Bill S-216 on direction and control is just like Bill S-222 before it – a different name, same aim. Like Bill S-222, Bill S-216 would amend the Income Tax Act (ITA) to eliminate the “own activities” test. It would move away from “direction and control” to “reasonable steps” to ensure resources are used for only charitable purposes.

Why a New Bill?

The new Bill S-216 was introduced because the old Bill S-222 died when the federal election was called. Because they’re basically identical, our blogs covering the substance of Bill S-222 are still relevant: Bill S-222: From Direction and Control to Reasonable Steps (10 February 2021) and What’s Happening with Bill S-222? (30 June 2021).

What is the Status of Bill S-216?

Bill S-216, formally called An Act to amend the Income Tax Act (use of resources of a registered charity), was introduced in the Senate on November 24. It is at second reading, when Senators debate and discuss the Bill.

Why is it Important?

Debate on December 1 gave context and background for the bill.

The bill amends the language in the Income Tax Act which currently limits registered charities to spend their charitable dollars on their own activities. Charities can, of course, make gifts or grants to other charities, but the act as it is currently worded limits them otherwise to spending their charitable dollars on activities that they undertake themselves.

… there are times when the best way for a charity to pursue its charitable purpose is to work through non-charities, such as not-for-profit groups, social enterprises, co-ops, civil society groups, even businesses and others who are on the ground and may well be the best partner for the charity to achieve its impact. 

This approach to accountability is “costly, inefficient and inconsistent with contemporary values of equal partnership, inclusion and local empowerment.”

These rules apply equally in Canada as they do internationally. Direction and control means that charities need to have intermediary agreements and exercise operational control over projects. That means there are additional policy documents, protocols, processes, and payments. Pooled funding agreements are basically impossible for Canadian charities unless they can exercise direction and control over the funded activities. That is difficult, if not impossible, when the Canadian charity is not the majority contributor.

What does it Propose?

The Bill moves away from direction and control to resource accountability. The Senate Special Committee on the Charitable Sector recommended this change (see p 97 of its report, Catalyst for Change), as has the Advisory Committee on the Charitable Sector in its First Report (January 2021). CCCC has also expressed support for this change, as noted in the Senate debate.

The Bill would make this change in three ways:

  1. Replace “charitable activities carried out by the organization itself” with “charitable activities” in the ITA
  2. Expand the definition of charitable activities so that charities who take reasonable steps in providing funds fall within the definition
  3. Set out what reasonable steps are, including:
    • Collect information to ensure resources will be used for charitable purposes (if not a qualified donee)
    • Use measures, restrictions or conditions, or other actions to ensure resources are used exclusively for charitable purposes

Next Steps

The bill will make its way through the Senate process. If the Senate approves, it goes to the House for a similar process before it becomes law. We’ll continue to monitor its process and update you on key developments and milestones.

Details on how resource accountability will be determined through CRA consultations after the bill is passed. For more on direction and control, check out our Resource Page in CCCC Knowledge Base.

Noteworthy is provided 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.

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