Ontario Court Allows Increased Political Activity By Charities

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:

1. CRA cease interpreting and enforcing the section of the ITA that limited ten per cent of a charity’s resources to political activities;

2. 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;

3. there be a declaration that the impugned sections of the ITA are of no further force and effect; and

4. the exclusion from charitable activities of partisan political activities remained in force.

Regards,

Blair

Blair

Tribunal : Law Society of Ontario Failed in its Duty to Accommodate Lawyer

In a recent decision of the Law Society Tribunal (“Tribunal”),-  Law Society of Ontario v. Burtt, 2018 ONLSTH 63 - panelist Larry Banack dismissed an application by the Law Society of Ontario (“LSO”) seeking a finding that one of its lawyer  licensees had committed professional misconduct.  Mr. Banack found that the lawyer’s alleged misconduct, i.e. his failure to cooperate with a Law Society investigation was the direct result of a disability and that the Law Society had not discharged its legal obligation to accommodate the lawyer’s disability to the point of undue hardship.

Interestingly, despite evidence that many lawyers who are the subjects of LSO’s disciplinary proceedings are suffering from a mental illness such as depression which can amount to a disability under the Ontario Human Rights Code (the “Code”), Mr. Banack found that the circumstances of this case were “highly unusual”.  His findings were largely based on the particular facts of the case, i.e. that the LSO knew that the lawyer was suffering from a disability that resulted in him “freezing” and therefore was unable to provide a written response to the LSO’s request for communication.

In this case, Mr. Burtt admitted that he had not responded in writing to the LSO.  However, Mr. Burtt asserted that he was not capable of providing written responses, as demanded by the LSO, by reason of a documented disability that caused him to “freeze” when confronted with the investigation.  The defence that was asserted by Mr. Burtt resulted from a previous discipline proceeding in 2015.  As a result of that proceeding, the LSO with the consent of Mr. Burtt, commissioned and received two psychological reports.  Those reports were contained in the LSO’s file and both reports concluded that Mr. Burtt was suffering from a psychological condition which negatively affected his ability to respond to the LSO within specified time frames. 

In the previous matter, Mr. Burtt had been reprimanded and ordered to comply with a psychiatric treatment plan which remained in effect up until the date of the hearing before Mr. Banack.  In making his finding against the LSO, Mr. Banack relied on testimony from an LSO investigator that not only had he not read the two psychological reports that were contained in the LSO’s file but had only learned of them on the morning of the hearing. 

The Code prohibits discrimination with respect to membership in a trade or occupational association on specified grounds, one of which is disability.  In a previous case – Law Society of Upper Canada v. Czernik (2010 ONLSHP 122) – the Tribunal held that:  “The Law Society and the Tribunal are subject to the Code and must apply the duty to accommodate where there is a proven disability at play.  A failure to fulfill professional obligations that is caused by a disability must be accommodated by the Law Society and the Panel”.      The LSO was required to accommodate Mr. Burt to the point of undue hardship.  Mr. Banack found that he was satisfied that the record before him was sufficient to make the findings as to the scope and content of the LSO’s duty to accommodate.  Not only did Mr. Burtt tell the LSO about the prior disciplinary proceedings and the psychological reports, the decisions were publicly available on CanLII and it was part of his LSO file. 

In addition, the information available to the LSO’s investigators from their own observations of Mr. Burtt, his conduct and his communications with them ought to have been enough to alert them to consider the existence of a condition which required accommodation.  Mr. Banack found that the difference in this case, as compared to many before the Tribunal, was that Mr. Burtt had responded to the LSO on a timely basis and as Mr. Banack found, was to be contrasted with the ‘typical” response of the licensees in similar circumstances which included evasion, denial, obfuscation and disregard of professional obligations.  In this unusual case, the investigators engaged with an apparently cooperative licensee in lengthy conversations in which he disclosed a prior proceeding and medical reports, offered promises of cooperation and did not seek to avoid or fail to communicate with them.  He simply failed to follow through on his commitments.

All of this should have alerted the LSO’s investigators that the situation called for alternative thinking which by any other name amounted to accommodation.  The issue then became one of whether the accommodation afforded by the LSO, i.e. providing additional time for Mr. Burtt to respond to it was sufficient in the circumstances.  Mr. Banack found that it was not.  He found that in the “highly unusual” circumstances of this licensee who was known to be suffering from a disability that resulted in freezing but engaged in protracted dialogue with the investigators, the burden was on the investigators to at least canvass what alternative approach might have fulfilled their objectives.  In other words, that was no engagement in the express thought process of inquiry concerning the need for or scope of accommodation that was required. 

In this case, it was impossible for Mr. Burtt to comply with the LSO’s requirement of written cooperation.  The LSO had alleged that Mr. Burtt “failed to cooperate with the Law Society investigation by failing to provide a prompt and complete response to written requests made by the Law Society’s investigators”.  Mr. Banack reviewed rule 7.1-1 of the Rules of Professional Conduct, and held that a requirement to respond in writing is not found in either the rules or the notice of application.  In other words, the LSO could have accommodated Mr. Burtt’s disability by allowing him to respond orally to their inquiries and to attend at his office to obtain the information that it needed.  He concluded that the LSO had failed to satisfy its onus of demonstrating what considerations, assessments and steps were undertaken to accommodate Mr. Burtt “to the point of undue hardship”.   

In dismissing the LSO’s application, Mr. Banack concluded that Mr. Burtt’s disability was the cause of his inability and failure to provide a written response to the investigator’s demands.  Mr. Burtt did not fail to comply with his regulatory obligations but only failed, by reason of his disability, to comply with the manner to which compliance was demanded. 

Regards,

Blair