How an Ontario Superior Court Decision Has Remade the Charity Sector, Failed Vulnerable Canadians and Why Some People Are Cheering?

On January 21, 2010, the Supreme Court of the United States issued a controversial 5 – 4 decision on the case of Citizens United vs. the Federal Election Commission. The decision stated that “political spending is a form of protected speech under the First Amendment, and the government may not keep corporations or unions from spending money to support or denounce individual candidates in elections.”

The Citizens United decision effectively opened the door for corporations and unions to spend unlimited amounts of money to “support their chosen political candidates, provided they were technically independent of the campaigns themselves.”

Once week later, President Barack Obama addressed the decision in his State of the Union address, saying it would “open the floodgates for special interests…to spend without limit in our elections.”

The decision is considered an unmitigated disaster by anyone working to reduce income inequality, help enfranchise those outside the current electoral process or build a progressive agenda, from health care to women’s rights. It is a deathblow to those wishing to limit the influence of money in electoral politics.

Among the biggest beneficiaries of Citizens United were Charles and David Koch, owners of the second-largest privately run business in America Koch Industries, and a subject of Jane Mayer’s seminal book Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right.

Now Canada has its own version of Citizens United.

On July 16, 2018, in the case of Canada Without Poverty vs. the Attorney General of Canada, the Ontario Superior Court made charitable donations a free speech issue by deciding that limiting the amount of money a charity can spend on political activity was a limitation on freedom of speech.

The ruling, if upheld, gives charities the unlimited ability to engage in non-partisan political activities and offer charitable tax credits for that work.

For people who think Canada Without Poverty unshackles charities, I’m reminded of the exchange between newly installed Minister of Magic Rufus Scrimgeour and former minister of magic Cornelius Fudge who have come to bring the muggle Prime Minister the news that Lord Voldemort has returned in Harry Potter and the Half-Blood Prince.

“The Prime Minister gazed hopelessly at the pair of them for a moment, then the words he had fought to suppress all evening burst from him at last.

“But for heaven’s sake — you’re wizards! You can do magic! Surely you can sort out — well — anything!”

Scrimgeour turned slowly on the spot and exchanged an incredulous look with Fudge, who really did manage a smile this time as he said kindly, “The trouble is, the other side can do magic too, Prime Minister.”

So, hold uncorking your champagne bottles. This is not a win for the revolution. The other side can spend money too. And the other side has a damn sight more of it.

One result of Canada Without Poverty is that the Federal Treasury and thus Canadian taxpayers will now pay for every half-baked, alt-right, corporate-focused piece of political activity that can take place in the name—and under the guise—of charity. There are many opinions out there on how to cure social problems from boot camps to abstinence.

With the new ruling, charities will be able to offer tax credits for:

• Unlimited charity spending that argues against public education by charities who exist to promote charter schools, private schools and so on.
• Free spending for those opposed to universal heath care by charities that undertake work on alternate health care economics
• Unlimited charity spending to change Canada’s abortion rights by charities who exist to “assist pregnant women to understand their options”
• Unlimited charity spending on harsher treatment of criminals by charities that exist to stamp out drug use
• Unlimited spending on changing legislation no matter if it is helpful to the common good or not
• And if he decides to affiliate with a like-minded charity, Ezra Levant and his “ethical oil” crusade

Charities can be flooded with money to be spent changing the public discourse.

So the issue isn’t free speech. It’s more about following the money. And you ask yourself who has the money?

• People of great wealth have money and some have many ideas about how the world should be ordered. They’ll now get a tax credit (i.e. be paid by the Canadian tax payer) to promote their points of view, whatever they are. Just like Charles and David Koch have done in the U.S.
• Pharmaceutical companies are wealthy and have a point of view they’d like to promote, that drugs are the answer
• Extractive industries have money and a point of view, that oil and gas extraction, mining, dredging and quarrying is the answer
• Companies who sell astonishingly expensive medical equipment and want people to believe our public health relies on such expensive intervention have money and a point of view

That is precisely why a spending limit exists. It levels the playing field. So the people with the most money don’t drive the legislation of a country (any more than they already do).

Canada Without Poverty amounts to opening the door so you can be rolled over by a bulldozer.

II

An interesting thing about Canada Without Poverty is that, given the huge impact of the decision, the elements of the case are so … well … flimsy is the best word I can think of.

