Use of CRA Audits for Political Means

 A special political-activities audit of charities by the Canada Revenue Agency (CRA) has been under scrutiny recently. The special CRA probe, backed by $13 million and created in 2012, looks at whether charities are following laws which limit their political involvement. But critics claim not all charities are being treated equally, and the majority of the 60 charities under investigation have had a tumultuous relationship with the federal government.

The Canada Not-for-profit Corporations Act (NFP Act) came into effect on Oct. 17, 2011, however, corporations incorporated under Part II of the Canada Corporations Act (“CCA”) continue to be governed under the CCA until Oct. 17 of this year. Charities are allowed to engage in some secondary political activity, which consists of less than 10 per cent of its resources and is non-partisan.

In preparation for this year’s deadline, some charities are already reporting some difficulties with the CRA. For example, Oxfam Canada included in its filings that they purpose of their organization was, “to prevent and relieve poverty, vulnerability and suffering by improving the conditions of individuals whose lives, livelihood, security or well-being are at risk.” The CRA rejected “preventing poverty” as being a charitable goal, and replied, “Preventing poverty could mean providing for a class of beneficiaries that are not poor.”

This wasn’t Oxfam’s first confrontation with the current government in the past year. Multiculturalism Minister Jason Kenney clashed with the charity, which engages in extensive activities over water availability and usage, when Oxfam criticized a new Israeli soda factory built in a West Bank settlement. Last year, the charity sent an open letter to Prime Minister Harper in objection to a “friends and enemies stakeholder list” which used to brief cabinet.

Last month, the CRA launched an audit of PEN Canada, an organization dedicated to promoting freedom of expression. PEN has a history of criticizing the current government for censoring public scientists and for alleged involvement in spying on Canadian citizens. Ironically, one of their areas of interest over the past year, prior to their own audit, was how and why charities were being audited. They made a series of freedom of information requests to help determine this, and requested a list of all letters sent by the CRA between January 1, 2006 and December 31, 2012 to charitable organizations over political status. The stonewalling and lack of transparency it received as a result is documented on their website.

The CRA has rejected the notion that they use political orientation to scrutinize a charity, but they have acknowledged that they take into consideration complaints by MPs and cabinet members. A significant number of the charities under investigation are related to environmental causes, and have been a particular concern for the federal government. Joe Oliver, Minister of Finance, said that environmental groups had a “radical agenda” in 2012, when he was Minister of Natural Resources. The Minister of the Environment of the time claimed they were used to “launder offshore funds,” an accusation which is typically reserved for syndicate crime networks or terrorists.

Although some claim that there are right-leaning charities also under investigation, others point out there is simply no evidence that this is the case. Gareth Kirby, who recently completed his thesis at Royal Roads on An Unchar­i­ta­ble Chill: A Crit­i­cal Explo­ration of How Changes in Fed­eral Pol­icy and Polit­i­cal Cli­mate are Affect­ing Advocacy-Oriented Charities, says on his blog that the blame is not with the CRA but with the government itself,

The gov­ern­ment has cre­ated a fun­nel that leads CRA staff to focus their atten­tion on cer­tain sec­tors. By allo­cat­ing addi­tional audit funds to CRAwhile other gov­ern­ment depart­ments saw cut­backs, by des­ig­nat­ing those funds for ‘polit­i­cal activ­i­ties,’ by speak­ing pub­licly about the need for CRA to respond to pub­lic com­plaints, the gov­ern­ment cre­ated a fun­nel that led CRA audi­tors to char­i­ties with rel­a­tively higher self-reported ‘polit­i­cal activ­i­ties’ (which are per­fectly allow­able up to 10% of the organization’s resources when done prop­erly) and char­i­ties with com­plaints in their files.

These will very strongly tend be orga­ni­za­tions with dif­fer­ent pub­lic pol­icy per­spec­tives than that of the government.

The funnel Kirby describes is outlined as follows:

Step 1

Start­ing in 2012 and last­ing all the way to the 2014 fed­eral bud­get, fed­eral cab­i­net min­is­ters, with back-up com­ments from the Prime Min­is­ter, write and speak in pub­lic of char­i­ties in the same breath as money-laundererscrim­i­nal orga­ni­za­tions, and ter­ror­ist orga­ni­za­tions. Envi­ron­men­tal­ists are labeled “extrem­ists” under­min­ing Cana­dian fam­i­lies. Envi­ron­men­tal orga­ni­za­tions are added to the national ter­ror­ism strat­egy as poten­tial threats to secu­rity. CRA staff see this as surely as the rest of us and know who the gov­ern­ment is con­cerned about.

Step 2
In 2011, a polit­i­cal employee leaves the employ of fed­eral cab­i­net min­is­ter Jason Ken­ney to found Eth­i­cal Oil, an aggres­sive pri­vate non-profit that advo­cates on behalf of Canada’s petro­chem­i­cal sec­tor. The orga­ni­za­tion starts a web­site and files com­plaints to the CRA against energy-issue char­i­ties, accus­ing them of break­ing reg­u­la­tions con­cern­ing “polit­i­cal” and par­ti­san activ­i­ties. The oper­a­tive returns to Ottawa with a pro­mo­tion to the Prime Minister’s Office. Peo­ple with con­nec­tions to the Con­ser­v­a­tive Party con­tinue to run Eth­i­cal Oil.

