Working Together: A Government of Canada/Voluntary Sector Joint Initiative - Report of the Joint Tables

Supplementary Paper A: Education, Advocacy and Political Activity

Overview and summary

This paper examines what Regulatory Table members consider to be the most pressing issues relating to advocacy. While there is no legal definition of advocacy in the context of charities, the behaviour has features that sometimes allow it to be considered educational, while at other times charities law places it in the context of prohibited political activities.

The paper offers a definition of advocacy, describes the applicable regulatory regime for charities, and notes issues that arise and why they do so. The issues are twofold:

• what "political activities" charities are prohibited from undertaking needs to be more clearly specified in law; and
• non-charitable public benefit groups cannot obtain the same tax status as do charities.

The paper deals with each of these issues, setting out specific proposals, and concludes with next steps. These steps are: first, the current rules urgently need to be clarified; and second, the proposed changes in this area should be subjected to broad consultation.

Advocacy: Definition and current rules

Advocacy, in general terms, can be defined as the act of speaking or of disseminating information intended to influence individual behaviour or opinion, corporate conduct, or public policy and law. Advocacy often occurs in the context of activities intended to educate and inform, while at other times it could be described as a political activity. There is a widely shared view that the act of advocacy, as a form of free speech, is an essential part of democracy.

With respect to such advocacy-related activities, charities are subject to a regulatory regime that derives from:

• case law, regarding the boundaries between permissible charitable endeavour and impermissible political activity; and between education and promotion of a point of view;
• the Income Tax Act, which has provisions limiting political activities by charities; and
• Revenue Canada's specific interpretation of the Act's provisions.

Generally, the rules may be summarized as follows:

• education must not amount to promotion of a particular point of view or political orientation, or to persuasion, indoctrination or propaganda; and
• a charity cannot have political purposes; but
• it may devote some of its resources to political activities as long as:
  • they are non-partisan; they remain "incidental and ancillary" to the charity's purposes;
  • and - substantially all ("90 percent") of the charity's resources are devoted to charitable activities.

It is important to emphasize that, because a charity cannot be established for what the courts(1) consider a political purpose, and because political activities are permissible if they are of a certain character and quantity, the key question is always whether the "advocacy" activity at issue is a form of "political activity". For, if it is not so considered, it could be perfectly permissible, either as a purpose or as an activity. The problem is that the law lacks clarity in giving guidance on what are political activities.

The issues that arise with respect to charities are: there is a need to clarify in legislation what "political activities" charities cannot engage in, and a need to modify the "10 percent" rule.

Advocacy by non-charities

In addition to registered charities, other public benefit organizations engage in advocacy in varying degrees. Yet other organizations primarily seek to promote private advantage, such as may benefit businesses or members of the organization that is doing the advocating.

The cost of "advocating" (i.e., lobbying) by businesses is normally treated as an expense for the purpose of corporate income tax, thus potentially reducing the net cost of such activity substantially. In part to compensate for higher net costs, Table members agree that advocacy activities by some types of voluntary sector organizations (and that are currently not registered as charities) are worthy of public support and should receive more support than they do now. Table members suggest that the first test that groups must meet in order to qualify for public support is that they cannot be for-profit, and do not primarily promote their members= interests; the not-for-profit test should extend to major funders of any organization.

The Regulatory Table did not discuss what would be the preferred way to express such public support, sensing that either direct funding or access to the tax system, or both, might be most appropriate, depending on the circumstances. (See Appendix C for a discussion of alternative ways of funding.) In so far as that public support is at present, or could in future, be expressed by way of the tax system C that is, by providing organizations with the ability to issue receipts for income tax purposes C the issue that arises is therefore: non-charitable public benefit groups cannot obtain the same or similar tax status as charities.

Below are some specific proposals to address each of the issues identified, but first some suggestions are offered on why they arise in society today.

