I recently travelled to Orlando, Florida for the Spring Meeting of the American Bar Association’s Business Law Section. The meeting involved two days of discussions with other members of the Non-Profit Organizations Sub-Committee. One of the topics on the minds of U.S. attorneys was how to ensure that their U.S. charity and non-profit clients do not jeopardize their tax-exempt status by contravening the political activity and advocacy rules that apply to them. U.S. attorneys are, understandably, very attuned to the risks in light of this being a federal election year in the U.S.
Another topic of discussion at the ABA Spring Meeting was how Canadian and U.S. organizations can work together in various ways to achieve social impact. We discussed, in particular, how Canadian registered charities can carry on their own activities in the U.S. through their own staff and volunteers, as well as through U.S. intermediaries that are engaged to carry on activities on behalf of the Canadian registered charity. We also discussed the new qualifying disbursement rules in the Income Tax Act (Canada) (the “ITA”), which allow Canadian registered charities to make a grant to a “grantee organization” outside of Canada, provided that the grant meets the criteria in the ITA, including the requirement that the grant further a charitable purpose of the Canadian charity.
During our discussions, it occurred to me that Canadian registered charities and non-profits that work with U.S. organizations may be wondering how the upcoming U.S. election might affect their cross-border work in the advocacy space. In this regard, there are a number of Canadian rules and regulations that are worth reviewing.
One of the rules in the ITA is that Canadian registered charities must be “constituted and operated exclusively for charitable purposes”. According to the relevant case law, a charity that has a political purpose is NOT constituted exclusively for charitable purposes. The Canada Revenue Agency (“CRA”) has stated that it considers a political purpose to be any purpose that seeks to:
- further the interests of a particular political party or support a political party or candidate for public office (in Canada or a foreign country); or
- retain, oppose, or change the law, policy, or decision of any level of government (in Canada or a foreign country).
The ITA also provides that a Canadian registered charity “that devotes any part of its resources to the direct or indirect support of, or opposition to, any political party or candidate for public office shall not be considered to be constituted and operated exclusively for charitable purposes.” In contrast with the first rule explained above, which prohibits charities from having a political purpose, this second rule restricts how Canadian registered charities can spend money or otherwise devote their resources to “partisan” politics in Canada or a foreign country.
There is NO limit on the amount of “public policy, dialogue, and development activities” (known as “PPDDAs”) that Canadian registered charities can carry on in Canada or a foreign country. The way in which CRA interprets whether an activity is an acceptable PPDDA, or prohibited on the basis that it constitutes support or opposition across political parties or candidates, is generally set out in CRA Guidance Reference Number CG-027.
Organizations that file as non-profits under section 149(1)(l) of the ITA are not subject to the rules that specifically prohibit political purposes or devoting resources to parties or candidates; however, in order to maintain their tax-exempt status, non-profit organizations must be “organized and operated exclusively for social welfare, civic improvement, pleasure, recreation, or any other purpose except profit.”
Finally, if your organization is carrying on activities in the U.S., or any other foreign jurisdiction, it is important to understand that there may be local rules and regulations that apply, which we have not discussed in this article and which may require your organization to obtain advice from U.S. legal counsel.
In conclusion, in order to ensure that your organization is not acting offside the requirements in the ITA and CRA policy, it is important to review and understand the rules as they apply to the activities carried on by your organization. Canadian registered charities can carry on PPDDAs inside and outside of Canada. Non-profits may also participate in the political realm provided that they do so in a manner that complies with the test that entitles them to qualify as an exempt non-profit under the ITA. It is also important to review and understand any rules and regulations that may apply in the foreign jurisdiction in which you may have activities.
