As an important component of charitable tax law, the rules and regulations surrounding the “political activities” of charities are an area of continual discussion, debate, and disagreement in the sector. Do these laws prevent charities from advocating for the communities they serve and achieving their organizational goals and purposes? Or are they a necessary guardrail that prevents wealthy donors from further influencing the realm of politics? What activities are “political”? Or, perhaps a better question is: what activities aren’t political? And how do these questions and tensions shift in a COVID-19 context that has transformed the philanthropic sector?
In this short article, PhiLab Ontario student Andrea Sykes provides an introduction to some of the main arguments for and against regulations on the political activities of charities.
During the COVID-19 pandemic, Canadian charities have become increasingly outspoken regarding what they require from the government in order to continue providing much needed charitable goods and services (Lorinc, 2020). With 70% of charities experiencing reduced revenues (Imagine Canada, 2020), researchers and practitioners within the sector have made the case for establishing a better means of engaging in public policy conversations and public policy making (Phillips, 2020). At the same time, the political activities of charities continue to receive attention due to the fact that charities receive favourable tax treatment in Canada (Devlin, 2017). Furthermore, charities lose their preferential tax status if found to be in violation of the regulations surrounding political activities.
In what follows, I review some of the key arguments for and against limitations on the political activities of charities, particularly within the COVID-19 context. As the philanthropic sector reinvents itself to better contribute to the COVID-19 response, it is necessary to look beyond the behaviours and practices of funders and charitable organizations, toward the laws and regulations that govern them.
The Income Tax Act and Political Activities
The Income Tax Act (ITA) regulates the political activities of charities through subsections 149.1(6.1) and (6.2). These provisions include three criteria that charities must meet when deciding to engage in political activities:
- Charities must devote “substantially all” resources to charitable purposes;
- The political activities of charities must be ancillary and incidental to its charitable purposes; and
- The political activities of charities must not include the direct or indirect support of, or opposition to, any political party or candidate for public office.
When first adopted in 1985, these provisions recognized that charities could engage in political activities to assist in attaining “charitable ends” (Parachin, 2017). At this time, charities were allowed to engage in limited political activities as long as 90 percent of their resources were devoted to charitable causes.
Debates around restrictions on the political activities of registered charities intensified in 2012 with the implementation of additional rules by the federal Conservative government. Furthermore, the Conservative government instructed the Canada Revenue Agency (CRA) to oversee a Political Activity Audit Program in order to address charity compliance issues related to the political activities rules (Singer, 2020). In response to these changes, the Liberal government’s 2015 electoral platform promised to look further into the rules that restrict the political activities of registered charities. This was followed by a change in the limitations on political activities in 2018, as the 10% limit on political activities was dissolved.
For Limitations on Political Activities
As Parachin (2017) notes, a problematic tension exists between political activities and charitable purposes, thereby establishing a need for some form of restrictions on political activities. This problematic tension arises from the distinction between the purpose of government and the purpose of charities. When political activities extend into the charitable realm, it can impact the image of charity. By establishing regulations on political activities, it upholds the idea recognized by Jensen (2015) that charity is voluntary in nature while government is understood to be coercive in nature.
Parachin (2017) goes further by also interrogating the current regulations surrounding political activities. One issue recognized within the current legislative treatment of political activities is the imprecise definition of “political activities.” For Parachin, political activities should be understood as “activities concerned with achieving or opposing reform to law, public policy, or the administrative practices of government” (2017, p. 414). The intent with the proposed definition is to ensure a clear distinction between charity and government. This connects to the assumption that restrictions on a charity’s political activities are necessary due to charitable and political activities being incompatible with one another (Carmichael, 2020). In other words, once a charity enters the realm of politics, their activities may be viewed as not truly charitable, nor in the public’s benefit.
Others have argued that loosening restrictions on the political activities of charities could empower wealthy philanthropists to further shape the political realm. As discussed by Lorinc (2020), Mark Blumberg, a critic of the abolition of the 10% political activity limitation rule, suggests that “the end of the 10% rule could usher in an era of more conspicuously political charities modelled on US think tanks bankrolled by wealthy philanthropists with hardcore views and a desire to influence decision-makers”. Additionally, in Canada, there are funding rules imposed on political parties that do not apply to charities, such as public donor disclosures and contribution limits. If we allow charities to devote most or all of their resources to political activities, individuals could take advantage of charities for their political own gain (Canadian Tax Foundation, 2018). While Parachin (2017) doesn’t propose altering the funding rules for political parties, he supports the establishment of limits on political activities through a rule against engaging in prohibited political activities. This would ensure the distinction between permitted and prohibited political activities, with prohibited political activities legislatively defined to mean partisan electoral activities.
Against Limitations on Political Activities
While Parachin (2017) expresses the need for regulation, he also states that it wouldn’t make sense to categorically prohibit political activities. This is a result of the interconnectedness between the mission of charities and the mission of government. This is evident when looking at the overlap between the welfare state and certain charitable purposes. Permitting charities to engage in political activities thus allows charities to obtain valuable insights from interacting with constituencies.
As recognized by Carmichael (2020), “there are three primary arguments in the charity finance literature for fewer regulations on charities engaging in political activities. First, charitable activities and purposes aren’t inherently different from political ones. Second, by performing political activities, charities could promote charitable purposes. Lastly, by performing political activities, charities could promote political purposes.”
