A. INTRODUCTION
Canada Revenue Agency (“CRA”) released on January 24,
2013, a new T3010(13) Registered Charity Information Return, along with updated schedules and other forms.
Revision of the T3010 was necessary following legislative changes in Bill
C-38, An Act to Implement Certain Provisions of the Budget Tabled in
Parliament on March 29, 2012 and Other Measures (“Budget 2012”) pertaining to charities carrying out political activities.
Registered charities will need to complete the new T3010(13) when filing
for years ending on or after January 1, 2013. CRA has also revised the
accompanying Guide T4033, Completing the Registered Charity Information
Return (“the Guide”).
This Charity Law Bulletin provides a brief summary
of the background to the changes made in Budget 2012 that necessitated the new
T3010(13), a description of the changes in the T3010(13), how CRA recommends that
the new portions of the form be completed, as well as a few general
observations about T1030(13) in the concluding comments.
B. BACKGROUND
As a matter of background, in the six
months leading up to the 2012 Budget, numerous allegations were made against
environmental charities regarding the use of donations claimed to have been
received from foreign sources. Specifically, various
politicians questioned the appropriateness of foreign funding of environmental
charities in Canada if those funds would be used to lobby the government.
Of particular significance was the Senate
inquiry that was initiated by Senator Nicole Eaton on February 28, 2012, to
study the foreign funding of charities in Canada. This inquiry was largely based
on claims by Senator Eaton that such funding was improperly influencing policy
discussion in Canada, presumably with regard to governmental projects, such as
the Northern Gateway Pipeline. Such accusations lacked
credibility given the fact that there are many other segments of the charitable
sector in Canada that receive large scale funding from foreign sources each
year (such as universities, hospitals and religious organizations) for which the
Senator did not allege might be used for political activities. Given these
allegations, many expected that Budget 2012 would crack down on charities
conducting political activities. However, this did not occur. In fact, Budget
2012 did not significantly impact the ability of charities to become involved
in political activities.
Nonetheless, Budget 2012 did make some
changes that impacted charities with regard to political activities, two of which are
evident in the new T3010(13). The first of these changes was the amendment
to the definition of “political activity” under subsection
149.1(1) of the Income Tax Act (“ITA”), which was changed to include “the
making of a gift to a qualified donee if it can reasonably be considered that a
purpose of the gift is to support the political activities of the qualified
donee”. The second change was the requirement that charities disclose more information
concerning their political activities.
C. DESCRIPTION OF CHANGES TO THE T3010(13)
The expanded definition of “political activity” and the increased
reporting requirements for political activities are now found in section C5 of
the new T3010(13), as well as the new Schedule 7, Political Activities,
both of which are described below.
1. Questions Under Section C5
While the questions under section C5 in the previous T3010
only required a registered charity to disclose whether it had carried on any
political activities during the fiscal year (line 2400) and the total amount it
spent on those activities (line 5030), the new form includes more questions and
requires more detail to be given.
In the new T3010(13), line 2400 now asks if the charity
carried on any political activities during the fiscal year, “including making
gifts to qualified donees that were intended for political activities.” This addition derives from Budget 2012’s amendment to the definition of “political
activity.” A charity that checks “yes” to participating in this more expansive
definition of political activities will be required to complete Schedule 7,
which is described below.
Line 5300 is substantively the same in the new T3010(13) as
it was previously, asking for “the total amount spent by the charity of these
political activities.” However, charities are now asked two additional questions that were not in the
previous form. On line 5031, charities are asked how much of the amount
reported on line 5030 constituted gifts to qualified donees. In this regard,
the Guide states:
The charity should only report on gifts
to other qualified donees that were intended for political activities. The
charity is not responsible for tracking and reporting on how the funds were
actually spent. Further, regardless of whether the funds were ultimately used
for political activities, if a purpose of the gift was to fund political
activity, it should be reported in line 5031.
Given this new requirement, a charity making a gift to a
qualified donee that is not intended to be used for political activities may
want to confirm this intention by designating in writing that the gift is not
to be used for political activities. As well, charities may want to avoid
multi-purpose gifts, since Budget 2012 refers to “a purpose” as opposed to “the
purpose.” The lack of detail concerning what a “purpose” means could expose the
charity to the risk that any political purpose for any part of the gift could
possibly taint the whole gift.
