In Part One, we looked at the context of uncertainty surrounding the report; there is no guarantee the recommendations will be pursued. In Part Two, we looked at recommendations about donations and legislation. Part Three considered potential reporting requirements for charities, and Part Four discussed policies and guidance that may be reviewed.

Charities face operational challenges that the for-profit sector does not experience, or at least not to the same degree. Examples include workforce retention and the challenge of offering competitive compensation and benefits, particularly for employees with skills and training that are in high demand.[1] A few recommendations came out of this discussion, including the development of a human resources renewal plan through Labour Canada, reinstatement of the Human Resources Council for the Voluntary Sector, and pensions for the charitable and non-profit sectors.[2]

Employee retention is essential but so too is volunteer recruitment. Statistics presented to the Committee show that in 2013 Canadians provided almost 2 billion hours of volunteer time, with older volunteers accounting for more hours and individuals than younger Canadians. In response, the Committee recommended a variety of actions: a national strategy to encourage volunteerism, including volunteer recruitment/retention costs in government contribution agreements; recognition programs for volunteers delivering government services; and reducing or eliminating police check costs.[3]

For Christians, service should be part of our everyday lives, and aside from challenges inherent in an aging population, and thus the volunteer pool, faith-based charities aren’t limited to government-led recruitment initiatives. Faith-based charities have recourse to the spiritual and Biblical call on believers to actively engage in serving the poor, the unreached, the orphaned, the marginalized. As regulated entities, all charities must necessarily be mindful of government actions, but faith-based charities don’t –and shouldn’t – look to government to solve what are, at core, heart issues impacting the desire and willingness to sacrificially give personal time, money and resources.[4]

Speaking of money and resources, the Report covers a wide variety of initiatives and recommendations with the aim of improving and enhancing the financial stability of charities: government funding agreements that include administrative costs, minimum 2-year timeframe for government grants, encouraging innovation through the Social Finance Fund, opening up procurement opportunities, funding to develop shared technologies for administration, and studying restrictions on accessing other forms of capital.[5]

Charities currently rely heavily on donors for funding, which necessitate frequent communication with donors and potential donors. Canada’s Anti-Spam Legislation (CASL) has clouded the waters somewhat for charities and their communication strategies.[6] Without making specific recommendations for reform, the Committee suggested that the Advisory Committee on the Charitable Sector (ACCS) review CASL and its impact on charities.[7]

But before charities concern themselves with CASL, they must navigate the process of becoming a charity, which is not always a straightforward path. Sometimes charities’ registrations are rejected. Rather than launch appeals to the Federal Court of Appeal on a written record provided by the Canada Revenue Agency, the Committee recommended that the Income Tax Act be amended to provide that “all appeals from decisions of the Charities Directorate of the Canada Revenue Agency proceed to the Tax Court of Canada.”[8] These would be hearings de novo, which means charities can adduce evidence and the matter is heard anew or over again. The Committee also recommended a right of appeal to the Tax Court where the CRA’s Tax and Charities Appeals Directorate has not made a decision on rejected applications or revoked registrations within six months of the appeal.[9]

Recognizing that appeals can be too costly for charities, the Committee also recommended establishing some sort of financial assistance program,[10] much like the recently revived Court Challenges Program. At the risk of becoming a resounding gong, any time the government sets up a funding program there will be strings attached. How likely is it that a new pregnancy care centre – that would be rejected for Canada Summer Jobs funding – would be approved for Tax Court appeal funding? And if only charities (or potential charities, more accurately) with certain viewpoints are financially capable of appealing, and by virtue of the appeal, developing the common law of charity, what impact could that have on the very definition of charity? Accountability and clarity are desirable, and a court process may enhance both; however, to the extent that a political element is introduced into the process, the level of transparency, accountability and neutrality is attenuated.