In response to the 2018 elimination of the 10% limit on political activities, a few charitable sector representatives were interviewed by members of the Canadian Philanthropy Partnership Research Network (PhiLab). The objective of these interviews was to hear opinions regarding these changes to political activities restrictions (Grant-Poitras & Alalouf-Hall, 2019). Reactions supporting the modifications included Mr. Rehnn, Coordinator at Vigilance OGM, who stated: “These restrictions represent, for many groups, a hindrance to their registration as charities, which is essential to receive funding from foundations.” The news was also positively received by Lisa Davey, Vice President at the Association of Fundraising Professionals (AFP) Canada, who described the regulations around political activities as unclear, resulting in charities choosing not to engage in political activities to protect their charitable status. In Canada, the percentage of total registered charities reporting political activities from 2010 to 2013 was an estimated 0.5 percent (Devlin, 2017).
Singer (2020) argues that the implementation of new regulations for political activities would create additional issues that would eventually need to be examined as well. Discussion would likely revolve around the lack of a definition for “public policy dialogue” and “development activities,” as well as the possibility for charities to exclusively engage in activities classified as public policy dialogue and development activities.
In 2018, the federal government aimed to clarify the regulations of political activities for registered charities by amending the Income Tax Act with Bill C-86. These amendments permitted charities to devote up to 100% of their total resources to public policy dialogue and development activities (Government of Canada, 2019). However, rather than providing clarity on the definition of public policy, the addition of the terms created new barriers to charities’ involvement in political activities. Just as there were concerns surrounding the lack of a definition for political activities, similar concerns accompanied the introduction of terms like “public policy dialogue” and “development activities” as well (Singer, 2020).
Parachin’s (2017) proposed recommendation allows for a more coherent understanding of the term political activities by focusing on identifying activities that would jeopardize the status of a charity. He advises replacing subsections 149.1 (6.1) and (6.2) with two additional measures to explain the revocation of charitable registration under subsection 149.1 (4.1) relating to political activities. By providing greater transparency around the restrictions surrounding political activities, charities have the ability to engage in political activities with more certainty that their status will not be revoked. With the current COVID-19 pandemic and accompanying issues, it is increasingly important to ensure that charities are able to effectively create change by advocating on different issues in support of their communities.
Throughout the COVID-19 pandemic, charities have played an integral role in providing essential services to communities and individuals in need. Unsurprisingly, the pandemic has also generated significant transformations within the charitable sector. However, these changes have focused primarily on organizational policies and practices. With this paper, I attempted to highlight the importance of reexamining one set of rules and regulations governing charitable activity in response to COVID-19: restrictions on political activities. Now as much as ever, the line between charitable activity and political advocacy is blurred, demonstrating the importance of revisiting the regulations surrounding charities’ political activities. Through understanding both the pros and cons of these limitations, we can implement policy around political activities that will foster a more responsive and effective sector.
As we approach year two of the COVID-19 pandemic, we are faced with numerous questions around how we can remake the sector in support of the COVID-19 recovery and larger movements for social, economic, and ecological justice. Charities have spent the past 12 months struggling to fill the gaps in Canadian social safety that has proven inadequate. From a lack of affordable housing and insufficient income supports to underfunded long-term care homes and unequal access to digital technologies, the pandemic has highlighted significant policy failures at the municipal, provincial, and federal levels that have contributed to, and exacerbated, the social, economic, and health impact of the pandemic. In this way, charities are always already embedded within the political realm—a fact that is increasingly evident in the COVID-19 context. What does this realization mean for debates around the political activities of charities post-COVID? How can changes in these laws better position charities to respond to future crises, whether health, ecological, or economic? Finding answers to these questions will take time. But one thing is certain: we can no longer ignore the intimate relationship between politics and charity.
Canadian Tax Foundation. (2018). Democracy requires limits on charities political activities. Retrieved from https://www.ctf.ca/ctfweb/en/newsletters/canadian_tax_focus/2018/4/180407.aspx.
Carmichael, C. (2020). Charitable ends by political means? Retrieved from https://mediaspace.carleton.ca/media/Shorter+Clip+of+Kaltura+Capture+recording+-+December+8th+2020%2C+5A37A06+pm/1_3bkabv8c.
Devlin, R. (2017). Policy Forum: Charities and Political Activities (A Tempest in a Teapot?). Canadian Tax Journal, 65(2), 367– 378.
Government of Canada. (2019). Public policy dialogue and development activities by charities. Retrieved from https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/budget-2018-equality-growth-strong-middle-class/public-policy-advocacy-activities-charities.html
Grant-Poitras, D., & Alalouf-Hall, D. (2019). Towards a reform in the legal framework regulating the political activities of registered charities- Four reactions from the philanthropic sector on the abolition of the 10% limit. Retrieved from https://philab.uqam.ca/en/home-blog/quebec-hub/en-route-vers-une-reforme-du-cadre-juridique-regulant-les-activites-politiques-des-obe-quatre-reactions-du-secteur-philanthropique-sur-labolition-de-la-limite-des-10/
Lorinc, J. (2020). Charitable Sector Gradually Adjusting to a New Regulatory World that Allows Unlimited Engagement in Public Policy Dialogue. Retrieved from https://thephilanthropist.ca/2020/03/7721/
Parachin, A. (2017). Policy Forum: How and Why to Legislate the Charity-Politics Distinction Under the Income Tax Act. Canadian Tax Journal, 65(2), 391–418.
Phillips D, S., (2020). The COVID crisis and the imperative need for change. Retrieved from https://carleton.ca/panl/story/never-waste-a-good-crisis-a-fitting-mantra-for-2020/.
Singer, S. (2020). Charity Law Reform in Canada: Moving from Patchwork to Substantive Reform. Alberta Law Review, 57(3), 683-714.