Environmental Defence

Environmental Defence Logo

What Happened

Environmental Defence is one of Canada’s most important environmental organizations. It has charitable status. In early 2011, it started to undergo a routine audit by the Canada Revenue Agency. Towards the end of the year, the auditors indicated that the audit was nearing completion and that there were no major concerns. However, in March 2012, Ethical Oil, a conservative organization, filed a formal complaint against several environmental organizations, including Environmental Defence, alleging that it engaged in political activities beyond what is acceptable under the Income Tax Act. Following this complaint, and without further evidence gathered, Environmental Defence received a negative findings letter in July 2012, advising it that its charitable status would be revoked. Environmental Defence is currently in the process of appealing the negative letter.


Background

Environmental Defence was founded in 1984 by a small group of lawyers and concerned citizens and it became registered as a charitable organization in 1985 by the Canadian Revenue Agency (CRA).

The CRA monitors the operations of registered charities through the process of audits to make sure they comply with the requirements of the Income Tax Act. The Act requires a charity to “devote all of its resources to charitable purposes and activities” allowing “no more than 10% of its total resources a year to political activities” related to their charity. An audit can occur routinely through random selection, to review specific legal obligations under the Act, or to follow-up on possible non-compliance or complaints.

In October 2011, local auditors began a routine CRA audit of Environmental Defence. This was the fourth audit of this organization, after others that were successfully completed in 1992/93, 1999 and 20031. Tim Gray, the Executive Director of Environmental Defence, noted that communications from the auditors around late 2011 indicated near completion of the audit and that there were no major concerns.

Multi-pronged attack on charitable environmental group

On January 9, 2012, the Minister of Natural Resources, Joe Oliver, sent an open letter criticizing “environmental and other radical groups” who “threaten to hijack our regulatory system to achieve their radical ideological agenda”. He suggested that it was an “urgent matter of Canada’s national interest” to fix the “broken” system.

Shortly after Minister Oliver’s open letter in February 2012, Conservative Senator Nicole Eaton started an inquiry in the Senate about the “interference of foreign foundations in Canada’s domestic affairs” and their “abuse” of Revenue Canada’s charitable status, by providing money to environmental groups. Environment Minister Peter Kent accused some environmental groups of laundering “offshore foreign funds for inappropriate use against Canadian interests” in a CBC interview.

The federal 2012 budget was issued on March 29, 2012, and allocated funding to the CRA of $8 million specifically for the auditing of charities – an amount that was later increased to $13.4 million stretching to 2017. With this increased funding, a large focus was put on “enhancing public transparency related to political activities of charities”, increasing investigations of activities and registered status of selected charities.

Ethical Oil files complaint to the CRA

On March 21, 2012, a formal complaint regarding the charitable status of Environmental Defence was made to the CRA by Ethical Oil, a pro-oil sands group with deep ties to the Conservative government.

The letter of complaint alleges that “Environmental Defence contravene[s] the CRA rules relating to the prohibited political activities of registered charities”, claiming that “it is unacceptable that a registered charity should engage in such blatant political activity, particularly such targeted, partisan political activity”. The letter suggests that Environmental Defence be de-registered as a charitable organization, or otherwise sanctioned by the CRA.

Environmental Defence is one among a list of environmental groups facing complaints issued by Ethical Oil on their charitable status, including the Sierra Club Canada, Tides Canada Foundation and the David Suzuki Foundation. It can be described as a concerted attack on progressive environmental charities. Until 2012, the 10% rule had been interpreted to mean that a group can oppose a government policy but cannot back a specific candidate in an election. During a pre-budget consultation in December 2011, Flaherty signaled that he was considering making changes to rules for charities that have a political aspect. “We're reviewing that,” Flaherty said. “We spent some time on it last year and we're looking at it again now as I prepare the budget." He went on to warn charities: “If I were an environmental charity using charitable money, tax-receipted money for political purposes, I would be cautious."

The various actions by the government had an effect. There used to be few complaints about political activities of charities. In 2008/09 CRA received 20 complaints, in 2009/10 it received 27 complaints, in 2010/11 it received 25. However, after the Conservative government announced its goal to investigate more charitable groups and allocated a significant amount of money to this, the complaints skyrocketed to 159.

Environmental Defence hit with a negative findings letter

What makes this case particularly interesting is that Environmental Defence’s audit began before the complaint was filed. This provides evidence that complaints can have an impact on the direction and tone of an ongoing audit. Despite earlier communications from the auditors that there were no major concerns in 2011, in July 2012, Environmental Defence was hit with a negative findings letter, not for its political activities, but for failing to have a charitable purpose.

Gray, said that the “two drastic interpretation were based on the same files under review” and that “there had been no further communication between CRA and Environmental Defence nor further visitation with auditors during the two time periods”.

Environmental Defence replied to the July 2012 letter, and in November 2013 received a reply from CRA that was essentially unchanged from their negative findings letter. Environmental Defence is now formally appealing their findings with no timeline in sight currently2.

John Bennett, Executive Director of Sierra Club Canada, raised the concern that the rules for charities to follow seem to be constantly changing and unclear, and that “the problem with this is that they gave the power to CRA to walk in and shut you down. And then if you want to complain, you can go to court afterwards”.