Even though we’ve taken five blog posts to discuss various aspects of the Report, it has not been an exhaustive discussion. I’ve attempted to point out what I see as concerning, encouraging, and relevant sections in the Report. But I end where I began, and that is with a measure of restraint. The Report is not binding, and many recommendations hinge on the not yet appointed ACCS. If and when action is taken on the Report, you can be sure we’ll keep you in the loop on any noteworthy developments.

[1] Report, pp.33-35

[2] Recommendations 6, 7, 5, respectively. CCCC offers a Pension Plan to Affiliate and Certified members. For more information, see https://www.cccc.org/pension

[3] Recommendations 1-4, pp.26-33

[4] 3 John 5-8

[5] Recommendations 10/11, 12, 14, 15, 18, 19 respectively

[6] For more information on CASL compliance, see CCCC Bulletin Articles CASL for Charities: An Update and Complying with the New Anti-spam Law: A How To Guide for Charities

[7] Recommendation 41, pp 122-123

[8] Recommendation 23, pp 74-77

[9] For more information on the current process, see CRA’s website Objections and Appeals and the links contained therein

[10] Recommendation 24, p 77

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In Part One, we looked at the context of uncertainty surrounding the report; there is no guarantee the recommendations will be pursued. In Part Two, we looked at recommendations about donations and legislation. Part Three considered potential reporting requirements for charities.

Canada Revenue Agency (“CRA”) gives information to charities in the form of guidance, summary policies, policy commentaries, and policy statements. It is helpful to know and understand the regulator’s point of view, even if charities find the information unwieldy or the policies restrictive.

One such guidance document is Canadian registered charities carrying out activities outside Canada, CG-002. CG-002 explains the CRA’s interpretation of the Income Tax Act(“ITA”) provision that to be a charitable organization, all resources must be “devoted to charitable activities carried on by the organization itself” or through grants to qualified donees[1] (more on that later).

The focus is whether the charity is carrying on its “own activities.” It can do this either by using its own employees or through an intermediary, always maintaining “direction and control.” When working with an intermediary, a charity is expected to direct and control projects by, for example, deciding how and where an activity is carried out, its goals, beneficiaries, budget, start and end dates. To demonstrate the charity is maintaining direction and control, CG-002 lists items the charity should have in place: a signed and implemented written agreement, a detailed description of the activities, ongoing instructions to the intermediary, systems for monitoring and supervising, periodic transfers based on progress and evaluation, and segregated funds, books, and records. [2]

Without going into further detail, one can already foresee some of the many challenges that arise in this context: administration, working within international networks, inconsistency with development policy that is focused on partnership and empowerment for local leaders and communities. Not surprisingly, all of these concerns were reflected in the report. [3] Recommendation 30 therefore directs CRA to revise CG-002 with the intention of shifting from a “direction and control” test to an “expenditure responsibility test”.[4]

The expenditure responsibility test stems from the US model. It requires granting organizations to exert all reasonable efforts and to establish adequate procedures to ensure the grant money is spent on its intended charitable purpose, to obtain full reports from the recipient on how the funds are spent, and to make full and detailed reports to the US regulator. Reasonable efforts include asking about the identity and history of the grantee, and having a written agreement, reporting mechanisms and records.[5]

What is the difference? The key difference is that Canadian charities currently have to exercise ongoing operational control, setting parameters on “significant issues” and demonstrating a real, ongoing, active relationship with any intermediary. Even having a director, volunteer or employee work for both the charity and intermediary “is not likely to be enough” to show direction and control over the use of its resources.[6] Moving from direction and control to expenditure responsibility would ease restrictions but maintain transparency and accountability.

