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Charities’ Spending on Politics

How the CBC got it wrong again. Really wrong. Again.

Tax Haiku of the Week

CBC is wrong,

Begging them to find sources,

Like Jerry Springer.

 

The CBC published an opinion piece on Sunday with the sensationalist headline “The Liberals are considering loosening the reins on charities’ political spending. That is a terrible idea”.  There was one small issue with the story: it was based on facts and assumptions which simply are not true, and which leaves the reader wondering if the author did any actual research whatsoever about how charities work in this country.  By taking a few facts, adding a splashy title, and opining on an outcome that is an extremely unlikely possibility to say the least, the author has engaged in the logical fallacy of reductio ad absurdum: reducing his argument to the absurd.

 

The author of the story is a freelancer who normally writes for LooniePolitics.com and RavingCanuck.com, where the lead article is a 5,000 something word comparison of Justin Trudeau to various Harry Potter characters – include a lot of screen shots from the Harry Potter film series.  Really CBC?  Really?

 

In any event, the story implies that the Trudeau government is on the verge of accepting the recommendations of a CRA report titled “Report of the Consultation Panel on the Political Activities of Charities” (“the Report”) relating to political spending.  The author argues that by doing so the Trudeau government will effectively be “crying ‘Havoc!’ and letting slip the dogs of war” when it comes to charities spending money on political matters.  The argument goes like this: certain charities are predisposed to support a particular political agenda and therefore the charity has a vested interest in doing what it can to ensure that it’s favourite political party is in power.  This will thereby necessitate the charity spending money on causes which bolster their chosen party’s political agenda and re-election campaign.  The CBC article argues that if the CRA Report is adopted then charities will be free to spend around $25 billion on influencing the political process.  As a previous CBC article pegged the cost of the 2015 federal election at around $443 million, $25 billion being spent by interest groups likely would strike most as a fundamental threat to our democracy.  Fair point.

 

This would all be a really good story, except for the fact that the CRA Report didn’t say anything at all about any of this!  NOTHING!  AT ALL!!  NOT EVEN CLOSE!!!

 

Ignoring issues with random assumptions that the article made – seemingly out of thin air – such as the idea that a “large charity” is one that has an annual income of over $200k (there is no such definition anywhere in the Income Tax Act, or the CRA’s regulations by the way – the concept simply does not exist), the Report made four recommendations which are utterly incongruent with the CBC article’s argument.

 

Recommendation One would revise the CRA’s policy to allow charities to participate in public policy dialogue and development as long as it was in furtherance to the charity’s stated purpose.  This does not mean directly funding politician’s campaigns – it simply means allowing a charity to advocate for what they want.  For example, the Sierra Club is a well known environmental organization.  By allowing them to use the money they raise to participate in things such as policy discussions on drilling for oil in the arctic, or the building of nuclear power generating facilities, they would be advocating for causes that their donors would largely agree fall within their mandate.  Nothing in the CRA Report is advocating that the Sierra Club be allowed to suddenly start funding a particular political party nor putting ads on TV during elections advocating (or decrying) a particular plank of a party platform. Instead, it calls for allowing charitable groups to pursue their interests by trying to demonstrate to those in power why their position on their issue(s) should be adopted.  This is hardly radical as the larger charities are already doing this (as it is a legitimate use of their time and efforts according to current law) but the rules as to political involvement are a bit unclear, and so some charities steer clear by choice rather than deal with the reporting requirements involved.

 

Recommendation Two would implement changes to the Income Tax Act to ensure that charities are compliant with the law.  This will improve the public’s trust in charities as well as improving accountability.  By regularly auditing charities using an efficient and regular process, those supporting the charities will have a better understanding of where their resources are going.  This may not be welcome news to many “private charities” which have been the ones screaming blue murder about the Tory’s audits in the charitable sector.  Basically Recommendation Two calls for a continuation of this process began by the former government, and is an exceptionally good thing.  Just as an FYI, “private charities” are charities that do not have an independent board of directors (the directors are generally the paid executive(s) of the charity and their family members) and these charities do not have audited financial statements.  Such charities are restricted to spending no more than 10% of their charitable receipts on overheads and expenses (like executive compensation, travel and benefits) and must spend 90% of their receipts charitable activities. It is these charities that were complaining the loudest because they tend to spend a lot more money on “overheads” (particularly executive compensation) than they do on actual charitable activities.  And it was their blatant violation of these long held rules that saw their status revoked, not their political positions.  In one case the private charity was actually spending 90% of their revenue on executive compensation while a mere 10% went to charitable activities.  However, for legitimate charitable groups, which are mostly “public foundations” with independent boards of directors and which are already have audited financial statements, these groups have nothing to fear from the audited financial statements being made public.  This increase in transparency will actually be much appreciated by donors.

