In an important decision released on July
16, 2018, Justice E.M. Morgan of the Ontario Superior Court of Justice held
that the provision of the Income Tax Act (“ITA”) which restricted
a charity’s “political activities” to a maximum of ten per cent of its
resources were unconstitutional because it offended the charity’s right of
freedom of expression contained in the Canadian Charter of Rights and Freedoms
(“Charter”). As a result, Justice Morgan ordered the Canada
Revenue Agency (“CRA”) to immediately cease interpreting and enforcing
the impugned section of the ITA in that manner. In doing so, Justice
Morgan effectively ended CRA’s “political activities” audits of Canadian
charities and opened the door for charities to engage in much more non-partisan
political activity.
In this case, (Canada Without Poverty
v. AG Canada, 2018 ONSC4147), CRA had threatened to revoke the charitable
status of Canada Without Poverty (“CWP”) on the basis that the charity was
offside the maximum 10 per cent rule concerning its political activities. CWP argued that the ITA’s distinction between
“charitable activities” and “political activities” was artificial
and that almost all of its work could be labelled political activity in the
sense that public advocacy for policy change was fundamental to its charitable
purpose of poverty relief.
ITA Prohibits “Political Activities” By Charities
Section 149.1(6.2) of the ITA defines the
extent to which a registered charity can devote its resources to political
activities and provides that where a charity devotes substantially all of its
resources to charitable activities, it can only devote ten per cent of such
resources to political activities, provided that the political activities are “ancillary
and incidental” to its charitable activities and the political activities
do not include the direct or indirect support or opposition to any political
party or candidate for public office.
The CRA has the power to revoke a charity
status if it determined that the charity carried on more than the allowed ten
per cent of its activities as political activities as opposed to charitable
activities. As a matter of interpretation, the CRA divided political
activities into two general types – submissions directly to government and
public advocacy. In doing so, the CRA acknowledged that there could be
policy and advocacy components to charitable activities. In this respect,
political activities and charitable activities are not always treated as
distinct.
Section Violates Guarantee of Freedom of Expression
Canada Without Poverty challenged the
overall distinction between charitable activities and political activities that
were embodied in the ITA and challenged the CRA rule of interpretation
enforcement limiting political activity to ten per cent of its resources. It argued that there was no valid distinction
between political expression and (with the exception of partisan political
involvement) and charitable activities and so the distinction in the ITA was
redundant violated the guarantee of freedom of expression under section 2(b) of
the Charter . CWP argued that the infringements could not be justified
under section 1 of the Charter.
Justice Morgan agreed. He held that
there is no widely agreed upon definition of what is political. Certainly
there was no definition of political activities in the ITA. Virtually all
of Canada Without Poverty’s activities are communicative or expressive and in
that sense “political”. Justice Morgan wondered whether one could
“coherently distinguish between political activities and charitable
activities or for that matter any other kind of activities”.
CWP argued that public advocacy for
policy change was fundamental to its charitable purpose of poverty
relief. Without this component its charitable activities could not
accomplish their purpose. CWP’s approach
to relieving poverty is one that strives for the full civic engagement of
people living in poverty. Its purpose is to relieve poverty by sharing
ideas with its constituency. Relying on various international studies on
poverty relief, CWP placed its resources and efforts behind civic engagement
and public dialogue with the goal of bringing about legislative policy change
for the effective relief of poverty. Justice Morgan held that while this
approach may be in keeping with contemporary activism in the field, it was out of
step with ITA and the CRA policy statement on interpretation and enforcement of
the ITA. Canada Without Poverty argued that the CRA’s ten per cent rule
should no longer be applied because there was no cogent distinction between
non-partisan political activities and charitable activities and therefore no
reason for political activities to be ancillary or incidental to charitable
activities.
Justice Morgan found that even the
Minister of National Revenue in a consultation report agreed with many of the
positions taken by CWP. The consultation panel had recognized that a key
principle with respect to charitable activities is that public advocacy and
charitable works go hand in hand in a modern democracy and are seen as an
essential part of the democratic process.
Canada Without Poverty challenged the
sections of the ITA as infringing its right to freedom of expression.
Justice Morgan held that it would be difficult to express the importance of
freedom of expression as a Charter right any higher than the Supreme Court of
Canada has put it, “fundamental – because in a free, pluralistic and
democratic society we prize a diversity of ideas and opinions for their
inherent value both to the community and to the individual”.
