The federal government has decided to appeal a landmark decision by the Ontario Superior Court, which found that restrictions on the activities of charities represented an unjustified infringement of freedom of expression.

“The Government of Canada has identified significant errors of law and has served notice that it will be appealing the decision to address the uncertainty created by it,” the government said in a statement.

However, in the same breath, the government said it would present legislation this fall to amend the Income Tax Act to “allow charities to pursue their charitable purposes by engaging in non-partisan political activities and in the development of public policy.”

Restrictions on the activities of charities became a lightning rod during the Harper government years, when $13.4 million was spent to audit the advocacy work of charities. Many believed the audits were targeted at groups the Harper government disagreed with — such as the David Suzuki Foundation, Environmental Defence Canada, Equiterre, Ecology Action Centre and Tides Canada.

The Trudeau government campaigned in 2015 on a promise to end the “political harassment” of charities by “clarifying the rules governing ‘political activity.’ ”

While the new legislation will decrease restrictions on the activities of charities, Leilani Farha, the executive director of Canada Without Poverty — the organization that took the charter challenge to court — said she’s “deeply disappointed” with the government’s decision to appeal the ruling.

“The government has … wrested away from us charter protection,” Farha told The Narwhal. “And what their appeal says is that they do not believe that this is a charter issue of free expression and they do not believe charities should have the charter right to free expression.”

Leilani Farha is the executive director of Canada Without Poverty, which took a charter challenge of restrictions on charitable activities to court — and won. But now the federal government is appealing the ruling.

The July ruling by Justice Edward Morgan of the Ontario Superior Court of Justice found the restrictions on “political activities” an arbitrary and unjustified infringement of freedom of expression as guaranteed in Section 2 of the Charter of Rights and Freedoms.

The Canada Revenue Agency (CRA) defines political activity as any activity that seeks to change, oppose or retain laws or policies.

Farha said she questions how much consideration government officials and even other charities in the sector have given to the implications of the appeal for people living in poverty.

“The decision affirmed that poverty will not be relieved in this country if people living in poverty do not have free expression and can not contribute to public policy debate,” Farha said.

“For me it was not just a bad day for democracy; for me, it was offensive what happened yesterday.”

Farha said Canada Without Poverty will fight the case in the court of appeal and to the Supreme Court if it has to.

“This is a huge issue for the country. We’re certainly not going to lie down on this one at this point,” she said.

Andrew Gage, a staff lawyer with West Coast Environmental Law, welcomed the government’s commitment to confirm the right of charities to fully participate in public discourse, but said the government’s appeal of the charter decision “is a step in the wrong direction.”

“Under Canada’s tax laws, charities are very constrained in their public activities, while other organizations that receive more generous tax benefits — such as corporations — remain unrestricted,” Gage said.

“Strong laws against smoking in public spaces, drunk driving and pollution were all proposed by charities, and Canada is strongest when many voices are heard.”

Sidney Ribaux, co-founder and executive director of Equiterre said while his organization refused to be cowed by an audit of its activities, improved legislation is important for the sector.

“Our stand was: we’d rather lose our charitable status than lose our freedom of speech,” Ribaux said.

Regardless, Equiterre pressured the federal government for years to remove the restrictions.

“If environmental groups in the country feel that they can’t say everything they need to say to protect the environment then ultimately we’re not going to achieve our objective,” he said.

“We’d rather lose our charitable status than lose our freedom of speech.” — Sidney Ribaux, Equiterre

The government’s hand was ultimately forced by the court ruling, Ribaux said.

“What they said publicly last night, we’ve been pushing them to say that since they were elected almost three years ago and there’s been huge resistance. The group that brought the ball across the final goal line is Canada Without Poverty with this court case.”

For their part, Canada Without Poverty vows not to let the charter challenge die.

“The government is trying to make this about policy. This is not about policy,” Farha said. “This is about a charter right to free expression. And Prime Minister Trudeau and the PMO can not suddenly decide because they want to that this is not a charter issue.”

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

2012 was a dark year for Canadian environmental charities.

Just nine days into the new year, Joe Oliver, then minister of natural resources, released an open letter saying environmental groups had a “radical ideological agenda” and were set on stopping “any major project no matter what the cost.”