 

Recommendation Three is to remove references to “non-partisan political activities” from the Income Tax Act to allow the charities to participate in unfettered development of their policy goals, while retaining the prohibition on charities participating in partisan political activities. The current limits on non-partisan political activities were found by the group who authored the CRA Report to be confusing, costly to quantify and track, and were failing to address the core issue of whether the charity was operating for one of the four recognized charitable purposes. The implementation of this recommendation amending the Income Tax Act is simply the natural conclusion of recommendation one (above), whereby only the CRA policies were changed.

 

Finally, Recommendation Four is to modernize the legislative framework governing the charitable sector to focus on the charities’ purposes rather than activities, to include a full list of charitable purposes reflecting current social and environmental values, and to include the ability to appeal a refusal to register a charity, or the revocation of charitable status, to the Tax Court of Canada.  By clearly delineating what purposes charities can pursue – instead of what activities they can engage in – charitable groups with vast knowledge in an area will be able to determine the best way to use their expertise to affect an outcome, instead of having politicians in Ottawa decide this on their behalf.

 

None of these four recommendations are that significant, but they are all very positive and long overdue.  They certainly are not poised to result in a major shift in the role of charities within Canadian political life.  For a CBC article to make claims such as “would it not be politically advantageous for the Liberals to allow and encourage more charities to get politically involved if it could potentially lead to electoral success?” seems to be a total mischaracterization of the CRA Report.  For the CBC to imply that the adoption of this Report is somehow a political slam-dunk for the Liberal Party seems to speak more to the fact that the author appears not have actually read the Report not to possess any understanding as to how charitable tax registration works in Canada.

 

The CBC has again climbed onto a soap-box (or rather let someone who thinks comparing Justin Trudeau to Harry Potter characters is news climb onto their soap-box) and started pontificating on a matter upon which they are not qualified to speak.  Moreover, as mentioned in a previous blawg by Dominion Tax Law, the CBC seems unwilling to bother themselves with obtaining appropriate information.  Indeed had the author of the CBC article actually read the report, and then talked to a tax lawyer, it would have been clear that the report’s stated intentions of “to break the cycle of ambiguity, confusion and uncertainty, and to support the ability of charities to more fully participate in public policy dialogue and development” are wholly apolitical.

 

Once again the CBC got it wrong.  Really wrong.  Again.  We can only hope that before they write their next article on charities, or indeed anything involving tax, that they speak to a tax lawyer, or an accountant, or maybe even someone who might have actually read the report that they are commenting on.

 

But we have to ask ourselves, without seeming too much like conspiracy theory nut-jobs, the following question: did the CBC publish this as a way of pretending to criticize the Liberals so that it looks like they are being “fair and balanced”, but at the same time not really hurting their paymasters by having the contrarian argument made by someone who has no qualifications or knowledge and therefore no credibility?  Since the Report would see the continuation audits and provide greater public disclosure of charities’ financial statements, did the CBC knowingly assist the off-side private charities who would want the Report round-filed?  Or, are we just presuming malice where sheer incompetence will suffice to explain why the CBC would post such an obviously bogus article?  Lastly, since when has the CBC devolved to the point of being the HuffingtonPost.com, only without all the integrity about not posting clickbait?

 

By Jonathan N. Garbutt and Barrister & Solicitor and Joshua Wasylciw, Student-at-Law.

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This Blawg is provided on a “For your information” basis only, and is not intended as, does not constitute and should not be seen as legal advice with regard to tax or family law matters.


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