In a similar vein of easing restrictions, the report also recommends that CRA develop, implement and evaluate a pilot project allowing registered charities to make gifts to non-qualified donees in limited circumstances.[7] The gifts would be subject to careful monitoring and used exclusively for charitable purposes. Qualified donees was the topic of another recommendation, that the Advisory Committee on the Charitable Sector (“ACCS”) review the policy considerations surrounding qualified donee status with “a view to establishing a principle-based framework for new categories of qualified donee.”[8]

Based on witness’ concerns about permissible business activities lagging behind the times, the current regime’s failure to address technological advances, a decline in donor base, and increasing demand for charitable services, the report recommends CRA revisit CPS-019, What is a Related Business to “provide greater clarity on permissible revenue generation activities” with a particular focus on new technological opportunities.[9]

Out of that discussion, another pilot project was recommended, this one to consider implementing a “destination of funds” test, giving charities greater latitude to undertake revenue-generating activities.[10] This would be no small change in CRA policy. As the CRA explained in its newsletter[11] upon the release of CPS-019, it had received many comments encouraging a destination of funds test; however, a 2002 Federal Court of Appeal decision[12] held that a business does not become a related business simply because profits are used for charitable purposes or activities.

While there are practical concerns with a “destination of funds” test such as unfair competition with the private sector, one witness pointed to a more fundamental question about clouding the character of charity and the “culture of giving … the choice to share.”[13] For faith-based charities in particular, this is worth further consideration. As Christians, we are called to serve,[14] to sacrificially and generously give,[15] to give not only out of abundance but poverty, [16] and so let our light shine before others and give glory to God.[17] There are, to be sure, the realities of raising funds and the practicalities of paying bills, but there is something distinct about the heart and hands that serve despite the cost.

In the discussion of policy, taxes, fundraising, and international agency agreements, let’s not forget our primary purpose and identity as servants of Christ.

[1] ITA, RSC 1985 c.1 (5^th Supp.), s.149.1(1)

[2] CCCC has extensive resources on this topic, including a decision tree Contractual Arrangements for Operating Outside of Canada; Charities Handbook sections on Carrying out Charitable Activities Outside Canada, and Direction and Control; discussion on What Overseas Ministries Think of CRA’s Foreign Activity Guidance; sample Agency Agreement; webinar on Foreign Activities; and Bulletin articles on Books and Records for Foreign Activities, CRA’s Guidance on Foreign Activities    

[3] The report also makes reference to an article by Andrew Valentine, “Foreign Activities by Canadian Registered Charities: Challenges and Options for Reform,” The Philanthropist, 21 November 2016 which outlines these concerns, and others, in more detail, along with discussion of many of the proposed solutions mentioned in the Senate report.

[4] Report, pp.92-97

[5] Valentine, note 3 at p.3

[6] CG-002, section 7.5

[7] Recommendation 31, pp.97-99

[8] Recommendation 26, pp. 78-80

[9] Recommendation 29, pp. 88-92

[10] Recommendation 28, pp.88-92

[11] CRA, Registered Charities Newsletter No. 17 – Winter 2004 [Archived]; see also CRA Excise and GST/HST News – No. 90 (Fall 2013), “Third Party Fundraising – Income Tax Issues”

[12] Earth Fund v Canada (Minister of National Revenue), 2002 FCA 498, paras 26-31

[13] Report, p.90, citing Professor A.Parachin, Evidence (8 April 2019)

[14] 1 Peter 4:10-11, Matthew 20:28, 25:35-40, John 13:12-14, James 2:14-17

[15] Proverbs 19:17, 2 Corinthians 9:6, Hebrews 13:16, 1 John 3:17

[16] Mark 12:41-44

[17] Matthew 5:16

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Today we’ll consider various reporting proposals.

If donations are the lifeblood of charities, as we noted in yesterday’s post, reporting could perhaps be described as the grunt work of charities – absolutely essential, often tedious, and frequently unrecognized. For the faithful staff and volunteers who may feel weighed down by these duties, Recommendation 20 may be of some encouragement. In its call for increased Canada Revenue Agency (“CRA”) transparency, it also encourages increased collaboration between CRA and provincial/territorial counterparts to “reduce the reporting burden” for charities.[1] Similarly, inter-governmental cooperation was recommended to “develop and implement an on-line tool … to submit financial reports” based on a standardized set of reporting categories.[2] This latter initiative relates to applications and related reporting for government funding.

