For the charitable sector, the two words “direction” and “control” are significant, to say the least. They represent a whole host of responsibilities and obligations and there is a growing push to change the terms and the responsibilities that come along with them.
Resource Page & Webinar
To help you keep tabs on various resources, we’ve created a Direction & Control Resource Page. You’ll find video about an upcoming legislative proposal, a summary of what direction and control is all about, and a variety of articles.
We also want to let you know about a webinar hosted by Cooperation Canada happening Thursday November 12, from 12:00-1:30 pm ET. The webinar, entitled Shifting Power; Direction and control as a key obstacle to localizing international assistance, will provide an overview of direction and control legislation, highlight the implications of direction and control on the work of civil society organizations domestically and abroad, and speak to possibilities for improved legislation.
If you’re interested in attending, you can visit their event page for information on how to register. There is a $15 registration fee for the session.
Direction & Control
If you’re still scratching your head wondering what we’re talking about when we say direction and control, here’s the bare bones of what you need to know.
What is it?
Direction and control is a term used by Canada Revenue Agency to describe what a charity needs to do when it carries out activities – and uses funds – through an intermediary. The term doesn’t appear in the Income Tax Act (ITA). The ITA states that a charity only use its resources on (1) its own activities, or (2) gifts to qualified donees (usually another charity). The phrase “own activities” has been interpreted as activities that “are directly under the charity’s control and supervision.”
Requiring “direction” (setting the purpose of the funds), and “control” (making sure the funds are used for the intended purpose), show the funds have been used properly by the charity.
Charities are expected to (1) use a written agreement, 2) set out a clear, complete and detailed description of the activity to the intermediary, (3) monitor the activity on an ongoing basis, (4) provide ongoing detailed instructions, (5) periodically transfer money based on performance, and (6) make sure the intermediary accounts for the charity’s funds in separate books and records.
As noted in the 2019 Senate Report on the charitable sector, the main challenges are
- practical – how can charities work in international networks, especially as a smaller entity?
- cost – trying to prove direction and control
- inconsistency – with international development values; can be seen as condescending
- uncertainty – how much is enough to be compliant?
Sometimes, these challenges can result in lost opportunities.
Expenditure or resource accountability is the proposed replacement for direction and control. It means accountability and reporting are still necessary but without the requirement that the work be the charities “own activities.” To show responsibility the charity would need to exercise due diligence, have regular reporting, and use a written agreement. The key difference is that the charity doesn’t have to make a “legal fiction” to make the activities their “own”.
The content provided in this blog is for general information purposes and does not constitute legal or professional advice. Every organization’s circumstances are unique. Before acting on the basis of information contained in this blog, readers should consult with a qualified lawyer for advice specific to their situation.