Justice Morgan held that there was no doubt that the activity in which the
charity wished to engage, i.e. public advocacy of policy change, is within the
guarantee of freedom of expression. CWP argued that non-partisan
political advocacy is an accepted charitable activity under the ITA. The
arbitrary ceiling of ten per cent of the organization’s resources restricted
the charity’s expressive conduct. It was the ten per cent restriction
that was the target of CWP’s complaint not the status itself.
Justice Morgan reviewed the evidence.
According to affidavit evidence adduced by CWP, its activities that could be
seen as political encompassed far more than ten per cent of its efforts and
resources. It argued that the application of the impugned sections of the
ITA imposed restrictions on all expressive activity whose goal was entirely
wrapped up with communicating to the public that a law or policy decision at
any level of government should be changed or retained for the purpose of
relieving poverty. This ten per cent restriction was fundamentally at
odds with the charity achieving its charitable purpose because virtually
everything the charity did was “political”.
The fact that a parliament allowed political activity, but the
restriction was arbitrarily limited to ten per cent, infringed the charity’s
freedom of expression rights. CWP adduced evidence that it would not be
able to function absent its charitable status.
Justice Morgan held that as a registered
charity, Canada Without Poverty had a right to effective freedom of expression,
i.e. the ability to engage in unimpaired public policy advocacy towards its
charitable purpose. The burden imposed by the sections of the ITA and by
the policy adopted by CRA in enforcing that section runs counter to that
right. Accordingly, CWP’s right to freedom of expression under section
2(b) of the Charter was thereby infringed.
Prohibition Can Not Be Justified Under Section 1 of Charter
Justice Morgan then looked at whether the
impugned sections of the ITA could be saved because they were justifiable under
section 1 of the Charter.
Having found that the section of the ITA
violated section 2(b) of the Charter so that it burdens CWP’s pursuit of public
policy advocacy, it was necessary to turn to section 1 of the Charter.
At that point the burden shifted to the Attorney General to establish
that the infringement was reasonable and justified in a free and democratic
society.
The analysis follows the Oakes test
(Supreme Court of Canada case – R. v. Oakes). In full, the test
considers whether the legislative objective is pressing and substantial,
whether the means chosen by the legislature is rationally connected to the
objective, whether the legislation minimally impairs the right of free
expression, and whether it is proportional considering the deleterious and
salutary effects on the right. All these tests must be addressed in
sequence. The failure of government to pass any one of the hurdles
results in the conclusion that the infringement of the Charter is
diversified.
Justice Morgan held that the first
question to arise under Oakes is whether “the state’s action under
challenge has good ends”. In considering the answer to that
question, Justice Morgan looked at the right that was being infringed. He
quoted former Chief Justice McLachlin in saying that, “It is difficult to
image a guaranteed right more important to a democratic society than freedom of
expression…it seems that the rights enshrined in section 2(b) should therefore
only be restricted in the clearest of circumstances.”
Justice Morgan rejected the Attorney
General’s submission that the ITA section was a permissive one, i.e. it
permitted a charitable organization to devote substantially all, rather than
all of its resources to charitable activities. He held that it was
obvious that rather than being permissive the section was prohibitive in that
while it permitted ten per cent of an organization’s resources to be devoted to
public policy advocacy, it prohibited the remaining 90 per cent of the
resources from being devoted to public policy advocacy.
Seen that way, the objective of the
section of the ITA was to limit political expression, i.e. keep it to a
small percentage of the organization’s time, effort and resources. He
held that the government had offered no rationale for the ten per cent ceiling or
not answered the question as to why parliament had not opened registered
charity status to organizations pursuing political purposes but had limited
political speech in furtherance of accepted charitable purposes. He held
that there was an artificial distinction made in the sections between
charitable activity and non-partisan political activity and that having not
established a pressing and substantial objective, the government’s case had not
passed the first hurdle of Oakes. Accordingly, there was no
justification for the infringement of the charity’s right to freedom of
expression under section 2(b) of the Charter.
Justice Morgan ordered and declared that:
- CRA
cease interpreting and enforcing the section of the ITA that limited ten
per cent of a charity’s resources to political activities;
- the
phrase “charitable activities” used in the ITA be read to include
political activities without quantum limitation in furtherance of the
organization’s charitable purposes;
- there
be a declaration that the impugned sections of the ITA are of no further
force and effect; and
- the
exclusion from charitable activities of partisan political activities
remained in force.
Regards,
Blair
Blair
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