Canada Without Poverty (CWP) is an organization working to end poverty, a great and noble goal. And given that poverty has systemic origins, CWP rightly felt it had to deal with legislative and thus political fixes.

CWP’s charter is a pledge of direct service to the poor (charitable activities) and some activities that could be seen as political. In review, the judge in the case actually found 100% of their activities were political. CWP’s argument was that by being only able to spend 10% of revenue on political activity, their freedom of speech was curtailed.

This, as opposed to creating a separate “arm” for political activities or re-structuring as a nonprofit organization, for example. There is an argument that no group is forced to constitute itself as a charity and that nothing is preventing CWP from doing what they are doing. But there is no inalienable right to be able to issue charitable tax credits for it.

So what gives?

Canada Without Poverty may have had trouble with the political activity limit, but the charitable sector as a whole suggests an allergy to political activity.

In 2014, charities spent a miserly $25 million out of $245 billion in revenue on political activity. The sector, as a whole, could spend 1,000 times more on political activities without causing a ripple with CRA. So, while Canada Without Poverty might have an issue with its activities as an individual organization, taken in the context of the sector, it is an outlier. Only a tiny number of charities even undertake political activities—more’s the pity.

Despite the overall lack of political spending in the sector, the government was still persuaded to convene a consultation process on the topic and name a panel to handle those consultations. The panel was called Consultations with Charities to Clarify the Rules for their Participation in Political Activities and it issued a report in March 2017. The judge in Canada Without Poverty devoted a whole section of his judgment quoting the findings of that consultation.

The Justice writes, for example, “the Consultation Panel specifically found that the restrictions on political participation … were outmoded and required legislative change: “Legislative change is required to broaden and simplify the requirements for charities and to remove other obstacles to their contribution to society that are unnecessary and counter- productive.”

But just how wide-ranging was that consultation?

According to charity lawyer, Mark Blumberg, the government “claimed to have about 20,000 submissions but there were, in fact, about 460  ‘unique submissions’ and 19,500 emails form/petitions on the issue.” (Full disclosure: This writer made a 23-page submission to the panel and sent them an electronic copy of her book Cap in Hand: How Charities are Failing the People of Canada and the World.)

But 19,500 form emails and petitions were gathered by CWP and other groups lobbying for this case, lobbyists that included Imagine Canada, an organization that was once focused on increasing corporate giving in Canada, but now bills itself as “the national umbrella for Canada’s charitable and nonprofit sector.”

And just who was on the panel that guided the consultation process?

Given Imagine Canada’s lobbying for one side of this case—and its track record of focusing on bigger tax breaks for donors—it was surprising and completely depressing to me that four of the five-member panel leading the consultation had deep connections to Imagine Canada. Three (Marlene Deboisbriand – Chair of the Panel, Peter Robinson and Kevin McCort) are current or former board members. A fourth Susan Manwaring is a member of Imagine Canada’s newsletter team, Sector Pulse.

So much for bringing together a wide range of opinion.

The report, which the judge so heavily relied upon in his judgment, was essentially the report of an Imagine Canada panel, a group of accomplished professionals, to be sure, but also one of being associated with a group that has had a longstanding agenda of lobbying for bigger tax breaks for people who give to charity, especially wealthy people.

In what other industry would such a conflict fly so blithely under the radar?

The make-up of the panel was akin to a pharmaceutical association being asked to develop recommendations on the rules for drug regulations. In neither case does it mean we are developing good public policy.

I’ve previously written about the evolving role of Imagine Canada. Click for a refresher.

Imagine Canada was delighted with the court’s decision, of course. Their media release swanked when the decision came down on July 16, 2018, Imagine Canada Sees “Golden Opportunity” as Ontario Superior Court Declares Political Activities Restrictions on Charities Unconstitutional.

“We are very pleased by this ruling,” said Bruce MacDonald, President and CEO. “It is in line with recommendations made by charities from across Canada and by the advisory panel on political activities that the Minister of National Revenue appointed in 2016. (Emphasis mine. It would be hard to imagine that the report wouldn’t be in line with Imagine Canada’s priorities given they staffed the panel. It’s hard to objectively view their consultation with “charities across Canada.”)

