04/06/2012 07:34 EDT | Updated 06/06/2012 05:12 EDT

We Don't Want No Foreign Funding

Finance Minister Jim Flaherty has told Canadians: "Free your pennies from their prisons at home and donate them to charity." However, he does not want you to liberate American pennies from the prisons in your home by donating them to charity.

The federal budget of March 29 will require charities to provide information on the extent to which they are funded by foreign sources. Counting out pennies before issuing a charitable donation tax receipt is an administrative expense for a charity. It is a much greater administrative expense for a charity to be required to sort out all the American pennies and report them as foreign source funding to the Canada Revenue Agency (CRA).

My penny jar contains pennies from England, Singapore, Malaysia and many other countries. It would be much cheaper for a charity to refuse the donation of my penny jar than to comply with the new transparency measures that will require reporting which pennies come from a foreign source. As these measures apply to all donations, they will greatly increase the administrative costs of compliance and reporting for donations of dollars as well as cents.

Press reports have expressed outrage over the fact that, through measures like those found in the budget, the federal government is seeking to block funding to environmental charities and intimidate them into silence on controversial issues in Canada. CRA will receive an additional $8 million to carry out new audits to enforce these provisions.

On April 2, the Director General of Charities Directorate published a message making it clear that these provisions do not apply only to environmental charities. She wrote: "As the rules relating to political activity apply to all registered charities, the CRA's educational and compliance efforts in this regard will extend to the charitable sector as a whole."

In my opinion, the transparency requirements obligating charities to disclose funding from foreign sources will have a much greater impact on Muslim and other religious charities than on environmental charities. Though the initial focus may be on environmental funding, there is little doubt that in due course the government's attention will move to transparency with regard to foreign money coming into Canadian mosques and Muslim humanitarian charities.

It is true that the budget says that the new transparency provisions will only require charities to provide more information on the funding of their political activities by foreign sources. However, because charities will likely not be trusted to judge which of their activities are "political activities" without bias, there is little doubt that CRA will require them to disclose all funding from foreign sources. CRA will then make its own determination as to whether the activities funded are political.

The basis for the proposed new provisions on disclosing foreign funding is to assist the government in discouraging foreign funds contributing to the public debate on controversial environmental issues in Canada. The common law of charity includes non-partisan "public debate concerning a genuinely charitable issue."

It is a matter of political strategy, rather than the common law of charity, to try deter funding from American foundations. The provisions found in the budget will burden all charities with significant additional administrative and compliance costs whether or not they are engaged in environmental activities. Even if they receive no funds from foreign sources, charities will have to incur the costs of due diligence to establish to CRA's satisfaction that, indeed, no funds did come from outside Canada.