Line 5032 requires a charity to report the total amount it
received from outside Canada that was “directed to be spent on political
activities” and states that if the charity has entered an amount on line 5032, it must
complete Table 3 of Schedule 7. As with line 5031, the Guide notes that line
5032 relates exclusively to the donor’s intended purpose of the funds,
requiring the charity to report the total amount that the foreign donor
directed it to spend on political activities, irrespective of whether the
charity actually spent those funds for such purposes.
2. Schedule 7, Political Activities
Schedule 7, consists of three tables. Table 1 requires a charity
to describe its political activities, including any gifts that it made to
qualified donees that are intended for political activities, and to explain how
these political activities relate to its charitable purpose. The Guide provides
further detail, stating that charities should complete this table by specifying
how the law, policy, or decision of government that the charity tried to
influence relates to the charity’s purpose. The Guide provides the following
example:
ABC charity is established to promote
health by giving medication to cancer patients in Canada. The charity wants the
Canadian government to change the drug review process to establish an open
border North American standard that would allow drugs currently only approved
in the US to be readily sold in Canada.
Table 2 of Schedule 7 requires a charity to disclose how
it has conducted its political activities. The charity is required to tick-off
whether it has allocated resources in the form of staff, volunteers, finances
or property to conduct political activities through any of the following means:
· Media releases and advertisements;
· Conferences, workshops, speeches, or lectures;
· Publications (printed or electronic);
· Rallies, demonstrations, or public meetings;
· Petitions, boycotts (calls to action);
· Letter writing campaign (printed or electronic);
· Internet (Web site, social media (Twitter, YouTube));
· Gifts to qualified donees for political activities; or
· Other (specify).
The Guide provides the following example:
ABC charity organized a rally on
Parliament Hill to urge the government to change the drug review process. It
used staff to organize and plan the rally and financial resources to rent buses
to transport supporters to the rally. In this scenario, in the column marked
“Rallies, demonstrations, or public meetings,” tick the boxes under “Staff” and
“Financial.”
Lastly, a charity that entered an amount on line 5032 is
required to disclose in Table 3 the political activity that the funds were
intended to support, the amount received from each country outside Canada, and
the corresponding country code. However, there is no requirement that the
charity must identify the name of the foreign donors. The Guide states that the
charity must report the total amount that the foreign donor directed it to
spend, rather than just the amount that it actually spent, and provides the
following example:
ABC charity received $5,000 from an
organization in the United States and $10,000 from an individual in France with
a direction from both that the funds are to be spent for the purpose of urging
the government to change the drug review process to enable US approved drugs to
be readily sold in Canada.
Political Activity |
Amount |
Code |
Urge the government to change to drug review process
to enable US approved drugs to be readily sold in Canada. |
$5,000 |
US |
Urge the government to change to drug review process
to enable US approved drugs to be readily sold in Canada. |
$10,000 |
FR |
D. ENFORCEMENT
In addition to these changes, Budget 2012 allocated $8
million in additional funding to CRA for the purpose of enforcing charities’
compliance with the new rules and empowered CRA with new enforcement
mechanisms, including the authority to suspend the tax-receipting privileges of
a charity for exceeding the limits in the ITA for political
activities (generally 10% of its total resources for a year) or providing
inaccurate or incomplete information on its information return. As such,
charities are advised to familiarize themselves with the new rules involving
political activities before undertaking such activities and take careful steps to
keep detailed and consistent books and records.
E. CONCLUDING COMMENTS
The new T3010(13) fulfils the Budget
2012 mandate that charities are to disclose more information concerning
their political activities. However, other than the question in Schedule 7
requiring charities to describe their political activities and how those
activities relate to the charitable purpose of the charity, it is not clear how
this additional information addresses the only question that really matters
under Subsection 149.1(6.1) and (6.2) of the ITA; that being,
whether the charity has exceeded 10% (subject to certain remedial provisions under
CRA’s Political Activities Policy Statement, CPS-022)
of the total resources of the charity for the fiscal year in pursuing political
activities. What the resources of a charity consist of and how a charity is to
calculate the 10 % resource limit is not addressed in either the new
T3010(13) or in the Guide. As such, it is uncertain how CRA is going to enforce
the 10% resource limit when charities lack clear guidance on how to calculate whether
they are within the limit. Hopefully, the new T3010(13) will not contribute
to creating a reverse onus situation where a charity under CRA audit will be
expected to prove that it has not exceeded its 10% resource limit when the
charity lacks the tools to make that calculation in the first place, as such a
result would be manifestly unfair. Hopefully CRA will avoid such measures in
pursuing their compliance initiatives.