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CBC | By THE CANADIAN PRESS/Mark BlinchPosted: 02/06/2014 8:55 pm EST | Updated: 02/07/2014 9:59 am EST
The Canada Revenue Agency is currently conducting extensive audits on some of Canada’s most prominent environmental groups to determine if they comply with guidelines that restrict political advocacy, CBC News has learned.
If the CRA rules that the groups exceeded those limits, their charitable status could be revoked, which would effectively shut them down.
Many of the groups are among the Conservative government’s fiercest critics. Finance Minister Jim Flaherty signalled clearly in his budget of 2012 that political activity of these groups would be closely monitored and he allocated $8 million to the effort. The environmental organizations believe they have been targeted with the goal of silencing their criticism.
“We’re concerned about what appears to be an increase in audits around political activity and in particular around environmental organizations” said Marcel Lauzière, president of Imagine Canada, an umbrella organization for charities.
“There’s a big chill out there with what charities can and cannot do.”
The list of groups CBC has now confirmed are undergoing audits reads like a who’s who in the environmental charity world. They include:
– The David Suzuki Foundation
– Tides Canada
– West Coast Environmental Law
– The Pembina Foundation
– Environmental Defence
– Ecology Action Centre
“This is a war against the sector,” says John Bennett, of Sierra Club Canada. His group is not yet being audited, but he said he is prepared.
“In the 40-year history of the Sierra Club Canada Foundation, it’s been audited twice in 40 years” so there are more audits than usual, Bennett said.
CBC has confirmed that at least one group, Environmental Defence, has received its report back from the CRA and they are appealing it. Sources said their report threatened to revoke their charitable status. Another group, West Coast Environmental Law, had auditors fly in from Ottawa to enhance the work of the local CRA team. One source said the Ottawa CRA people called themselves “The A team.”
Most groups on this list would not talk on the record, but sources say executive directors of these groups are meeting regularly by phone to discuss a united response to the government.
By law, charities are allowed to use a maximum of 10 per cent of their resources for political activity or advocacy, but the guidelines are clear that it cannot be partisan activity. That has been interpreted for years 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, Flaherty said he is considering making even more 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.”
Bennett said the rules seem to be constantly changing.
“We don’t know what rules we’re playing by. 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.”
The government insists it does not target certain charities, nor does it tell CRA to do so. Auditors alone determine whether they investigate a charity.
“I assume they receive all sorts of information from all sorts of Canadians, in terms of who they should or should not audit. Ultimately it is up to them as an independent agency who they audit or not,” Alberta Conservative MP James Rajotte said.
CBC News contacted the CRA several times to ask how auditing targets are chosen. Spokespeople suggested responses could be found on their website. There it states some of the reasons a charity could be selected for an audit including random selection, to review specific legal obligations under the law and to follow-up on possible non-compliance or complaints.
According to lawyer Mark Blumberg, who specializes in charity law, the CRA often audits charitable organizations based on complaints.
“If there are a number of complaints about a charity and its political activities, that could trigger an audit by CRA,” he said. That assessment is echoed by a number of groups currently undergoing audits.
“I believe our audit was complaint driven,” said Ross McMillan, the president and CEO of Tides Canada.
“I am confident of a positive outcome as we take seriously our responsibility to act in compliance with the Income Tax Act and Canada Revenue Agency guidelines,” he said.
Pro-oilsands group has filed complaints
McMillan goes on to cite complaints from Ethical Oil, a group that has formally submitted complaints to the CRA about Tides Canada, the David Suzuki Foundation and Environmental Defence.
The complaints are all filed through legal counsel and are part of a campaign Ethical Oil has started to strip these environmental groups of their charitable status.
Ethical Oil is a registered non-profit non-governmental organization that describes itself as an “online community” to empower people to become grassroots activists in defence of the oilsands development.
The group was founded by Alykhan Velshi, who is currently the director of issues management in the Prime Minister’s Office. Environmental groups say Ethical Oil is funded by the oil and gas industry to try to undermine their work
CBC News has repeatedly asked Ethical Oil to reveal who their funders are but no specific list has been made public.
Environmental groups are not the only ones who have been audited. Social justice groups like Amnesty International Canada are also currently undergoing an audit about their political activities. CBC News contacted them but they declined to comment.
All the groups say they will be watching Tuesday’s budget for new rules that may affect their charitable status.
“We have an important role to play in our society and we want to play that role,” said Bennett. ” But we need a governing system that actually welcomes public dialogue instead of discouraging it.”
James Fitz-Morris has been reporting from Parliament Hill for more than a decade and joined the CBC’s parliamentary bureau in 2006, covering finance and foreign affairs among his beats. Fluent in English and French, he has also worked in Beirut and is still grappling with Arabic.
Starting next July, Canadian banks will be required to ask anyone opening a new account if they are now, or ever have been, an American “person.”
