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You may find this article written in 1998 useful for background purposes. For more detail on Revenue Canada’s current position on political activities refer to the Revenue Canada policy paper at http://www.cra-arc.gc.ca/tx/chrts/plcy/cps/cps-022-eng.html or contact the Charities Division of Revenue Canada Taxation at: Revenue Canada Taxation, Charities Division, Ottawa, Ontario, K1A OL8; 1-800-267-2384.

What constitutes allowable political activities for charitable organizations has been a contentious issue for the past twenty years. A recent court case has clouded the issue even more. Engaging in prohibited political activities can result in a charity being de-registered. Knowing where to draw the line on political activity is critical as de-registration will result in the confiscation of all of your charity’s assets.

In this article we will briefly discuss historical changes to what constitutes allowable political activity and review current Revenue Canada regulations and the recent court case.

A Historical Review
For many charities some degree of political activity is essential for meeting their objectives. In 1978 Revenue Canada issued Information Circular 78-3 in an attempt to define “political activities” for Revenue Canada’s purposes. There was tremendous opposition from the charitable community at the time. As a result, Circular 78-3 was withdrawn by Revenue Canada, albeit very reluctantly. It is interesting to note that the then-Prime Minister indicated that, regardless of the Information Circular being withdrawn, the position laid out in the Circular still represented both the law and Revenue Canada’s administrative policy.

The issue came to a head in 1985 when the Federal Court of Appeal upheld Revenue Canada’s refusal to register a legal services organization as a charity. Revenue Canada initially refused the registration because the organization had picketed the provincial legislature. In addition, the would-be-charity indicated that it would do so again given the same situation. The court concluded that the activities, while worthwhile and in line with the organization’s objectives, were political in nature and, therefore, not charitable.

In 1986 the Income Tax Act was amended retroactively to 1985 to allow registered charitable organizations to devote at least part of their resources and energy to “allowable” political activities. These amendments stand today. The Income Tax Act allows a registered charitable organization or foundation to devote no more than 10% of its resources to political activities so long as the activities are “ancillary and incidental” to the organization’s charitable purposes or activities. In addition, the political activities may not involve the direct or indirect support of or opposition to any political party or any candidate for office.

In 1988 the Federal Court of Appeal added some clarification to what constitute acceptable political activity. Three general points were made:

  • “educating” the public is not of itself an acceptable political activity for a registered charity
  • registered charities that “educate” the public must disseminate all points of view and not just those in line with the charity’s objectives
  • an organization with a political objective in its corporate objects of incorporation is not eligible for charitable status.

Revenue Canada’s Current Position
In February 1987 Revenue Canada issued Information Circular 87-1 outlining allowable political activities for registered charitable organizations and foundations. The Circular divides charitable activities into three categories:

  • charitable activities not subject to any limitation
  • prohibited activities
  • political activities that, when ancillary and incidental to a charities established purposes, are permitted within expenditure limits (i.e. under 10% of an organization’s resources).

The Information Circular does not define what constitutes “charitable activities not subject to any limitation”. Revenue Canada has left the area open to interpretation by stating that “a particular activity is fundamentally charitable or fundamentally political depending on the facts of a particular situation”. Political activities are viewed as those aimed at bringing about changes in law and policy. Revenue Canada generally accepts as charitable any work aimed at the relief of poverty, the advancement of religion, the advancement of education or the advancement of other purposes beneficial to the community. If you have a question about any of your organization’s activities and whether they are subject to limitation contact Revenue Canada’s Charities Division at 1-800-267-2384.

Revenue Canada is more helpful in defining what constitutes partisan politics and other prohibited activities. “A charity may not oppose or endorse a named candidate, party or politician. The charity’s resources may not be devoted directly to such activities, or devoted indirectly through provision of resources to a third party engaged in partisan political parties” [IC 87-1, para. 10].

Allowable political activities are defined in the Circular as “activities that cannot themselves be considered charitable activities but are subordinate to bona fide charitable purposes and which may be considered political” [IC87-1, para. 12]. Examples given include:

  • publications, conferences, workshops and other forms of communication which are produced primarily in order to sway public opinion on political issues and matters of public policy
  • advertisements designed to attract interest in or gain support for a charity’s position on political issues and matters of public policy
  • public meetings or lawful demonstrations to publicize and gain support for a charity’s point of view on matters of public policy and political issues
  • mail campaigns whereby a charity requests its members or the public to forward letters to the media and government expressing support for a charity’s view on a political issue or a matter of public policy.

Approved political activities are only permitted within specific expenditure limits. All registered charities must spend at least 80% of their receipted donation revenue on charitable activities in order to satisfy the disbursement quota. As many registered charities receive significant unreceipted funds (i.e. by way of government grants and investment income) meeting the disbursement quota is often a non-issue. Political activities are considered non-charitable and, therefore, the related costs must be classified as non-charitable expenditures.

In addition to the disbursement quota, all or substantially all of a registered charity’s resources must be used for charitable activities. The phrase “all or substantially all” in the Income Tax Act is understood to mean at least 90%. As a result, no more than 10% of the resources of the organization are allowed to be used for ancillary and incidental political activities. Note that the word “resources” refers to all the financial and physical assets of the charity as well as the services of its human resources.
Registered charitable organizations and foundations are expected to self-assess annually to determine whether their political activities are within the limits described above. The annual T-3010 Registered Charity Information Return must be filed but no special report of political activities is required. Charities are expected to keep sufficient financial and other records on hand to verify that all or substantially all of its resources have been used in charitable activities. These records must be kept back to 1986.

Note: Revenue Canada encourages use of the “all or substantially all” rule for allocating resources. If 90% or more of an expense is for charitable activities then the entire expense can be allocated as charitable. Conversely, if substantially all of an expense relates to political activities then the whole expense should be considered political.

Recent Developments
A recent decision of the Federal Court of Appeal has the potential for further restricting the definition of allowable political activities. In this case, Human Life International (“HLI”), a pro-life organization, had an extensive information program designed to convince the public of the merits of its pro-life position. HLI had neither lobbied for nor against legislation nor did it lobby or attack specific political candidates.

The Federal Court of Appeal held that “activities designed to sway public opinion on controversial social issues are not charitable activities”. The court did note that there are no previous legal cases to support this position. Most importantly, the term “controversial social issue” was not defined. It is not clear, for instance, whether advocacy for increasing public resources for licensed childcare would be taken as an activity designed to sway public opinion on a controversial social issue and therefore grounds for de-registration of a charity.

The court left the onus on the organization to prove that a specific activity is acceptable under the Income Tax Act. Consequently, if Revenue Canada revokes registration based on something it defines as a “controversial social issue” then it is up to the organization to defend its actions and prove that its activities were acceptable political activities and were carried on within resource limitations. This seems to give Revenue Canada significant power to interpret political activities as it sees fit.

We understand that the case will be appealed to the Supreme Court of Canada. In the interim, registered charitable organizations and foundations should review their political activities to ensure that they are within the guidelines issued by Revenue Canada Information Circular 87-1.

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