Taxpayer Challenges Constitutionality of Income Tax Laws

Canada Without Poverty v. A.G. Canada 2018 ONSC 4147

Justice Morgan of the Ontario Superior Court found that the Income Tax Act‘s restriction on political activities by charitable registered charities to 10% was unconstitutional.  The relevant provision was therefore struck.

The Applicant is a registered charity with the stated charitable purpose of relieving poverty in Canada.  Its day to day activities include public advocacy for policy change and the sharing of ideas with the public at large to advance the knowledge of poverty, support research of poverty, produce articles and commentary, and working with various food banks.   The Applicant focusses its resources on civic engagement and public dialogue, with the goal of bringing about legislative and policy change to effectively end poverty in Canada.

The Applicant was audited by the CRA in 2015.  The CRA concluded that the Applicant’s activities involved political engagement because its predominant activity was to advocate policy changes to the public.  The CRA felt this offended s. 149.1(6.2), which restricts a charity’s involvement in what it considers to be political activity and requires registered charities to devote “substantially all” of its resources to charitable activity.  In practical terms,  CRA restricts the ancillary political activities of a registered charity to 10% of its resources (substantially all means 90%).

According to the CRA, political activities can either be a) submissions to the government directly or b) public advocacy.  Submissions to the government are acceptable and would not count toward the 10% threshold.  Public advocacy, however, would count, since the CRA considers it a violation of the provision if more than 10% of a charity’s resources are used on policy advocacy not communicated directly to government officials.  What is political activity exactly?  According to the CRA, an activity is considered political if it communicates a call to action, communicates to the public that the law should be changed, or advocates pressure being placed on government to change the law.

The Applicant argued that its focus on public advocacy for policy change is fundamental to its charitable purpose, and that without this ability, its charitable activities cannot accomplish their purpose.

Its position was that its primary activity necessarily involves advocating for policy and legislative change, which would exceed the 10% threshold of the provision.  From the CRA’s perspective, then, virtually everything it does is political.  There is simply no way the Applicant can pursue its charitable purpose without being considered off side of the 10% threshold.  Furthermore, the Applicant cannot function without charitable status. The Applicant’s ultimate position was that the CRA’s 10% rule infringed on its s. 2(b) freedom of expression rights under the Charter.

The Court found that publicly advocating for policy change falls within the ambit of the freedom of expression guarantee.  The Applicant has a right to freedom of expression, insofar as it requires the ability to engage in public policy advocacy toward it charitable purpose.  The Court found that the Applicant’s freedom of expression rights had been clearly infringed upon by s. 149.1(6.2) and that the infringement was not justified under section 1 of the Charter.

The Court was confused by the objective of the tax provision in question, given the importance of charities being engaged in public policy and law reform.  The Court finds that the purpose of the provision appears to minimize the very activity that the government would like to foster, namely, a registered charity’s ability to participate in public dialogues advancing policy change.

Interestingly, a consultation panel appointed by the Minister of National Revenue found that the restrictions on political participation in 149.1 were outmoded and should be amended.