Recently a bill was proposed in the Senate –BILL S-222 An Act to amend the Income Tax Act (use of resources), which will eliminate the “own activities” requirement of charities and change the rules for Canadian charities working with non-charities, both in Canada and abroad.   The bill was introduced on February 8, 2021.   In a series of notes, I will highlight some concerns with the bill.

 

First I will start talking about the preamble – my comments are in brackets.

 

Preamble

Whereas Canadian registered charities benefit significantly from tax subsidies under the Income Tax Act; [Definitely agree with this – some wealthy people for example donating appreciated marketable securities are receiving 70% tax subsidy.]

 

Whereas registered charities must devote their resources to charitable activities; [Yes this is true for now but once this bill is passed it appears that this will not be required]

 

Whereas registered charities must also be able to operate efficiently when devoting their resources to charitable activities; [I personally would not use this wording but it is in the zone – I don’t think the word “efficiently” appears in the charity sections of the ITA and I worry that those that want charities to be efficient often don’t want necessary expenditures on administration including financial management and oversight.  However, certainly, the public is interested in charities acting appropriately and that includes concepts such as efficiency, effectiveness and impact.]

 

Whereas registered charities must be held to reasonable standards in the proper use of their resources; [The directors of charities are fiduciaries – it is not “reasonable standard” but quite high standards.]

 

Whereas registered charities should promote local capacity building, ownership and participation and collaborative decision-making when working with communities in Canada, such as indigenous communities, and with communities abroad as part of their charitable activities; [I agree with everything in this paragraph and even think these are very important, however, there is absolutely nothing in this legislation that requires or is going to “promote local capacity building, ownership and participation and collaborative decision-making”].

 

 

If promoting local capacity building, ownership and participation and collaborative decision-making was very important then perhaps it should not be in the preamble but should actually be in the ITA.  Just as we require charities to avoid supporting a political party or candidate, why not require that their relationships with non-qualified donees need to involve promoting local capacity building, ownership and participation and collaborative decision-making.  If a charity for example were to fund groups outside of Canada and these attributes are not present then perhaps that should be grounds for CRA to revoke them!  Putting in the preamble achieves nothing but is window dressing to confuse people perhaps into thinking that by having something in the preamble it is now in the ITA.

 

Also, all of these concepts can be used under the current direction and control rules – but just as many charities don’t want to act that way when they make gifts to qualified donees, they also don’t want to act that way when they make grants to non-qualified donees.

 

You know that charities under the ITA are allowed to make gifts to other registered charities or qualified donees as long as their objects provide for that.  A charity can give for example $5m to another qualified donee (usually a registered charity) without even an agreement.  They can simply write out a cheque or wire transfer the funds and there will be no restrictions on the use of the funds.

 

There is a difference between qualified donees (of which there are about 90,000) and non-qualified donees of which there are about 8 billion.  The qualified donees are vetted by CRA or are part of very specific categories.

 

I will talk about this more later but if we really want to empower groups in foreign countries, we would change the system – for example, Global Affairs Canada, which is responsible for overseas development assistance, would change its rules so that say half of funds leaving Canada will end up going to groups in the Global South who have budgets under say $100,000.  It is never probably going to happen but that would be an example if you wanted small local groups to get funds.  At the moment very little money goes to small, independent local groups who are based in their own communities and we have written about that many times.  As well if Global Affairs, which is a very particular funder, with many particular requirements would like their funds to go abroad without direction and control they can easily do so in one of two ways.  First, Global Affairs Canada provides lots of funds directly to groups abroad. As a government department charity rules don’t apply to them. Secondly, Global Affairs Canada can work with their partners – which are only about 150 charities in Canada so that those that need to conduct foreign activities without direction and control can have a small non-profit entity that takes in the funds, it is not a registered charity, and it does not need to maintain direction and control.  It costs about $2000 to set up a non-profit in Canada that does not have to comply with any charity rules.   Better to have 50 groups set up a non-profit they control than change the rules for all charities.

 

One UK charity recently lost funds because there was a “culture of poor behaviour” – ie. some of their aid workers were allegedly having sex with children as young as 12 or 13. The UK government stopped funding that group for 3 years and now that the group has better child protection policies in place the UK government is prepared to fund them again.  They lost about $90 million.   I think that the expectations of funders can help the charity sector raise to a higher and better standard.

If governments were to put aside hundreds of millions of dollars for “local capacity building, ownership and participation and collaborative decision-making when working with communities in Canada, such as indigenous communities, and with communities abroad as part of their charitable activities” then that would be great.  But this legislation does not call for that.  The Federal government has not even dealt with the boil water advisories still in many Indigenous areas and spends very little money on “capacity building”.   Remember when the CRA used to fund $5 million on capacity building every year for the charity sector.   CRA today spends nothing on capacity building, but does apparently spend about a million dollars per year on an advisory committee.       I should note that the Federal government has agreed to “generously” fund Black-led organizations and groups that work primarily on Black communities to the tune of $5 million per year over the next few years.  When the government knows that various communities are disproportionately affected by COVID, especially the Black community, and is prepared to spend $150 billion on COVID programs, the $5 million does not seem like a lot especially since the Black community is about 3-4 percent of Canada’s population.  Next year if the Federal government were to use 3.5% of its budget for funding charities that are Black-led organizations and groups that work primarily on Black communities it would amount to $350 million not $5 million.   But let us not talk about those trivial issues and let us focus on how bad the rules for charities are.

Perhaps we should also have all governments in Canada immediately cease funding any organization that does not have adequate safeguarding arrangements in place or has a history of allowing abuse.   Perhaps we should have a few words in the ITA that if a staff person of a charity rapes someone then after they are convicted that alone would be grounds for revocation.   Terrible to think that things like this can happen but they unfortunately do, and the $270 billion Canadian charity sector with many employees is sometimes excellent at dealing with these issues and often times not.

The preamble is unfortunately a mirage.  Next, we will discuss the actual changes to the ITA.

 

 

Here are all 4 notes:

Will changing structured arrangements into a reasonable person test help the charity sector? – Part 1 – The preamble

Will changing structured arrangements into a reasonable person test help the charity sector? – Part 2 – The Main Provisions and various general concerns

Will changing structured arrangements into a reasonable person test help the charity sector? – Part 3 – The Reasonable Person – lots of questions

 Will changing structured arrangements into a reasonable person test help the charity sector? – Part 4 – Charitable purposes and Conclusion