Then came the federal budget, in which the Stephen Harper government announced $8 million for political-activity audits of charities.

The Canada Revenue Agency (CRA) defines political activity as any activity that seeks to change, oppose or retain laws or policies. If you want to encourage Canadians to get in touch with their elected officials about issues they care about, that’s “political activity.”

To stay in line with the law, charities could not allow those types of advocacy activities to account for more than 10 per cent of their work.

It wasn’t long before charities like the David Suzuki Foundation, Environmental Defence Canada, Equiterre, Ecology Action Centre and Tides Canada found themselves facing multi-year audits, which could involve things like requests for all correspondence between staff, board members and volunteers.

The audits had an immediate chilling effect on the advocacy work of many charities and were also costly for all involved. The federal government set aside $13.4 million in total to carry out the audit program. On the other side, charities were tasked with the enormous burden of complying with the audit process. Environmental Defence, for example, ended up spending $200,000 on legal fees to navigate the audit process.

The blowback against the audits was so intense that the federal Liberal government campaigned in 2015 on a promise to end the “political harassment” of charities by “clarifying the rules governing ‘political activity,’ ” but three years and one expert panel report later, not much had changed — until now.

A ruling by an Ontario judge this week on a charter challenge brought by Canada Without Poverty stands to create a “new world” for charities and has left many in the charitable sector surprised and elated.

The ruling by Justice Edward Morgan of the Ontario Superior Court of Justice found the 10 per cent rule on political activities an arbitrary and unjustified infringement of freedom of expression as guaranteed in Section 2 of the Charter of Rights and Freedoms.

“Simply put, there is no way to pursue the Applicant’s charitable purpose — using methodology that is recognized by Parliament itself — while restricting its politically expressive activity to 10 per cent of its resources,” the judge wrote.

The ruling immediately quashes the 10 per cent rule, although the federal government can appeal.

David and Goliath: how a tiny charity changed the game

Canada Without Poverty, the charity that took the Income Tax Act Charter challenge to court, has three full-time staff and an annual budget of about $300,000 a year.

Executive director Leilani Farha, a human rights lawyer, said that when the organization was being audited, “the breadth of the audit struck me right away as problematic.”

After talking to some key advisors, the organization decided to target the root problem and approached law firm McCarthy Tetrault for pro bono representation.

“Anyone with a legal background could see there was a free expression issue,” Farha said. “We were being muzzled. We were being told we couldn’t express ourselves as an organization in the way that we wanted to.”

Leilani Farha, executive director of Canada Without Poverty, is a human rights lawyer. She said that when the organization was being audited, “the breadth of the audit struck me right away as problematic.”

A particular set of circumstances made Canada Without Poverty the right group to take the challenge.

“Relief of poverty is the oldest charitable head, period,” Farha said.

Additionally, the organization’s board of directors is made up of people living in poverty.

“They feel very strongly that in order to relieve poverty in Canada we need changes to laws, policies and programs and we need broad outreach to do that,” Farha said. “Their own poverty is related to the fact that they haven’t been able to engage in public discourse.”

The legislation was preventing the organization from actually pursuing and fulfilling its charitable purpose in Farha’s eyes.

The judge ultimately agreed. “The decision was decisive,” Farha said.

“We were being muzzled. We were being told we couldn’t express ourselves as an organization in the way that we wanted to.” — Leila Farha, Canada Without Poverty

Canada Without Poverty had asked for what’s called a “suspended declaration,” which would have had the judge telling the government to re-draft legislation. Instead, the judge immediately quashed the section of the Income Tax Act that he found infringed on the Charter of Rights and Freedoms.

If ruling stands, it’s a ‘new world’

Susan Manwaring, a lawyer who specializes in advising charities and non-profits, told The Narwhal the ruling is “very exciting for charities.”

Manwaring was a member of the expert panel set up by the Trudeau government to advise it on how to handle the political activities of charities, which recommended doing away with the restrictions, so long as a restriction on partisan politics remained.

“From that perspective, the decision is consistent with what the panel recommended,” Manwaring said.

She described Justice Morgan’s decision as “credible and strong,” but cautions the Crown can appeal until August 15 and until then she’s advising clients to hold off on changing practices around advocacy.

“If the Crown doesn’t appeal, then it stands, then there’s a new world,” she said.

