The Liberal Government has made some noises about modernizing charity law.  Who could be opposed to modernization?  As there is no idea as to what “modernization” means, it has opened up all sorts of calls for changes to charity law in Canada – many of the ideas would be expensive, counterproductive, stifling, or ultimately destroy the positive reputation of the charity sector.  Wikipedia defines a Pandora’s box as “a process that generates many complicated problems as the result of unwise interference in something.”  Although only time will tell, it appears that “modernizing charity law” has a small upside and a very large downside.

My concerns about the issue of having politicians discussing “modernization” of charity law were largely confirmed when I read this piece “Tony Clement Wants To Monitor All Canadian Charities For Terror Activity“.  Tony Clement relied on a terrible Senate report from 2015 in coming to some of his conclusion which is quite unfortunate.  Also his suggestion of “An independent agency to oversee and monitor all charities in order to ensure they do not contribute to terrorism or radicalization” sounds like a really expensive duplication of the work of the Review and Analysis Division of the Legislative Policy & Regulatory Affairs Branch of the Charities Directorate, not to mention RCMP, etc.  By the way you can read Tony Clements op ed here and I think it would be fair to say that almost all the criticisms being levelled are actually criticisms of the previous Harper government.   “In spite of the fact that we have had 180 Canadians supporting jihadist movements abroad, 60 who have returned and are on the streets and over 93 who have been seeking to leave since 2014, we have had very few convictions. At the same time, we have had 683 cases of terrorism financing flagged by Fintrac and not one charge. Canadian charities that are linked to terrorism have also gotten away without criminal repercussions.”  Just wondering who was running the Federal government in the 10 years before Trudeau got elected. 

After having been in meetings with Canadian governmental agencies, it is clear to me that those agencies either have little idea what the Liberals mean when they refer to modernization or are certainly are not sharing.   The Liberals had very little to say about charity regulation before the election except that CRA should not harass charities for political reasons.  Then after the election came some rumblings in certain ministerial mandate letters about modernizing charity law.  Trudeau wrote to the Minister of Revenue in the mandate letter that one of the priorities was to “Allow charities to do their work on behalf of Canadians free from political harassment, and modernize the rules governing the charitable and not-for-profit sectors, working with the Minister of Finance.  This will include clarifying the rules governing “political activity,” with an understanding that charities make an important contribution to public debate and public policy.  A new legislative framework to strengthen the sector will emerge from this process.  This should also include work with the Minister of Families, Children and Social Development to develop a Social Finance and Social Enterprise strategy.”

When I first heard about modernizing charity law my initial reaction was that almost every year there have been tweaks to charity law and therefore promising “modernization” is not that difficult because any changes or improvements is modernization. After all, the CRA’s Charities Directorate is spending about $25 million on a modernization program to have charity applications and T3010s be able to be filed electronically. Then I saw the Liberal budget and its ambitious agenda for many important problems, especially those that affect Aboriginal communities in Canada.   Then I really became convinced that the Liberals have adopted a very ambitious agenda as a government and that “modernizing charity law” is more of a throwaway line that sounds good.

I think that much of the discussion about modernizing charity law is a huge distraction from the real issues facing the charitable sector such as stable long-term government funding and foundation funding, poor capacity and financial management in many charities, the need for government to reengage in certain areas instead of dumping them on charities like affordable housing, the need for better and more effective governance, poor HR practices, etc. After 10 years of distraction, red herrings etc I would prefer that we focus on real issues.

Needless to say, my views are probably not going to dominate in this case.   There are too many groups who view “modernizing charity law” as a great way to seem relevant and engage in ‘important’ issues.  Alternatively, some of these organizations are probably worried that if they don’t jump on the bandwagon that they may be perceived as irrelevant.

Also it is easier to focus on governmental action like changes in legislation than internal issues within the charity sector.  Yes eliminating the 10% restriction on resources used for political activities will help a small number of charities who regularly exceed that limit – but what about the other 86,000 charities who say they don’t even do any political activities and even if they do political activities they are allocating very little resources to it.

It is easier to open up a discussion on modernizing charity law than it is to “conclude” it in a positive fashion.  We just need to look at the modernization of Ontario non-profit corporate law with the passing of the Ontario’s Not-for-Profit Corporations Act (ONCA) in 2010 by the Ontario Liberal government.  It has still not been implemented and it does not look like it will be implemented until 2019 at the earliest.  How much time and effort has been wasted on fruitless ONCA discussions.   As well one can look to England and see changes over the last few years to the Charity Commission and the regulation of charities that has not been helpful.

Another concern that I have is that these type of discussions can take years.  There may be a government in power in 5 years that has a questionable view of the charitable sector and they may be the ones finalizing the legislative and other changes!

Remember that it is ultimately Federal MPs who will be voting on any changes.  In my experience these MPs often have very limited understanding of the regulation of Canadian charities and the charity issue may become either a political football or a place to reflect the ‘common mans’ understanding of charity i.e. let’s have people working for charities rather be volunteers than employees.

After the modernization has taken place in 5 or 10 years charities we may look back in a positive way on the time before “modernization” and aghast at the time, effort, money spent and results of the initiative.

