across Canada and by the advisory panel on political activities that the Minister of National Revenue appointed in 2016,” he said. “It also reflects commitments made by the federal government in its 2015 election platform, and in the Prime Minister’s mandate letters to several cabinet members, including the Ministers of Finance and National Revenue.”

[Note: CharityVillage previously reported on both the Consultation Panel on Political activities and the 2015 mandate letters here and here, respectively.]

MacDonald added that the CRA has been “very unclear” in its interpretation of what constitutes political activities “and have created great uncertainty for charities.”

The ruling, he said, “recognizes that charities should be free to engage in whatever activities their volunteer-led boards deem most effective in order to achieve their charitable purpose as accepted and enforced by the CRA.” MacDonald said this decision provides “a golden opportunity” for charities to proactively engage the government in modernizing charity law in the country in order to streamline and bring clarity to the “hodge-podge” of rules it has been operating under “dating back to Queen Elizabeth I.”

Supporting the legal change

Charitable lawyer, Arthur Drache, of Drache Aptowitzer LLP, also shared his expert thoughts on the Superior Court decision in a July 26 post on his firm’s website.

“The decision creates some huge problems for the federal government which is now faced with (a) lodging an appeal or (b) amending the Income Tax Act provisions which relate to political activities. The decision also means that those charities which are still subject to revocation for such activities may be in the clear. If there is an appeal, the process could take literally years during which time the restrictions of charity political activities will be non-operative,” Drache wrote.

He also notes that Justice Morgan’s decision provides “a reprieve” for Canada Without Poverty, “which has been under formal notice of losing its charitable status since 2016. CRA auditors claimed that 98.5 per cent of the group’s work is political, violating a section of the Income Tax Act in force since 1985 restricting such activity to 10 percent.”

Drache says the decision “raises questions about a $13.4-million political activities audit program launched by the former Conservative government in 2012, which targeted 60 charities, some of whom are still caught. Toronto-based Environmental Defence, for example, was among the first to be targeted, and has been issued notice that its charitable status will be revoked because it exceeds the 10 percent rule. The group has spent $200,000 in legal fees alone to navigate the audit process.”

However, for Drache the ruling is “a great win for the charity community and should, one way or the other, change the landscape as charities can be much more direct in following their stated objectives without fearing the CRA auditors.”

Others were not so pleased with the decision.

A ‘catastrophe waiting to happen’

In Toronto, charity law expert Mark Blumberg of Blumberg Segal LLP, called the decision a “pyrrhic victory” for the sector. He pointed CharityVillage to his blog, Globalphilanthropy.ca, where he posted a lengthy analysis of the case on July 31, and said that long-term, he feared there will be “very negative repercussions for the charity sector” and on Canadian society in general.

“This is going to be a big mess and a distraction for the sector.”

He writes that some people and organizations are “very pleased” with the decision for protecting and providing freedom of expression for Canadian charities, with the view that this ruling will give greater flexibility to charities so they can “have greater impact.”

Blumberg cites a well-known legal adage that states: “Hard cases make bad law.”

“I am sympathetic to some of the views that CWP has on poverty and the importance of government working hard to eradicate poverty,” he writes. But, he adds, “there is a fear that by saying that registered charities have freedom of speech will essentially bring the [example of] the US case [of] Citizens United to Canada… a precursor to huge amounts of dark money entering the US political system and ultimately created the environment that elected Donald Trump as President of the United States.”

In 2016, Blumberg wrote the following:

Citizens United has a role to play in the current US presidential election. Donald Trump wants US charities to have a greater role in political activities and to be able to engage in partisan activities. He supports the US Supreme Court decision in Citizens United. The Democrats on the other hand want to overturn Citizens United to limit ‘free speech’; i.e., spending by the super wealthy on political and partisan activities.”

In referencing Justice Morgan’s decision, Blumberg goes straight for what he considers the heart of this decision, money.

“This case is written in terms of freedom of expression, but it is really about money more than freedom of speech. People who work or volunteer with charities are free to express their personal views on their own time and that can even include partisan activities,” he says. “However, some want more - the ability to be paid using a charity's resources, which are subsidized by taxpayers to express their political views and to not have to do any charitable activities. The 10% to 20% is not enough. They want 100%. As the case notes, there is a difference between ‘free speech’ and ‘subsidized speech’.”

Blumberg said one of the things the CRA can do to avert a flood of organizations from becoming politicized charities is to appeal the case. At time of writing, the agency had not decided on this course of action and had not responded to CharityVillage’s request for comment.

“Within the CRA, I can only imagine that there are differing viewpoints on this decision. There are probably some who are delighted that the courts have said there can be unlimited non-partisan activities, because they then no longer need to police it and almost no one at the CRA was interested in policing resources spent on political activities,” he says. “There are probably others who are worried that this is going to open up a floodgate of what used to be called ‘political organizations’ that are now going to be called registered charities, which will undermine the public’s trust in the charity sector. In the U.S., where the floodgates have been open for a number of years and the IRS’ tax-exempt area has been decimated, you have human rights groups point out that dozens of white power or neo-Nazi groups seem to have no problem registering [for charitable status]. I know that Canada is different than the US, but we are not that different.”

Stay tuned

The CRA and/or the Ministry of National Revenue have yet to release any official statement in reaction to the Ontario Superior court decision. When they do, it seems likely that whatever they say will be met with equal parts joy and derision, depending on where one stands on the case.

Andy Levy-Ajzenkopf is a professional writer living in Toronto. He can be reached at aajzenkopf@yahoo.com.

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