Proposed tax changes set to remove uncertainty for charities

By Staff

Draft tax legislation that proposes to remove restrictions on charities’ non-partisan political activities will act to both clarify the rules and give organizations more scope with respect to their operations, Canadian tax lawyer David J. Rotfleisch tells

As The Lawyer’s Daily reports, the draft legislation proposes to amend the Income Tax Act (ITA), to implement changes consistent with Recommendation #3 of the Report of the Consultation Panel on the Political Activities of Charities — an expert panel appointed by the National Revenue Minister Diane Lebouthillier in 2016 that provided recommendations based on consultations held with charities.

The changes would “allow charities to pursue their charitable purposes by engaging in non-partisan political activities and in the development of public policy,” says The Lawyer’s Daily, and if passed by Parliament, would apply retroactively to related audits and objections that are currently suspended.

Rotfleisch, founding tax lawyer with Rotfleisch & Samulovitch Professional Corporation, explains that the issue of non-partisan political activities by charities has been a problem for at least 30 years.

“In 1985, a Canadian court decision introduced considerable uncertainty as to whether charities could use their resources to engage in political activities.

“In response, the government amended the Income Tax Act to provide that, as long as a charity devoted substantially all of its resources to charitable activities, it could devote a limited portion of its funding — generally, about 10 per cent — to non-partisan political activities that are ancillary and incidental to its charitable purposes. These amendments were intended to be permissive, allowing charities to devote some of their resources to non-partisan political activities,” he says.

Although Rotfleisch says the Canada Revenue Agency's (CRA) decision to appeal a recent court decision, which held that these restrictions were not constitutional, does “add further uncertainty,” the proposals will “largely remove the Income Tax Act provisions relating to the political activities of charities, including the stipulation that effectively allowed charities to devote approximately 10 per cent of their resources to non-partisan political activities.”

At the same time, he says, they will also “maintain the prohibition on charities providing direct or indirect support of, or opposition to, a political party or candidate for public office.”

The changes also clarify that charitable organizations, such as foundations, must be constituted and operated exclusively for charitable purposes.

“Some charities were audited specifically with respect to this issue. For other charities, the issue came up as a result of a regular audit. Either way, the proposed changes will remove a lot of uncertainty for charities,” says Rotfleisch.

The government “intends to introduce legislation” following its recent consultation period on the draft legislative proposals and the CRA “will soon issue supporting administrative guidance for consultation with the charitable sector on how it would implement the legislative proposals released,” says the article.

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