THE BLOG

CRA Can Call a Mulligan in "Auditgate" Process

12/06/2014 12:33 EST | Updated 02/04/2015 05:59 EST

The debate about how "tricky" it is for the Director-General of CRA's Charity Directorate to consider political leanings when selecting charities for audits continues to rage in Canada. The outrage has reached the dreaded "gate" stage with respected opinion leaders asking "Why is this not considered Canada's own Auditgate scandal?"

This week I had a respected charity leader advise me that CRA's audits are not political because two unnamed right wing charities had been selected for audit. This was aimed at countering the allegations of the Broadbent Institute that no right wing charities were being selected.

The irony that the politicization of the audit process was being affirmed by identifying these charities by their political leanings completely escaped my informant. The message that apparently CRA wanted conveyed to me was that two wrongs make a right.

I have previously written that I was referenced in the Broadbent Report back in 1999 as one of the few lawyers opposing increased political activities for charities. My interest is not in increasing the political activities of charities. I merely want charities to play a role in leading Canadians in a responsible public discourse on issues which inform our concept of "public good". Charities not only "do good"; they help us define what we as a community mean by "good".

An audit by CRA is a matter of life and death for the individual charity because CRA has the power to cut off future funding by revoking its registered charity status. Given this imbalance in power, the charity is intimidated into cravenly complying with whatever demands CRA makes; irrespective of whether the demands are reasonable or justified.

The individual charity is too frightened to see that at a macro level CRA is using audit initiatives on political activities to send messages to the sector and the public about how other charities should conduct themselves. The law forbids CRA from disclosing any details of the audits. CRA uses this absolute lack of transparency to impose its administrative policies as to what "good" is allowable upon other charities living in fear of being audited themselves. Canadians are denied the right to debate and advocate our personal concept of what constitutes the public good because our charities are afraid that discourse will be considered a political activity by CRA.

CRA can issue Notice of Intention to Revoke ("NIR") to charities audited for political activities. Any charity receiving an NIR has 90 days to file a Notice of Objection to the same Minister of National Revenue. The same law that forbids CRA from disclosing that it has issued a NIR prevents CRA from acknowledging publicly that this appeal process is taking place.

The result of this secrecy is that the NIR can be reversed if the CRA or the Minister effectively decide to call a "mulligan". The Minister can scare the wits out of a charity by issuing the NIR and then quietly reverse it in the Objection stage. The charity is so relieved about the reversal it will not complain about the angst or cost of the process.

Alternately, CRA can issue a NIR to make the Conservative government happy that it has moved against a vocal opponent. Then, should the Liberals win the 2015 election, CRA can wait and call a mulligan to make the Liberals happy because the Notice of Objection process typically drags on for years.

In both cases, word of mouth and the press coverage of the audit and rumored NIR will have ensured that the "advocacy chill" intended by CRA will have succeeded. The actual revocation becomes almost irrelevant once the desired impact on public discourse is achieved. The targeted charity will even begin publicly praising CRA for its lenience and progressivity. No record of either the charity's activities or the audit process will ever become public because the law forbids CRA from disclosing anything unless CRA publishes the revocation in Canada Gazette.

At the end of this bizarre and costly charade, both CRA and the audited charity have an interest in the NIR being reversed; consequently secrecy is preserved.