How Much Can a Charitable Organization Donate for Political Purposes
With civic elections coming this Fall to Penticton, we thought we’d take a moment to shed some light on new tax rules for not-for-profits as it relates to their political activities.
Although they aren’t usually thought of in those terms Canadian charities, as measured by the amount of money they receive and administer, can be big businesses. However, because they collect and dispense that money in order to support and advance causes which create a public benefit, charities are accorded special status under our tax laws. The Canadian tax system effectively subsidizes the activities of charitable organizations by providing a tax deduction or tax credit to companies and individuals that contribute to those organizations. To ensure that their activities are in furtherance of their charitable purposes, charities are required to file an annual information return outlining those activities. Recent changes made to that information return focus on situations in which political activities are undertaken by registered charities.
In order to receive a designation as a registered charity (and consequently to be able to provide donors with a tax receipt enabling them to claim a credit or deduction), an organization is required by law to have exclusively charitable purposes. While the particular kinds of aims and objectives which may qualify an organization for certification as a registered charity vary widely, one kind of activity which cannot qualify as charitable in nature is political activity. An organization established for political purposes, or an organization that devotes more than an incidental percentage of its resources to political purposes, or whose political activities are not in furtherance of its charitable purposes, cannot qualify as a registered charity.
Support of a particular political party or candidate is an obvious partisan political purpose, but under Canadian law as it relates to charities, the definition of political purposes is much broader. As determined by Canadian courts, political purposes are those that seek to retain, oppose, or change the law, policy, or decision of any level of government in Canada or a foreign country. Essentially the rules seek to ensure that any organization that has been designated as a registered charity does not extend the benefits of having that designation to cover political aims or activities, in more than an incidental way. At the extreme end, the rules seek to prevent organizations whose aims are essentially political from “masquerading” as charitable organizations in order to receive the related status and tax benefits.
The initial, general, rule is that that a charity that devotes no more than 10% of its total resources a year to allowable political activities will be operating within allowed guidelines. Smaller charities are given more leeway, and operate under the following guidelines:
- Registered charities with less than $50,000 annual income in the previous year can devote up to 20% of their resources to political activities in the current year.
- Registered charities whose annual income in the previous year was between $50,000 and $100,000 can devote up to 15% of their resources to political activities in the current year.
- Registered charities whose annual income in the previous year was between $100,000 and $200,000 can devote up to 12% of their resources to political activities in the current year.
- Charities which breach these rules can face serious sanctions, up to and including temporary suspension or even revocation of their charitable status.
Amendments to the rules which were announced in 2012 expanded the definition of political activities to include situations in which a registered charity provides funds to another charity that is intended to support that other charity’s political activities. Where that intention exists, the gift is considered to be a political activity by the donor charity, regardless of the ultimate use of the gift, and must now be reported as such. As well, where a charity receives funding from outside Canada, and the donor directs the charity to use that gift for political activities, receipt of the gift is considered be political activity of the charity, whether or not the funds are put to that use.
It’s apparent from even a brief summary that determining when a charity has engaged in political activity which must be reported can be a very subjective exercise, and the consequences of making the wrong call can be significant. The CRA recognizes that fact, and has created a number of on-line resources to assist charities in making that determination. Those resources, which include webinars, FAQ documents and self-assessment tools, can all be found on the Charities webpage of the CRA website, at http://www.cra-arc.gc.ca/chrts-gvng/chrts/cmmnctn/pltcl-ctvts/menu-eng.html.
We encourage you to contact one of our knowledgeable accounting staff at White Kennedy if you require help understanding how you can engage in political donations as a charitable organization. With accounting offices in Penticton, West Kelowna and Osoyoos, we offer excellent accounting advice to help you prosper.
The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.