Canada Without Poverty posted the judge’s decision on their website. The constitutional challenge has been an important part of their work for more than two years and they’ve received national media attention because of it. That coverage is available to view on their website.

Throughout the case, Canada Without Poverty has been represented pro bono by the high-powered law firm of McCarthy Tetrault, which announced its victory via media release, McCarthy Tétrault wins important pro bono victory in freedom of expression challenge to restrictions on charitable status. 

Former Imagine Canada board member, Miranda Lam, is a partner at McCarthy Tetrault.

III

This free speech challenge was arguably able to garner the amount of support it did because it evolved from then Prime Minister Stephen Harper’s targeting of charities for audit in 2011 and 2012, particularly those doing environmental work, which went against his government’s priorities. Canada Without Poverty was a subject of one of those audits.

Harper was weaponizing the audit powers of the CRA and people (including charity donors) didn’t like it.

But Harper’s audit strategy had some unexpected fallout.

For one, it got charities feeling they were being muzzled regardless of whether or not they had ever taken a political stance in their organizational life. They had a high moral ground to occupy. And they let their donors know.

The other was that freedom of speech suddenly become of great interest to Imagine Canada, which up to that point had been more interested in tax breaks and being the arbiter of charity standards. A moral high ground was useful to them.

“I have argued that some groups have used the debacle of the Harper political activities audit as a successful fundraising tool,” Mark Blumberg has written in a comprehensive blog about the case, which I highly recommend taking a look at.

“It is interesting to note that CWP in 2017 had the highest amount of revenue over 11 years. Clearly something was working in the fundraising department. Also their total assets were the greatest in over 10 years. This is consistent with my argument that this topic has been good for raising the profile of a small number of groups and increasing their revenue, but terrible for the sector as a whole.”

CWP was able to double its tax-receipted revenue between 2016 and 2017, accounting for almost half of its $422,326 in revenue in 2017.

The amount of money involved in the specifics of this case is important. Because the $200,000 for which CWP would be able to issue tax credits is not even a thimble full compared to the tens—no, make that hundreds—of millions of tax-credited dollars that can flood the sector from people who have a lot less interest in the common good.

IV

On August 15, 2018, the government announced its decision to appeal the July 16^th decision of the Ontario Superior Court.

The Honourable Diane Lebouthillier, Minister of National Revenue, and the Honourable Bill Morneau, Minister of Finance, issued a joint statement on the Government of Canada’s “commitment to clarify the rules governing the political activities of charities.

“With regard to the decision in Canada Without Poverty v the Attorney General of Canada, rendered on July 16, 2018, the Government of Canada has identified significant errors of law and has served notice that it will be appealing the decision to address the uncertainty created by it, and to seek clarification on important issues of constitutional and charity law.”

At the same time the government is also saying, “the resolution of these legal issues, while necessary, will not change the policy direction the Government intends to take with respect to the removal of quantitative limits on political activities.”

So we are left with the prospect of the government opening a floodgate of political donations into charities and paying for it out of the public purse, based on a problem that doesn’t even exist if you look at the sector as a whole.

There are a few critically important issues the evolution of this decision underlines:

1. How little understanding there is—even within the sector—of the how a charity’s ability to issue tax credits impacts the ways in which public and private money is spent in this country. And the information that is available is flimsy, incomplete and narrow.
2. How important it is to have significantly increased coverage and reportage on the charity sector by people who understand the dynamics. That the government’s consultation process was so flawed in the way it was constructed, essentially staffing a consultation panel by a lobby group, Imagine Canada. The shallowness of its input upon which the judge relied so heavily—among many other huge issues discussed in this case—reflects an astonishing lack of interest and oversight.
3. The sacred notion of free speech has been used in this instance, but not to empower the powerless or to speak truth to power. Perhaps that’s what CWP intended, although it’s hard to see how people so attuned to equity issues didn’t understand the broader implications of this action. Imagine Canada trotted free speech out as a “golden opportunity” to change the regulatory framework governing charity tax credits.

Canada Without Poverty may think it has won a battle. But it is people of Canada who have lost a war.

Gail Picco is an award-winning charity strategist widely recognized as one of Canada’s foremost experts on how to carve a path through the increasingly complex dynamics of the charitable sector. Civil Sector Press published her latest book, Cap in Hand: How Charities are Failing the People of Canada and the World, in 2017. http://www.gailpicco.com