A possible context for some of the confusion

Three themes of competing principles appear to contribute to confusion about the legal regime of advocacy by voluntary organizations:

• Entitlement. One view holds that favourable tax treatment is a right, another that it is a privilege. In the United States, the tax regime for "exempt organizations" explicitly derives from the former, whereas Canadian governments have traditionally regarded tax advantages as a privilege.
• Capacity. The law on charities, and on corporations without share capital more generally, restricts their activities to the purposes for which they are established. They do not have the unlimited power that other natural persons enjoy. Groups cannot Ado what they want". This is widely misunderstood.
• Authority. A third tension may be likened to the contrast between positive and negative definitions of liberty: laws may be seen to permit everything that is not expressly prohibited or, alternatively, to permit only what is authorized. Regulators and others in authority often act according to the latter perspective, while those being regulated tend to consider the former to be the rule.

These themes are offered as a way to locate some of the significant dissonance between the law as it stands, and how it is perceived to be or perhaps should be. Groups C particularly groups engaging in advocacy C frequently are perplexed to find that they do not have the right to issue tax receipts, or that the activity is not within their organizational capacity, or that it is not permitted because it is not authorized. The following proposals seek to reduce some of the dissonance.

Clarifying prohibited activities

Instead of the current definition, section 149 of the Income Tax Act should be changed to permit "political activities" by charities, provided that:

1. the activities relate to the charity's objects, and there is a reasonable expectation that they will contribute to the achievement of those objects; and
2. the activities:
1. are non-partisan;
2. do not constitute illegal speech or involve other illegal acts;
3. are within the powers of the directors of the organization;
4. are not based on information that the group knows, or ought to know, is inaccurate or misleading; and
5. are based on fact and reasoned argument.

Little merit is seen in quantitative limits on the extent of political activities, whether set in law or through departmental policy, although such activities cannot become predominant. The contention here, however, is that the 10 percent ceiling allows far too narrow a scope as a general guidance.

Non-charitable public benefit organizations

Voluntary organizations that:

(1) are not-for-profit and do not primarily promote their members= interests, and
(2) whose activities fall within the boundaries delineated under part b) in the previous section,

should receive more public support than they do now. Further, the option of support through the tax system should, in principle, be more broadly available. Table members believe that Canadians would widely support extending tax advantages to groups that meet these two tests, and that, for example:

• promote tolerance and understanding within the community of groups enumerated in the Canadian Human Rights Code;
• promote the provisions of international conventions to which Canada has subscribed;
• promote tolerance and understanding between peoples of various nations;
• promote the culture, language and heritage of Canadians with origins in other countries;
• disseminate information about environmental issues and promote sustainable development; or
• promote volunteerism and philanthropy.

The above list is an illustration of the types of activities that could be added to the types of groups listed in section 118.1(1) of the Income Tax Act(2). Groups engaged in such activities, and that meet the above tests, could then, as with National Arts Service Organizations and Registered Canadian Amateur Athletic Associations (RCAAAs)(3), become "deemed charities".   It is conceivable that, like political parties, non-charitable advocacy groups could be made subject to a different rate of tax assistance than are registered charities.

Next steps

The current rules regarding education, advocacy and political activity are in need of clarification; this is a top priority. There is an urgent need for better communication with charities and prospective applicants.

Charter and other legal implications, and any potential fiscal impact, need to be further investigated.

Finally, the Regulatory Table believes that all of its proposals in this area need to be subjected to a broad-based consultation process.

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1. The rationale for prohibiting as a charitable purpose the promotion of changes in the law or its administration, or changes in public policy, is one often repeated in court decisions: the courts have no means of judging whether the proposed change will or will not be for the benefit of the public.
2. Left for further exploration is the question of whether what is of public benefit would, from time to time, be defined by regulation or law, possibly with involvement of a Joint Committee of Parliament as proposed by the Broadbent Panel.
3. RCAAAs are subject to virtually no regulatory oversight, which is clearly an anomaly. It is suggested here that if a consultation takes place, a proposal be included that "deemed charities," present and future, be subjected to the same regulatory oversight for purposes of the Income Tax Act as are registered charities.