Here is just a sampling of some of the ideas (good, bad and ugly) that I have seen floated around:

  • Broaden the concept of charity through a statutory definition of charity (like in the UK)
  • Allow amateur sports to be charitable (which would double or triple the number of charities)
  • Remove religion from the definition of charity through a statutory definition (which is like Australia – would remove about 40% of Canadian charities)
  • Remove many other groups who historically were given charitable status that are not consistent with “modernity”
  • Have everyone reapply for charity status to ensure consistency
  • New rules to limit shelf charities
  • Enhanced transparency for non-profits and charities as I have proposed (especially publishing the non-profit filings and allowing CRA to warn the public about a serious problem with a charity)
  • Overkill transparency as legislation had been passed relating to unions by a previous government
  • Enhanced accountability to members and the public
  • Increased disbursement quota so charities don’t have to just spend 3.5% of their assets
  • Increased CRA ability to identify problems or concerns to the public before revocation as I have suggested
  • Requirements for education or certification of directors or trustees of registered charities
  • Allow more political activities – or unlimited political (which Trump supports in the US)(or prohibit any political activities)
  • Allow more business activities (or limit business activities or tax any business activities by charities just like businesses would be taxed)
  • Allow unrestricted gifts to foreign organizations (or tighten up the rules for foreign activities out of a concern about terrorist abuse)
  • Restrict funds coming into Canada to charities particularly from repressive elements abroad
  • Allow more avenues for appeal for charities (or streamline the process so that it takes less time to revoke a seriously non-compliant charity)
  • Remove property tax exemption for religious organizations
  • Have all religious leaders of a registered charity be certified by some body
  • Remove clergy residence deduction (or only remove it on clergy receiving significant salaries)
  • Change the regulator of charities (or just encourage all 10 provinces to get involved so we have 11 regulators you have to worry about (some lawyers love this idea!))
  • Restrict the tax benefits of restricted gifts such as endowments and DAFs so that the tax benefits are only available when the funds are actually spent
  • Limit charity administrative and fundraising expenses (perhaps to the extent of completely choking the sector).
  • Need for charities to demonstrate every year their public benefit as they have in the UK
  • Reform of cy pres rules which allow a court to change a restricted gift (although this is provincial jurisdiction)
  • Equalize tax incentives across different types of gifts so it does not matter if you are donating shares, cash, cultural property etc.
  • Eliminate tax incentives for donations except to a limited group of charities helping the poor
  • Prohibit charities from purchasing private jets
  • Have all charities use a centralized system for issuing receipts to reduce the likelihood of fraud (a bad idea but it is “modern”)
  • Have CRA provide guidance on issues like administration and “what is advancing religion” (they already provide guidance on many other topics such as foreign activities and fundraising)
  • Have a minister of charities at the Federal level (will have more focus on charities by politicians – but do we want more focus?)
  • Eliminate all tax deductions for charitable donations (and perhaps implement a UK style gift aid system or no system at all)
  • Have a list of ineligible individuals (it may be partial but it is better than nothing)
  • Provide the CRA, with the consent of one or more provinces, the ability to appoint an administrator to take over the affairs of an extremely poorly run charity
  • Impose far greater penalties on those who abuse charities and don’t allow organizations to pay the penalty by simply donating to another charity.
  • Have significant regulation of fundraising in the streets, at homes etc (perhaps require municipal permitting as in the UK)
  • Make the process for registering charities easier to allow for more charities or harder to restrict further the number of charities (currently at 86,000)
  • Establish robust whistleblower legislation to protect individuals who want to inform authorities of malfeasance in government, charities and the private sector.
  • Have differential rules based on size or scope of charity
  • Have charities pay for some or all of the cost of regulation as being discussed in the UK (including charging for charity applications etc)
  • Allocate more resources to the Charities Directorate to reduce the significant response time for CRA to answer written enquiries or to deal with anything but the most basic charity applications.
  • Have CRA do far more educational programs
  • Have the CRA do far more audits every year.
  • Prohibit receipting for gift-in-kind receipts under $5000 (except marketable securities) and for over $5000 have either CRA approval (Australian system) or a detailed form to be filed with CRA.(US system)
  • With valuations for items over $1000 have the charity provide it to the donor for when the donor submits their tax return.
  • Change the deemed fair market value provisions from lesser of cost of acquisition and FMV to instead the lesser of cost of acquisition, FMV and sale proceeds of the charity.
  • Streamline the tax system so that you get a flat benefit for donations (depending on province) not the type of property (ie. end the preferential treatment for donations of marketable securities, cultural property, certain land etc.)
  • Have the CRA only review objects and not activities of charities (might save CRA time but will allow some awful charities to be registered or maintain their registration).
  • Have a multi-year discussion or commission to look into various issues such as political activities by charities.

If you think I should add to the list just let me know.   At the moment anyone’s guess is as good as mine as to what modernizing charity law really means.   Perhaps it would be helpful if the Liberals shared their plans with the public so people could understand what they intend to do and there could be an informed discussion.