Evidence of meeting #59 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was change.
A recording is available from Parliament.
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Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
Sorry, the specific activity being...?
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Liberal
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Liberal
Scott Brison Liberal Kings—Hants, NS
—were to invest in or give money to a Canadian charity that was engaging in political advocacy—
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Conservative
The Chair Conservative James Rajotte
Okay, Mr. Brison. We'll come back to you if you can formulate a more specific question—
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Voices
Oh, oh!
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Conservative
The Chair Conservative James Rajotte
—and perhaps one that's a little less leading.
Ms. Nash, please.
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NDP
Peggy Nash NDP Parkdale—High Park, ON
Just continuing on the line of charities and political activities, as you may know, this committee, the finance committee, in fact had been studying charities and charitable donations. We've heard from charities—everything from food banks to health organizations—that do advocate for some political change based on the clients they serve and the work they do.
There's a whole range of political activities, of course, that organizations are engaged in, from community organizations to national organizations, including everything from the David Suzuki Foundation engaging in environmental advocacy to the Manning Centre and the Fraser Institute. There are many organizations.
But on this particular change, with the pass-through changes that are being proposed here, do you have any sense of what share of charities or what number of charities could be pushed over their 10% ceiling by making this change? Do you know how many charities could potentially be affected by the change that's in this bill?
5:05 p.m.
Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
No.
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NDP
Peggy Nash NDP Parkdale—High Park, ON
Well, let me ask it in a different way. I presume that if there's a change being proposed in the bill, it's in reaction to a problem. It would not just come out of thin air that the government would want to make a change, so has there been concern about this kind of pass-through funding? If so, do you have a sense of how many charities would be charities of interest, based on this change?
5:10 p.m.
Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
From an administrative perspective, if the bill is passed, what we've been asked to do is introduce practices that would improve reporting and provide more information to the public and to both donor and receiving organizations.
I suppose that if at the end of the day, through that process, an organization became more informed that what they were doing was inconsistent with what the current rules were, that would result in a system that has greater integrity. The consequences would be that the system would be improved, because there would be more awareness on the part of Canadians and charities as to what the rules are and how they should be interpreted.
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NDP
Peggy Nash NDP Parkdale—High Park, ON
Without naming an individual organization, was there some specific activity that was taking place that drew the attention of the government or of CRA to prompt this change? I'm just wondering where the initiative came from.
5:10 p.m.
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
I couldn't say if there was any specific activity. I think in the examination of the rules related to the political activities of charities it was identified that the spirit of the law is that a charity is supposed to conduct its own charitable activities, and to the extent that it's involved in political activities, that those be limited to some small portion—10%—of its charitable activities.
Looking at the regime and saying that a charity could be funding the political activities of another qualified donee by giving it a gift is sort of outside of the spirit of the law, which is that they should be engaged in their own charitable activities, not funding the political activities of other charities. So that's sort of where an improvement to the rules that would apply to all charities suggests that if you're violating the spirit of the law, then here's a way it could be done.
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NDP
Peggy Nash NDP Parkdale—High Park, ON
I have a couple of seconds left. Were some red flags raised because of certain activities that CRA noticed, without naming any organization?
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Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
As the budget states, I think there were concerns about the involvement of charities in political activities. In terms of specific circumstances, I'd have to say no. We look at the policies. We look at the rules that apply and provide advice on those rules.
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Conservative
The Chair Conservative James Rajotte
Thank you.
We'll go to Mr. Jean.
Mr. Jean, you have a couple of minutes. Then I'll have to suspend for the vote.
5:10 p.m.
Conservative
Brian Jean Conservative Fort McMurray—Athabasca, AB
Thank you, Mr. Chair.
I'm going back to what Mr. Brison brought up earlier because I am interested in that line of questioning, and I've been able to formulate what I consider to be a fairly good question in relation to it. I went on a website called Canada's Culture. I'm wondering how you judge whether it's 10% or not. For instance, that particular website promotes voting for the Liberal Party of Canada. I'm wondering whether or not that would be included if that's a charity, a non-profit group. How would you quantify whether it would be 10%?
I understand where the 10% and the word “exclusive” come from. Do the laws clearly state it has to be exclusive work toward that charity? The judicial interpretation of that by the courts over the years has been that 90% is considered exclusive, so 10% can be something else. Is that correct?
5:10 p.m.
Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
It can be political activity, but it still has to be related to the purpose of the charitable organization.
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Conservative
Brian Jean Conservative Fort McMurray—Athabasca, AB
In this particular case, for instance, legalization would obviously be something that this particular organization would want. And if they advocated for the Liberal Party to be elected or for that member in that area, would that be considered to be contravening the section? That's my first question.
Second, I'm not sure how this would be considered, but if the Green Party endorsed another party before they had a member of Parliament, would they be a charity or a non-profit group? I guess they'd be a political party because they endorsed the Liberal Party for the same purpose, for the same reason, for legalization.
But I'm wondering about the issue with Canada's Culture. Would that be a contravention, and how would you judge whether or not it would be within the 10%?
5:15 p.m.
Senior Legislative Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance
It's a threshold issue in terms of how the legislation is structured. The Income Tax Act requires that the charity operate exclusively for charitable purposes and conduct exclusively charitable activities. A specific provision in the Income Tax Act provides that as long as you're devoting substantially all of your resources to those charitable purposes, you can devote some of your resources to political activities.
That particular rule in the Income Tax Act is where we find the requirements that those political activities have to be...the term is “ancillary and incidental” to the charitable activities of the organization. That's also where we have a specific exclusion that what we've been calling the prohibited political activities do not include the direct or indirect support of or opposition to any political party or candidate for public office. The prohibition with respect to partisan political activities is specifically in the Income Tax Act. So if you cross those hurdles and you devote some portion of your political activities, then the Income Tax Act deems all your resources to be deemed for charitable activities.
The act does use the term “resources”. So an assessment has to be done in terms of what constitutes the resources of the charity, because obviously a charity has financial resources but may also have human and physical resources that are used for their purposes. So that's the overarching structure of the act with respect to political activities.
I don't know whether my colleague from the CRA has any specific comments about....
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Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
I think that answers the question about whether or not you could directly support a candidate for office.
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Conservative
Brian Jean Conservative Fort McMurray—Athabasca, AB
Indeed, and how many resources you put toward it, depending on what resources are available.
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Senior Legislative Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance
There's a specific prohibition to.... It doesn't fall within the 10%. You just cannot participate in partisan political activities.