CRA Audits of Charities – What’s the big deal?

Canada Revenue Agency

Over the past month, PEN Canada has been at the centre of media coverage and public debate following a Canada Revenue Agency audit of PEN’s political activities. In this blog, PEN Canada’s Executive Director Tasleem Thawar considers the discussions the audit spurred and the questions that still need to be answered. 

CRA Audits of Charities – What’s the big deal?

Earlier this summer, a Canadian Press article on the Canada Revenue Agency audit of PEN Canada created an uproar. The article, like many that have appeared in recent months, suggested that the CRA has been used as a political tool by the government to silence its critics. Since then, PEN Canada has received a good deal of media coverage and an outpouring of support – notes from well-wishers, offers of help, and a wave of donations and new members. Thank you to all – we are heartened by your friendship.

Public commentary has been mixed. This is a good thing – at PEN, we love a good debate. Several comments have emphasized that audits of charities are necessary – to prevent abuse of their charitable status, via tax receipting privileges, and to ensure that charities stick to their CRA-approved mandate and mission. We agree. So, why the concern about this latest round of audits? We can’t speak for others, but PEN Canada believes that free expression is necessary for a healthy democracy, and that the lack of transparency around the audits is stifling debate in the charitable sector.

PEN Canada believes that free expression is necessary for a healthy democracy, and that the lack of transparency around the audits is stifling debate in the charitable sector.

As a charity, we expect periodic audits to ensure that we are following the rules. However, because preparing for an audit takes a significant amount of time, charities are often unable to continue with their regular work before and during the audit period. Every so often, as part of a routine process, we don’t consider this to be a problem. However, this latest batch of audits seems to target organizations that publicly disagree with recent government actions.

Of the more than 85,000 registered charities in Canada, the CRA has 52 audits for political activity underway. Of the charities that have made their audits known to the public, many have been critical of government policy and action. It seems implausible that these have been selected randomly, or that the audits are routine. The organizations include environmental charities opposed to the Alberta oil sands and the proposed Northern Gateway Pipeline, and human rights and social justice organizations that have criticized other actions by the government. (For the record, PEN’s mandate of defending free expression transcends traditional party politics – we have criticized this government for what we believe to be a silencing of government scientists, but we have also supported its repeal of Section 13, the hate speech provision of the Canadian Human Rights Act.)

To add to the ambiguity, despite the media coverage and all the questions raised about transparency, the CRA has not provided any more information about its selection process for the audits, apart from repeating that it operates without political interference. Confusingly, it says that charities chosen for audits range across the political spectrum, but then adds that it doesn’t conduct research into their political views, and “where a charity stands on a particular policy issue is irrelevant to audit selection.”

At the heart of these audits is the ambiguous term “political activity.” Charities are permitted to engage in political activities, as long as the activities do not comprise more than 10% of their work, and are not partisan. Since November 2012, PEN has been actively trying to determine how the CRA makes an assessment of what constitutes political activity and partisan-political activity, and how it determines whether a charity has exceeded its 10% allowance. In a letter to the then Minister of Finance on December 14, 2012, we noted that:

“It appears that the CRA is using the word ‘partisan’ in a much broader sense than the statute justifies, and that charitable organizations are being prohibited from discussing any ‘political’ or ‘partisan’ matter whatsoever. The actions of CRA, made possible by the vagueness of the relevant Income Tax Act provisions, stifles opposition to government policy, which is a necessary condition for the existence of a healthy democracy.”

We also filed a number of Access to Information requests in hopes of receiving some clarification about how the CRA determines political activity, and how it identifies charities of concern, but instead received documents that were redacted or entirely severed, causing us further confusion. To date, although the CRA has provided some guidance on its website as to what activities might be considered political, there is still a great deal of ambiguity around which activities a charity can engage in without restriction, and, for limited activities, how exactly the 10% is determined.

Without more transparency, we are concerned that charities will avoid public debate out of fears that their activity might be deemed “political” and that an audit will be triggered, draining staff time that would otherwise be used to pursue their charitable purposes. These fears are compounded when audits continue over months and even years – at least six of the audits in the current wave began in 2012 or earlier.

The use of audits to silence dissent is not new; many governments (notably Russia and Hungary) have used similar strategies to ensure that critical charities are unable to continue their work – essentially by tying up their resources in the audit process. Is this government using the CRA to silence its critics? So far, despite the public debate and our two-year effort to clarify the guidelines on which these audits are chosen, and carried out, we have heard nothing to the contrary.

Photo credit: Sean Kilpatrick