The unmuzzling of Canadian charities

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.”