Step 3
The 2012 fed­eral bud­get sets aside $8 mil­lion for stepped-up CRA audits of “polit­i­cal activ­i­ties” and other mat­ters, at the same time as other gov­ern­ment depart­ments get cuts in an aus­ter­ity bud­get that laid off approx­i­mately 2000 gov­ern­ment sci­en­tists and mas­sively reduced envi­ron­men­tal reg­u­la­tions and pub­lic con­sul­ta­tion processes. In dis­cussing the changes, Finance Min­is­ter Jim Fla­herty refers to cit­i­zen complaints.

Step 4
CRA now has the finan­cial resources to increase audits for “polit­i­cal activ­i­ties” and aims for 60 over three years. Staff check files to dis­cover which orga­ni­za­tions are declar­ing higher per­cent­age of resources devoted to “polit­i­cal activ­i­ties” (most char­i­ties are allowed up to 10 per­cent of resources, smaller char­i­ties up to 20 per­cent). These tend to be orga­ni­za­tions with dif­fer­ent ideas than the cur­rent gov­ern­ment about the best pub­lic poli­cies for Canada.

Step 5
CRA finds mul­ti­ple com­plaints from Eth­i­cal Oil in the files of orga­ni­za­tions that address envi­ron­men­tal and eco­nomic issues around cli­mate change, expan­sion of the oil sands or gas extrac­tion, pipeline and train trans­porta­tion, export by ocean tankers, and pro­tec­tion of habi­tat and species in Alberta andBC related to the above.

Inter­est­ingly, a Feb­ru­ary 6, 2014 news report by CBC quoted Alberta Con­ser­v­a­tive MP James Rajotte noted that he assumes CRA “receive all sorts of infor­ma­tion from all sorts of Cana­di­ans, in terms of who they should or should not audit.”

Step 6
Per­haps there are com­plaints from indi­vid­u­als or groups in the CRA files of char­i­ties in other sec­tors my data iden­ti­fied as targeted—development/human rights groups and groups with sig­nif­i­cant fund­ing from labour unions—or per­haps there are other yel­low or red flags that drew CRA attention.

Step 7
Char­i­ties with high self-declaration of “polit­i­cal activ­i­ties” and/or com­plaints are given early and par­tic­u­lar atten­tion for auditing.

PEN Canada has already indicated that it is considering legal options, and has had offers of assistance from a large unnamed Bay Street law firm.

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Comments

  1. Thanks for bringing this forward.

  2. Let me get this straight, the complaint is that the CRA is auditing charities who have either self-reported a high degree of political activities or have been the subject of public complaints. Sorry, why is this a problem?

    It seems to me that that’s an appropriate, risk-based means of identifying potential audit targets (and, not for nothing, it’s similar to the methodologies used by the CRA to identify other audit targets). Certainly it’s not at all like the sort of politically-based audits by the IRS which came to light last year, where organizations with conservative themes were expressly targeted by the IRS. What other methodology do critics think the CRA should use?

    Nor does Prof. Kirby’s research support an inference of inappropriate political interference in the audit process. At most, the government’s role can be ascribed to making a policy decision to devote more resources to ensuring Canadian tax law is not being abused by charitable organizations. That’s hardly objectionable political interference, that’s what government’s are supposed to do.

    Organizations like PEN or Greenpeace (or the Fraser Institute, which has been regularly audited in the past) claim significant benefit by virtue of being charitable organizations for Canadian tax purposes, it’s not unreasonable to expect that they (a) comply with Canadian tax law and (b) be subject to occasional audit to ensure such compliance – just like the rest of us. If they’re in compliance, great, I expect they won’t hear from the CRA for a few more years. If they’re not, well, then maybe conservative complaints about abuse of charitable status were merited.

    There is a separate issue here as to whether charitable organizations should be allowed to engage in significant political activities. Traditionally Canadian law hasn’t recognized such activities as a valid charitable purpose, although a case could be made for changing that. But, in the absence of legislative change on that point both the government and the CRA are right to expect charities to comply with the law as is.

  3. Bob,
    It’s a special audit committee, and one which as far as we know has not targeted charities on a certain side of the political spectrum

  4. Using the power of the state to politically target enemies is bad. Using state resources to ensure compliance with state laws can be good. It looks as if there is a new effort to enforce the law, the effect of which is argued to be disproportionate to one side.

    The question that comes to mind is, is the effect disproportionate due to discrimination in the choice of targets (potential targets from the left being followed up on, targets from the right being ignored), or is it the result of a larger number of potential targets all being from one side. Or to say it another way, how many politically active charities are there on the other side of the political spectrum?

    The Fraser Institute certainly comes to mind, and I understand they have been audited several times in the past. Are there others? Have they been subject to audits recently?

    If all environmental charities are automatically assumed to be ‘left’ then its not surprising that there are no ‘right’ based environmental charities being audited. If this is a field where there is a significant amount of charities who may be playing near or over the 10 and 20% borders, it would be hard to distinguish a legitimate enforcement effort with a hunt for political foes yes?

  5. James,
    There is no indication from the sources I’ve reviewed that the Fraser Institute, or any right-leaning charity, was audited by this special audit committee.