Before there’s too much cheering from administrative staff and volunteers, there are also recommendations that would increase the amount and the nature of information charities would report. For example, the Advisory Committee on the Charitable Sector (“ACCS”) is asked to broadly consider “what additional information could be included” in the T3010 that would “support the work of the sector.”[3] That is as broad a scope as can be. And there are probably as many perspectives on what information would support the work of the sector as there are workers in the sector.

The Senate Committee, for one, recommends that the T3010 and the T1044 include questions on “diversity representation based on existing Employment Equity guidelines” as one component of information helpful to the sector.[4] This is an interesting proposal. Looking to the witness testimony cited in the Report, a Senator asked whether the federal government should insist that every charity and not-for-profit have “competent governance”. The exchange quickly moved from “competence” to diversity and inclusion. As part of competent governance, this witness’ organization offers training modules on governance fundamentals and sees diversity and inclusion as an integral component of governance and of strengthening board and organization capacity.

Let’s pause for a moment to clarify a few things. First, every charity should have competent governance, and Christian charities should be at the forefront on this, knowing that all work is for the Lord and should therefore be done to the best of our abilities. Second, we know that all people are created in God’s image and that God’s kingdom includes people from every corner of the earth – diversity defines God’s kingdom and should naturally be reflected in ministries seeking to accomplish His purposes. Third, ensuring that the second is in place (that is, diversity) will undoubtedly strengthen the first (that is, competency).

Let’s unpause now and return to the Recommendation and testimony. This witness referenced Canada Council for the Arts’ new funding model in April 2017 as exemplifying a new direction. The funding model directly tied diversity to funding for large arts organizations, and applied not only to artists but crews and boards of directors, among others.

Last year we saw the federal government develop its own funding model tied to particular policy aims in the Canada Summer Jobs (CSJ) program. That did not go well for Christian charities, which are likely to feel leery of similar overreach in other programs or requirements; the CSJ fiasco therefore raises potential concerns about the direction this Recommendation could take.

A whole host of other questions also arise: if the organization is meeting the needs of a very specific population, would it be problematic to have that population heavily represented on the board? Will exemptions in employment equity guidelines be accounted for? How? What if boards are unable to meet government expectations? How strictly will diversity be enforced? On what basis? With what consequences? Would a board of visible minorities but no women qualify as diverse? A board of economically advantaged women? What about privacy concerns? If board members choose not to self-identify on diversity markers, where does that leave the charity? What new administrative responsibilities will this impose? What information will need to be reported?

Many of these questions also relate to Recommendation 16, which calls for “collaboration between Statistics Canada and the charitable and non-profit sector to determine what additional data could be collected and disseminated in a timely and consistent manner” to support decision making within the sector.[5] Depending on the nature of the information and the degree of administrative effort necessary to maintain records for reporting purposes, this could have nary an impact upon, or it could overwhelm, a charity. For example, it could be extremely helpful if it allowed a charity to explain its allocation for management and administrative costs as a way to address the myth that administration costs are always problematic. Or, as in past years, it could be extremely unhelpful if it required a charity to report the minutia of volunteer hours.

From the minutia of this Report and its potential implications, it is important to return to the big picture. We know that the Committee praised Canada’s religious communities for their charitable work, that it affirmed “Advancing Religion” as a charitable purpose, and that, according to one of the Committee’s Senators, “religion is the base on which Canadians learn philanthropy.”[6] That big picture is important to keep in mind as the context for the potentially problematic issues we’ve touched on today. And still more to come!

[1] Recommendation 20, Report p. 60

[2] Recommendation 13, Report p. 49

[3] Recommendation 17, Report p. 56

[4] Recommendation 8, Report p. 38-39

[5] Recommendation 16, p. 55

[6] CCCC Blog Post, “Senate Affirms Advancing Religion in New Report” (June 21, 2019)

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Nonetheless, we can’t assume they will be ignored, and it’s important to know the types of changes that could be made (or at least considered!) for the charitable sector. Today we’ll highlight some of the recommendations relating to donations, along with proposals to consider amending the Income Tax Act (“ITA”).

