While businesses are free to deduct the cost of ad campaigns for tax purposes — even when they promote a public policy position such as a specific pipeline project or telecommunications — tax rules for charities are confusing, arbitrary and potentially crippling, says the report by the University of Victoria's environmental law centre.
And that, say the report's authors, is putting a chill on important work by Canadian charities as the Canada Revenue Agency carries out an aggressive audit campaign aimed at advocacy it deems "political."
According to the tax agency, some 60 such audits are planned, with 44 either already underway or completed.
The audit focus was announced in the 2012 federal budget, shortly after senior Conservative cabinet ministers accused environmental groups of harbouring radicals and money launderers.
Many of the ongoing audits appear aimed at environmental, anti-poverty and other groups whose goals don't mesh with Conservative priorities in Ottawa, sparking a heated partisan exchange Wednesday in the House of Commons.
NDP critic Murray Rankin said the credibility of Canada's tax agency is at stake.
The government is spending an extra $13.4 million "to target charities the Conservatives don't like, at the same time as they're cutting $200 million from the overall budget of the CRA," Rankin charged.
Revenue Minister Kerry-Lynne Findlay reiterated that the tax agency audits "occur at arms length from government ... free of any political interference or motivation," prompting roars of mocking laughter from the opposition benches.
The CRA audits one per cent of the charitable sector each year, said Findlay, resulting in about 0.4 per cent of all charities having their status revoked for any reason.
"The only politics in this story are the shameful motivations of the NDP," said the minister.
Whether targeted or not, the University of Victoria says the impact is the same: Registered charities are being tied up in knots by auditors and are self-censoring their own advocacy as a result.
"Charitable advocacy helps society recognize and actually respond to the problems that charities address," says the 62-page study.
It argues that "if charities continue to shy away from any political activity at all, public debate about how to solve society's problems will be seriously impoverished — as those with some of the best expertise on such problems will remain silent."
The report points to past charitable work that led to legislative changes and thus could be deemed political: the Canadian Cancer Society advocating to ban smoking in public places; Mothers Against Drunk Driving pushing for tough impaired driving laws; or environmental groups seeking to establish parks or eliminate lead from gasoline.
"The rules on 'political activities' are so ambiguous that it's difficult for any charity to be certain it's carrying out its activities within the rules," Calvin Sandborn, the director of the University of Victoria's environmental law centre, said in a release.
Charities are expressly barred from partisan activity for or against a political party. That's as it should be and not the issue, according to the report.
The rules, however, do permit up to 10 per cent of an organization's work to promote public policy positions that could be deemed political by the tax man.
It's an arbitrary line, argue the report's authors, with draconian penalties for those who might inadvertently cross it — losing charitable tax status and possibly forfeiting the charities' assets.
The report makes five recommendations for reform:
— Remove any potential for or perception of political interference by creating an independent charities commission, such as exists in England and Wales.
— Clearer rules for what constitutes "political activity" and a more generous limit for how much is allowed.
— Modernize the definition of what qualifies as charitable.
— Emphasize compliance agreements for minor violations rather than ending an organization's charitable status.
— Encourage provincial attorneys general, who advocate for the public interest, to get involved in federal tax appeals involving charities.
To read the full report: http://www.elc.uvic.ca/press/documents/Tax-Audits-of-Environmental-Groups_2015Mar25.pdf
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