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Charities must follow the law as written

Charities operating on political campaign promises and not following the law as written are making a grave mistake which could cost them their registration, says Toronto charity lawyer Taras Kulish.

Groups like Environmental Defence face deregistration as charities because a Canada Revenue Agency (CRA) audit found they spent more than the allotted 10 per cent on political activities. The group, which opposes pipelines, says it was targeted unfairly by the Harper government along with other left-leaning environmental groups opposed to oil and gas extraction, according to CBC.ca.

Before being elected, Prime Minister Justin Trudeau promised to clarify the rules around what constitutes political activity. Indeed, after taking office, the new government cancelled the next series of audits but let those already underway proceed, the CBC reports.

The law as written says charities can spend no more than 10 per cent of their donations on political activities, the story reports.

Despite an indication rules would be modernized, the reality is the rules remain the same, Kulish, a senior associate with Steinberg Title Hope & Israel LLP, tells AdvocateDaily.com.

Those charities that ignore the current rules on the assumption they will be changed are making a mistake, he warns.

For example, Environmental Defence is on notice that they will lose their charitable status unless their appeals are successful, the CBC article states.

On its own website, Environmental Defence calls for a new definition of political activity: “... the ability of Canadian charities to participate in shaping public policy is vital for a healthy democracy. Engaging in non-partisan political activity should be a right of all charities in Canada. Sadly, it is now constrained by archaic rules and arbitrary guidelines. This must change.

“To be clear, political activity does not refer to supporting a particular political candidate or party but rather advocating for positive change. Many of the improvements that we have in Canadian society – such as strengthening anti-drinking and driving laws, banning smoking from schools and workplaces, and banning chemicals that put holes in the ozone layer – have been created through the efforts of charities and their involvement in public policy work. Canada without the results of charities’ work would not be recognizable to most of us.”

However, Kulish says the CRA is obliged enforce the current laws.

“You can’t act on promises made during a political election campaign,” Kulish says. “I know a lot of people thought things would change but, until there is a change, the law is the law. You can only spend 10 per cent of your charitable contributions on political activity.”

Those charities that go over the set limit shouldn't be surprised if the CRA comes knocking, especially if their activism is making enemies who are likely to file formal complaints and trigger audits, says Kulish.

The same CBC.ca story reported: “Ottawa-based Canada Without Poverty was told by CRA auditors last year that 98.5 per cent of their work is political.”

Kulish says, “If you’re spending 10.2 per cent or even 12 per cent and the CRA audits you, then you would probably have a conversation with a warning to adjust. But when you’re up past 20 per cent you’re going to have a problem because that’s the law as written and the CRA has to enforce that and counsel have to advise clients of that.”

CBC also reported that last year Environment Defence showed revenues of $3.1 million, issuing receipts for donations worth $584,000. Some $150,000 was spent on political activities, or about five per cent of all revenues, according to the filing, but CRA sees it differently, applying the 10 per cent rule to the charitable donations revenue which would put political expenditures at 25 per cent. 

"Certainly, there was an expectation that once elected the government would review the issue,” says Kulish. “But despite these indications, there are not yet any amendments to the legislation or clarifications of the regulations.”

He says it shows mostly that the CRA operates as an arm’s-length agency and despite claims the audits are political, suggests that they are merely enforcing the rules as written.

Asking for a pass until new rules – none of which have been discussed or tabled – are enacted isn’t a sound strategy for charities, Kulish says.

Environmental Defence, however, says on its website that it is hoping Canadians will speak up for charities to have more freedom and they are driving a social media campaign to send that message.

“Between now and December 14th, the Minister is asking Canadians to provide feedback on the rules governing charities’ abilities to speak out about social change,” the Environmental Defence website urges. “Tell the CRA you value the role charities play in securing public policies that improve the lives of all Canadians.”

However, Kulish says, no matter how noble the cause, charities must follow the rules and are not above the law.

“Charities have to define their objectives,” he says. “What is it they are going to do? If they want to help inner city kids, great. But the rules also say they can’t start a soccer league and call it a charitable activity. Some of these things are clearly defined.”

In the past there's been a huge debate over whether sporting activities are charitable works because they benefit the community, he says, adding the CRA and the courts have considered this but the law has not changed.

Similarly, if they want to help homeless people they can spend money on shelters, food, and clothing but if they spend more time and resources protesting and lobbying politicians to change rules or policies than the rules allow, they too will run into problems, regardless of how well-intentioned their motives.

“It’s like marijuana,” Kulish says. “Yes, they’re in the process of changing the law but until the law is changed, as Trudeau himself said, police must enforce the law as written.”

The key is that charities are playing with the taxpayers' money, so the rules have to be clear and followed.

“A donation to a charity triggers a tax deduction,” he says. “That’s the point of being a registered charity. Charities issue tax receipts which make it attractive to donate to a cause. But since you’re getting a tax break through your donation, someone else has to pick up that portion in the form of higher taxes. In that respect, charities are a licence to print money and as such must follow the rules because it affects everyone in the community.

"You can’t just operate on the way you think the rules should be, or might be or could be changed. You have to follow the law and counsel have to advise that path,” Kulish adds. 

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