To Be or Not to Be Charitable? Canada’s Law Stuck in Shakespearean Times

You may be surprised to hear this, but the history of charitable case law in Canada involves a little-known story about war, political deception and a group of ‘United Brethren’ known as the Moravians. Really.

It should read like a Dan Brown novel.

Unfortunately, it’s not nearly that scintillating. Mostly, I’m sure, because the history of charitable law has been written by…well…lawyers.

But there is an interesting story of the protracted history of charitable law in our country and it reaches way back to Shakespearian times. That history continues to have a profound effect on the contemporary Canadian political landscape.

To make that loooooong story short, what you need to know is this: Canadian charity law is old and full of holes.

The Current State of Affairs For Canada’s Charities

Charities in Canada are strictly prevented from engaging in partisan activities (such as endorsing a political party), but they are allowed to participate in political activity (defined by the Canadian Revenue Agency as any activity that seeks to change, oppose or retain laws or policies) so long as that activity doesn’t take up more than 10 per cent of their resources. Such policy advocacy by Canada’s charities has resulted in laws against drunk driving, the regulation of smoking and the measures that eliminated acid rain.

The rest of a charity’s work must be technically charitable, and yet what, exactly, constitutes charity is a question for the ages.

And that’s a question that, at least in Canada, has never been sufficiently answered.

As a result, charities are left operating in this legal grey zone with no precise knowledge of how their activities will be seen in the eyes of the law or even how that law might be applied, and what the consequences of that law might be.

This uncertainty — on its own — would be enough to provoke a case of charity paralysis for most organizations.

But when coupled with a recent $13.4 million federal audit program of charities’ “political activities,” this legal uncertainty is enough to cripple some of Canada’s most respected charities, preventing them from carrying out their most basic mandate.

In March, a report on charitable law by the University of Victoria’s Environmental Law Centre stated Canada’s current rules around “political activity” are so confusing they create “an intolerable state of uncertainty.” The report — prepared for DeSmog Canada — called for sweeping reform of Canadian charitable law in line with other jurisdictions such as the U.S., Australia, New Zealand and England.

Charities: Mind the Gap

The law that governs charities — the Income Tax Act — “doesn’t define the term ‘charitable,’ ” Kathryn Chan, assistant professor of law and charitable law expert at the University of Victoria, told DeSmog Canada.

“The body of law upon which the courts and the Canada Revenue Agency have always relied on for determining who is charitable and who is not in this country is a body of case law that has a very long lineage and goes back at least to 17^th century England,” she said.

Chan added that even with that history behind us there is sparse case law in Canada related specifically to charities “and so there are gaps.”

That means “the parameters around the kinds of things our charitable laws are based on are laws that were set in 17^th and 18^th century England and this arguably isn’t a very accurate reflection of our contemporary society.”

Modern-day concerns such as drunk driving, second-hand smoke or climate change just weren’t around hundreds of years ago when the first definition of ‘charity’ emerged in a British courtroom.

This leads to a situation in Canada where charities are forced to rely on the “discretion of the Canada Revenue Agency.”

But the agency “has very loose parameters within which to make decisions as to the charitable status or not of organizations,” Chan added.

“The less clear the law is, and the less clear the legislation is, the greater discretion you’re vesting in the administrative agency.”

“It gives rise to a lot of uncertainty for sure.“

Compounding the difficulty this uncertainty creates for organizations is the fact that charities aren’t often in a position to challenge the Canada Revenue Agency’s legal interpretation.

So, Chan said, “if we’re going to move things forward in the courts you need some champions.”

And that’s where the Pemsel Case Foundation comes in.

A Case to Be Made for Charities

The Pemsel Case Foundation — named after a pivotal 1891 judgment in England that made charities exempt from income tax (that’s where the Moravians come in) — has a mandate to clarify the law when it comes to Canadian charities, both inside and outside the courtroom, says executive director Peter Broder.

“There are actually a relatively small number of cases that are litigated in Canada and because of that, the opportunity to develop a robust intellectual analysis of what qualifies as charitable and what doesn’t is limited in comparison to other jurisdictions,” Broder said.

He added his foundation  — founded in 2010 — doesn’t argue whether a particular organization should be granted charitable status or not. Instead it is trying to develop a ‘charity test’ for the courts that can help determine when and where charitable status makes sense.

“The important thing — for the purposes of developing the structure of law in Canada — is that we use the right test and that the right considerations go into that test,” he said. “We are looking for an outcome that is rigorously argued as opposed to an outcome that is arbitrary.”

For example, Broder offered up the question of whether one amateur youth soccer organization might qualify for charitable status. He said the Crown expressed concern that introducing one group of this kind would result in all 21,000 other amateur soccer associations in Canada wanting charitable status.

But the cost or inconvenience of that consequence shouldn’t play a role in the decision for one soccer association, Broder said.   

Legally it should come down to whether another analogous group had previously been deemed charitable.

“We would argue that it’s not about the costs,” Broder said.

“Outside Canada, the fiscal consequences of a decision are not generally a significant consideration in determining the meaning of charity.”

“What we’re trying to do is to make sure that they use the appropriate test and apply it in the appropriate way.”

But, he adds, “We’re not the white knight.”

No Evidence Audits Are Politically Motivated: Broder

Broder characterizes the work of the Pemsel Case Foundation as “scholarly.” He said the goal of the organization isn’t to be oppositional, but to clarify the law.

With respect to critics who claim some of CRA’s recent political activities audits are‘politically motivated, Broder says he’s “agnostic.”

But he does say there is significant room for improvement within the law.

“If the law is clear and there is more certainty to the law — it is easier for the administrator and it is easier for the person who is trying to abide by the law,” he said. “If the law is loose and vague then the opportunity for it to be abused at an administrator’s discretion is greater, but just because it’s loose and vague does not mean there is administrative abuse.”

Canada Needs Fulsome Public Debate On Charities

Perhaps the most notable thing about Canada when it comes to charitable law, Chan said, is our lack of public debate.

“Where Canada is kind of unique is in the almost negligible amount of political debate — actual debate within the legislature or within the public — about what kinds of things should be charitable and what should not,” Chan said.

Ask an average person on the street about Canada’s charities, she said, and they won’t know a thing about them. For instance, they are unlikely to know that many of our universities and hospitals operate under the charity umbrella.

There are conversations to be had about the charitable sector in Canada and what service that sector should perform, Chan said. And for that, Canadians need more than the strategic litigation undertaken by the likes of the Pemsel Case Foundation.

“Canadians might want to have a say in determining what our charitable sector looks like: who’s in and who’s out and how it should be administered,” she said. “Ultimately I think that we need a broader political conversation about the way forward.”

Image Credit: David Garrick Between Tragedy and Comedy, BBC