It comes at the behest of the U.S. government and its efforts to “smoke out” tax dodgers.
The Foreign Accounts Tax Compliance Act, or FATCA, was passed by the U.S. Congress in 2010 and comes into force July 1, 2014.
The law forces all banks and other financial institutions outside the U.S. to search for customers who have certain “indicia.” Those are markers that show the person may be a U.S. citizen or a former permanent resident who, under U.S. law, must file income tax returns to Uncle Sam no matter where they reside in the world.
The only other country with similar tax rules for expats is Eritrea.
When announcing the law, U.S. President Barack Obama said, “if financial institutions won’t cooperate with us, we will assume they are sheltering money in tax-havens and act accordingly.”
The threat is a withholding tax of 30 per cent levied on every transaction a non-compliant bank has coming from, or even passing through, the U.S.
“Bottom line is: there is absolutely no way that a large, modern financial institution like a Canadian bank or a large credit union could escape FATCA,” says Marion Wrobel, vice-president of policy and operations at the Canadian Bankers Association (CBA).
Wrobel says his organization has been fighting FATCA since it was announced, calling it the “extra-territorial” application of American law.
“The only reason the Americans can do it is because it is a large economy, financial markets are integrated globally,” Wrobel adds, “and it is virtually impossible for a large institution like a Canadian bank, an insurance company, a securities dealer, a large credit union to avoid being caught up in a FATCA net.”
Starting July 1, 2014, banks will be required to scour the records of all of their customers with more than $50,000 in an account.
They will be looking indicators such as: place of birth, alternate addresses and phone numbers, and past residency in the United Sates. Every file with at least one indicia marker will be flagged as a “U.S. Reportable Account.”
At the same time, anyone wanting to open a new account will be asked directly if they are a “U.S. person” as defined by the IRS. Anyone who answers affirmatively will be flagged.
Wrobel says refusing to answer the question could also land any Canadian in trouble.
“If you refuse to answer it you could be considered recalcitrant and your information could be reported.”
So far the banks’ protests have changed little. The best they have been able to do is take some of the heat off themselves directly. Canada is close to negotiating an Inter-Governmental Agreement (IGA) with the U.S. to implement FATCA.
Once in place, the bank would no longer be required to send private customer information directly to a foreign government agency. Instead, Canadian banks will flag their customers to the Canada Revenue Agency, and — under the terms of the agreement — the CRA will be the one that automatically transmits all the information to the IRS.
‘Infringement of liberty and privacy’
To enact the IGA, the Canadian government would almost certainly need to introduce a new law or amend existing ones to allow financial institutions to breach the privacy of Canadian citizens and residents.
It’s not clear how that can be done without running afoul of the Canadian Charter of Rights and Freedoms.
Constitutional lawyer and expert Peter Hogg wrote to the Finance Department to express his concerns about the proposed deal.
In a copy of the letter released under Access to Information, he says: “To impose on financial institutions the duty to report to CRA (en route to the IRS) the names, addresses, place of birth and date of birth and details of the bank accounts of account-holders identified only by their place of birth in or citizenship of the United States, and all under the implicit threat of taxes, penalties or prosecutions by the IRS, seems to me to be a clear case of discrimination in contravention of [Section] 15 [of the Charter].”
He goes on to say: “There is no mechanism in the Model IGA whereby individuals who are suspected to be U.S. citizens would even know that their personal information was provided, “ Hogg’s letter argues, “thus there may be no opportunity to provide additional information or take other steps in order to prevent the transmission of this information from Canada.”
At best, Hogg believes, it is an infringement “of liberty and privacy,” but possibly also violations of at least three sections of the Charter.
The plan has critics around the world.
“I don’t think it’s pejorative to use the term ‘fishing expedition,’ that term has been used by the U.S. government already and people talking about FATCA — that’s exactly what this is,” says Allison Christians, the Stikeman Chair of Tax Law at McGill University.
She points out Canada and the U.S. already have a tax treaty that’s been in place for almost 20 years, which allows the IRS to obtain information on specific individuals from the CRA automatically.
“But FATCA wants more,” Christians adds. “They want not just the ones we have already identified; they want to, in the words of a former treasury secretary, ‘smoke out’ the Americans who are hiding.”
And this is where many experts believe FATCA might not just be unconstitutional, but also misguided.
“It’s not risk-based, it’s not targeting known tax havens. It’s looking at places like Canada, you know — Americans do not come to Canada for the low taxes,” says Wrobel.
Perhaps to add insult to injury, the individual Canadian financial institutions being deputized by the IRS to sniff out wayward U.S. taxpayers need to cover the cost of the added scrutiny, monitoring, and reporting themselves.
The CBA estimates it will likely cost the big banks $100 million each to comply with FATCA.
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