“If the Crown doesn’t appeal, then it stands, then there’s a new world.” — Susan Manwaring, lawyer

Bruce MacDonald, president and CEO of Imagine Canada, which works to strengthen Canada’s charitable sector, said in a statement the ruling demonstrates the need for Canada to modernize charity law.

“We’re operating under a hodge-podge of rules dating back to Queen Elizabeth I,” MacDonald said.

“The Income Tax Act provisions in question, and the way in which they have been administered by the CRA, have been very unclear and have created great uncertainty for charities.”

The problem with how Canada regulates charities

Canada’s regulation of charities has long created headaches for charities, but 2012 marked the beginning of a multi-year migraine as 60 groups were targeted with audits of policy advocacy work that would be allowed in many other Western countries.

“I would say that the section of the Income Tax Act that deals with charities is very outdated, it’s very cumbersome, it doesn’t work well, its language is confusing,” Manwaring said. “I think those factors contributed to the [judge’s] decision.”

Tim Gray’s entire tenure as executive director of Environmental Defence Canada has been coloured by an ongoing audit by the CRA. It was targeted after a formal complaint was filed against them by EthicalOil.org, founded by Ezra Levant and Conservative political aide Alykhan Velshi.

Tim Gray, executive director of Environmental Defence, has been dealing with a CRA audit during his entire tenure at the organization.

Although the audits that were part of the Conservative audit program were suspended by the Liberal government, until this week it was “quite possible that the audit was going to start up again,” Gray said.

He described this week’s ruling as “a pretty amazing decision.”

Gray said Environmental Defence’s advocacy activities are “fundamentally necessary to protect the environment, which is our charitable purpose.”

“If you don’t work on public policy and you’re an environmental organization, you’re basically stuck with cleaning up other people’s messes,” Gray said.

“To what benefit would it be to the Canadians who are donating to charities if charities are completely silenced from commenting on policies and laws that would actually protect the environment? It makes no sense.”

A 2015 University of Victoria report on the audits of political activities found Canada’s law created an “intolerable state of uncertainty” for charities and was more restrictive than laws in other jurisdictions.

“If you don’t work on public policy and you’re an environmental organization, you’re basically stuck with cleaning up other people’s messes.” — Tim Gray, Environmental Defence

“Other Western countries have made significant changes to their charitable laws over the past number of years. The United Kingdom, New Zealand, Australia, the European Union have all removed restrictions on public policy work by charities — and the sky has not fallen,” Gray said.

Will this open the floodgates for charitable status?

One of the concerns about modernizing Canada’s charitable law has been that it could open the floodgates to more groups becoming charities.

But experts say that concern is misplaced.

“The definition of what constitutes a charity has not changed, but the ruling 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,” said MacDonald

“The definition of what constitutes a charity has not changed.” — Bruce MacDonald, Imagine Canada

Manwaring agrees: “It doesn’t change the requirements for registered status that require the charity to have a charitable mission and not to have a political purpose.”

Canada’s charitable purposes include relief of poverty, advancement of education, advancement of religion or “certain other purposes beneficial to the community in a way the law regards as charitable.”

It’s worth noting that the work of public service news outlets, such as The Narwhal, has thus far not been recognized as charitable and this ruling doesn’t change that. However, the federal government did promise in February to explore ways for news organizations to accept charitable money.

Will the federal government appeal?

Manwaring said it’s “not unlikely” that the federal government will appeal the decision.

“Very often charter cases go to the Supreme Court and very often governments will try to defend the rule of law that they have established,” she said.

“The Department of Justice and the Department of Finance may be concerned that this is a precedent, not really because of what it says for charities but because of what it says about the Income Tax Act as a whole.”

Gray hopes the federal government sees this ruling as an opportunity to keep its election promise.

“Why the federal government would challenge or appeal a federal court ruling which in legal terms is essentially doing what they promised themselves to do both in the election and then in the letters to their ministers would be very puzzling,” he said.

Farha of Canada Without Poverty said it’ll be tough for the federal government to get around the freedom of expression argument.

“I think that’d be the wrong decision for the country, for democracy, for anti-poverty groups, for the charitable sector,” she said.

“We will go to the Supreme Court if we have to.”

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

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 17th 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 17th and 18th 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

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.