Charitable organizations and the rules regarding political purposes

Charitable organizations and the rules regarding political purposes

A not for profit corporation that is also a registered charity is governed by a myriad of very strict rules that it must follow in order not to lose its status with the Canada Revenue Agency as a registered charity. Most recently in the mainstream media, the focus has been on charitable organizations that have been subject to audits by the Canada Revenue Agency (CRA) in order to determine whether or not they have breached the rules regarding political purposes.

A charity is permitted to use 10% of its annual resources for “Political Purposes”. Any more than that and CRA has the power to revoke a charity’s registration immediately. Unfortunately, the definition of “political purposes” is so vague, the costs of a potential audit so substantial (not to mention having to reallocate what are often precious resources in an effort to provide CRA with all of the necessary documentation) and CRA’s enforcement of the rule so unpredictable and arbitrary, that many charities do not even dare to enter the political fray for fear of being effectively “shut down” by CRA.

Some would argue that the so-called “targeting” by CRA is politically motivated; CRA has confirmed most strenuously that that is certainly not the case and that all audits of charitable organizations are purely random. Unfortunately, we have little to base this on as CRA does not reveal who is the target of its audits; it is only when the charity itself publicizes the audit that we become aware of it and many are reluctant to so. 

Needless to say, our advice to our charitable organization clients is to be very very careful; if the charity is going to participate in political activities then, unfortunately, they do run the risk of inviting an audit.