Sapping financial and human resources of Environmental Defence for non-charitable purposes

Environmental Defence was given a stay of execution following the negative findings letter in July 2012, so that they could issue a formal appeal with the tax agency. To date Environmental Defence has spent $105,000 on lawyers’ fees and $90,000 in staff costs3. This is an extraordinary amount of money and staff time that could have been spent on charitable activities.

However, despite the soaring legal fees, Gray expressed that “if our organization lost its charitable number it would lose its ability to raise funds – it would actually be shut down” and therefore, Environmental Defence has no other choice but to continue in this process.

Open letter asking political parties to sign a new legal and policy direction

On February 10, 2015, eighteen charities and civil society organizations sent an open letter to all five federal political parties.

This letter asks all political parties to sign on to a “new legal and policy direction that enhances and protects the ability of registered charities to participate in public debates,” without fearing government retaliation. It states that the existing interpretation of the Income Tax Act is vague and unclear, which results in “a chill where charities feel that their efforts are being discouraged, subjected to rhetorical attacks or harsh or arbitrary review”.

So far, only the Green Party has written back affirming that it will address the issue in its platform. Although the other parties have not yet make a formal response, Department of National Revenue spokesperson Carter Mann said that the Conservative government was not planning on changing a thing.

Relevant Dates

  • 1984: Environmental Defence (ED) is founded
  • 1985: ED is registered as a charitable organization by the Canadian Revenue Agency (CRA)
  • 1992-93: ED passes its first routine audit
  • 1999: ED passes its second routine audit
  • 2003: ED passes its third routine audit
  • October 2011: CRS starts another routine audit of ED
  • Late 2011: auditors indicate that the audit is nearly complete and that there are no major concerns
  • December 2011: Finance Minister Jim Flaherty warns environmental charities to be cautious
  • January 9, 2012: Minister of Natural Resources Joe Oliver criticizes environmental groups as threatening to hijack Canada’s regulatory system
  • March 29, 2012: the federal budget allocations special funds for auditing charities
  • March 21, 2012: Ethical Oil, a conservative organization, files a formal complaint against Environmental Defence
  • July 2012: Environmental Defence receives a negative findings letter for failing to have a charitable purpose. ED replies to the letter.
  • February 2013: Environment Minister Peter Kent accuses some environmental organizations of laundering “offshore foreign funds for inappropriate use against Canadian interests”
  • November 2013: ED receives a reply from CRA that is essentially unchanged from their negative findings letter.
  • February 10, 2015: A group of 18 organizations write an open-letter to the federal government and the parties, asking for a commitment to laws and policy that guarantee that charities can participate fully in public policy debates.
  • To date: ED has formally appealed their findings.

 

1 Personal Communications from Tim Gray, Executive Director of Environmental Defence Canada

2 Ibid.

3 Ibid.

 

 

Role or Position

Environmental Defence is one of Canada’s most effective and highly respected environmental action organizations. As a registered charity, Environmental Defence has been working since 1984 to protect Canadians’ environment and health. As part of their mission, Environmental Defence “challenge and inspire change in governments, business and people to ensure a greener, healthier and prosperous life for all” by raising important environmental issues through research, education and outreach activities. Environmental Defence focuses on a number of important environmental issues such as reducing Canadians’ exposure to toxic chemicals in everyday items, ensuring clean air and water, protecting green spaces, promoting green energy and a green economy and bringing a halt to Canadian contributions to climate change.

Some of Environmental Defence’s notable achievements include:

  • Launched the Cornerstone Standard, a green eco-certification for the aggregates industry (2015)
  • The federal government instituted The Chemicals Management Plan and Consumer Products Safety Act as a result of education and public outreach from Environmental Defence (2010)
  • Coordinated the Green Energy Act Alliance to promote the use of more wind and solar energy in Ontario (2009)
  • Coordinated the Ontario Greenbelt Alliance to highlight the importance of protecting valued green spaces and farmland; Greenbelt now almost protects 2 million acres in ON (2005)

Implications and Consequences

Democracy and Dissent: Conducting audits of charitable organizations is one of the tasks of the CRA. However, when charitable organizations that have been critical of government policy are singled out for audits, this raises troubling concerns about the criteria used by the CRA in deciding which organizations to audit. More problematic yet is a mode of operation that changes an audit that did not identify any problems into one that leads to a negative findings letter on the basis of a complaint – without any new facts having been discovered. It raises questions as to who is influential with the CRA. 

Canadian charities have always brought forth public issues to promote discussion and work towards a feasible solution. In recent years, the Conservative government has labeled many charities and environmental groups as “radicals” – and these groups are being sanctioned for partaking in “political activity” by taking a position on these public issues. By restricting the advocacy work of charitable environmental groups, the foundations of a democracy are jeopardized as it suppresses the ability to dissent and limits public discussion.

Free Speech: The increasing number of CRA’s targeted political audits mutes the advocacy work of charitable environmental groups on pressing environmental issues for fear of being stripped of their charitable status and possibly their very existence. This fear of government retaliation limits the participation of environmental groups in public discussion and undermines the freedom of expression that is supposed to be protected in Canadian society.

Published: 16 June 2015

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