Tax, hope and charity: How we stifle giving with dodgy definitions

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About 84 per cent of Canadian adults, 23.8 million people, give some money to charitable groups.

The numbers are clear and informative. What is a lot less clear is exactly what a charity is, and what charitable groups can and cannot do under our tax laws.

Canadians' donations total more than $10.6-billion annually, a modest $446 per person on average, but a substantial amount overall. The charitable sector is a key part of the Canadian economy, accounting for just over 8 per cent of the country's gross domestic product – about the same as the oil and gas sector – and employing two million people. Another 13 million volunteer for these groups.

There are more than 170,000 charitable and non-profit organizations from coast-to-coast-to-coast, including 85,000 registered charities who are recognized by the Canada Revenue Agency (i.e. the ones that can provide receipts for tax-deductible donations).

According to the Canada Revenue Agency, a registered charity "must operate exclusively for charitable purposes." A non-profit, on the other hand, "can operate for social welfare, civil improvement, pleasure, sport, recreation or any other purpose except profit." So, a food bank that feeds the poor can be a charity, while a local hockey league can be a non-profit.

But, in Canada, "charitable" has a broad definition. Almost all hospitals are registered charities and so too are school boards – even though virtually all their funding comes from the state and they operate like businesses (at least in theory).

The most high-profile charities are those that raise money for humanitarian causes like Médecins sans frontières (Doctors Without Borders), and for health research, like the Canadian Cancer Society.

Where things get murky is when groups do advocacy – when they speak out for social change, or for reform of government policies. According to the rules, no more than 10 per cent of a charity's revenues can be used for advocacy and, just as importantly, they cannot engage in "political" or "partisan" activities, or be "biased" or "one-sided."

The line can be a fine one.

For example, Oxfam, a well-known humanitarian group, was told that, while alleviating poverty is a charitable act, preventing poverty is not. Why? Because, according to the CRA, "Preventing poverty could mean providing for a class of beneficiaries that are not poor."

This issue has come to the fore because, in its last budget, the federal government provided the CRA with an extra $13.4-million to conduct audits of charities. The idea was to crack down on fraudulent charities, for example groups that might serve as a front to raise money for terrorist groups.

Instead, the audits have been tainted with a strong whiff of partisanship. The perception, if not the reality, is that it looks like the CRA is punishing groups that speak out against contentious federal policies. That's because the groups singled out for scrutiny have invariably been ones that criticized policies of the Harper government.

For example, the Kitchener-Waterloo Field Naturalists group was threatened with losing its charitable status after writing letters to federal ministers urging a ban on chemicals that are damaging bee colonies. In a more high-profile case, the group Dying With Dignity, which has promoted Canadians' right to assisted death – including supporting a case before the Supreme Court to strike down the law on assisted suicide – was stripped of its charitable status because it was deemed to be too political.

Meanwhile, as CBC health reporter Kelly Crowe pointed out in a piece for The National, the activities of groups that are fighting for the right to purchase private medical care – and strike down key provisions of medicare in court – are not considered political. Nor are the activities of think tanks, whose whole raison d'être is to influence public policy, deemed to be political.

To the untrained eye, the CRA's definition of "political activity" is muddy at best. And when the taxman looks like a political henchman, there is a serious problem.

Let's, for the moment, give the Canada Revenue Agency the benefit of the doubt and assume they are just enforcing the law. Then we should ask ourselves if the law, as it stands, makes any sense.

Why the arbitrary rule that only 10 per cent of charity dollars can go to advocacy? And isn't the notion that giving a handout – as opposed to a hand-up through policy change – is the only acceptable form of charity terribly outdated?

The reason charities have to be registered is, in large part, so they can offer receipts for donations. These incentives exist because they are believed to encourage more giving, and serve the greater good. (Governments forego roughly $3-billion a year in tax revenue as a result.) We know that, if the tax breaks didn't exist, it would not make a big difference to most donors – with the exception of very large donors. If we dare, why don't we debate whether we even need to distinguish between registered charities and non-profits anymore?

After all, most people donate out of conviction, to make a difference. It is quite unlikely they object to advocacy.

So why don't we throw off the shackles and let charities work to improve society with words as well as deeds and focus auditing on the one area that can be problematic – when groups use tax dollars to carry out purely partisan activities? (There are already generous tax breaks for donating to political parties.)

We should be promoting charitable activities and community involvement, not stifling it.