Donations are the lifeblood of charities,[1] and the report recommends that the Advisory Committee on the Charitable Sector (“ACCS”) review existing tax measures available to individual donors. Testimony before the Committee expressed concern about an aging donor population and overcoming misperceptions that there is (or ought to be) a bright red line between running an organization and the mission of an organization.

Despite a desire to “strengthen the culture of giving among new and current” donors,[2] there did not appear to be a consensus amongst witnesses as to how this could or should be achieved. Nor did the Committee examine the pros and cons of various options, or the extent of support for the proposals amongst the charitable sector as to the best way forward.

Witnesses raised a number of possibilities, including looking to past initiatives (such as first-time donor super credits and stretch tax credits), raising the donation tax credit to a flat 33%, or tying greater tax relief to “priorities established by the government.”[3] 

In general, a re-examination of incentives to donate could prove helpful and achieve mutual benefits for both charities and taxpayers. But if enhanced tax relief is tied to governmental policy priorities that could leave many donors – and charities – disadvantaged if their priorities do not happen to match those of the governing political party of the day. This could lead to significant volatility even within a mandate if priorities change, whether from an internal shift or an external impetus.

Other recommendations relate to a pilot project to assess the impact of exempting donations of private shares from capital gains tax,[4] a study to consider incentivising donations of non-environmental real estate,[5] and a look at how to ensure that donations don’t languish in donor advised funds (“DAFs”) but are used in a timely fashion to fund charitable activities.[6] Regarding DAFs, there were reservations expressed by some witnesses about delayed distribution, lack of transparency, concentration of assets and conflicts of interest. On the other hand, there were concerns raised about whether the cure would be worse than the disease. DAFs’ average distribution was said to be approximately 12%, which was noted to be three times what is currently required of a private foundation.[7]

This, in turn, raised a question about disbursement quotas,[8] and despite the reservations expressed by a number of witnesses – one of whom described the topic as a “rabbit hole” – the Committee recommended that the ACCS study the disadvantages and advantages of amending the disbursement quota for registered charities, and where that should be done (i.e. statute or regulation).[9]

In terms of statutes, the Committee proposed that the charities-related sections of the Income Tax Act be reviewed every five years[10] (likely an ambitious goal!). The report also suggested reconsidering the tax distinction between public benefit and member-benefit not-for-profits[11] and reviewing the circumstances under which an individual is characterized as an “ineligible individual” and prohibited from serving on a board of directors.[12] No doubt this last recommendation could result in helpful changes for ministries serving individuals who have found themselves entangled in the criminal justice system in the past or present.

With such a broad mandate, it shouldn’t come as surprise that the report contains a ‘mixed bag’ of recommendations – some with a potentially positive impact, some with a potentially negative impact, and some with an unknown impact.

We’ll continue to look at more of the ups and downs in the report in the next post.

[1] The report cites Statistics Canada figures that $8.6 billion of $12.8 billion in charitable donations was claimed for credits by tax filers in 2013 (see Charitable Giving in Canada, 16 December 2015; Statistics Canada, “Total Charitable Donations of Tax Filers, 1997 to 2017,” The Daily, 8 February 2019)

[2] Recommendation 9, Report p. 44

[3] Report, pp. 43-44

[4] Recommendation 34, Report p. 108; For information on donating public shares see CCCC Bulletin Articles, The Positives of Donating Publicly Listed Securities and Enhanced Incentive for Donating Publicly Listed Securities (Shares). You can access more information about CCCC Community Trust Fund here.

[5] Recommendation 35, Report p. 108

[6] Recommendation 37, Report p. 113; for a discussion on DAFs, see CCCC Bulletin Article, Donor Advised Funds

[7] Report, p. 111.

[8] For more on disbursement quotas, see CCCC Charities Handbook, Chapter 22

[9] Recommendation 36, p. 113

[10] Recommendation 32, p. 100

[11] Recommendation 40, p. 121

[12] Recommendation 42, p. 125; for more information on “ineligible individuals”, see CRA CG-024 Ineligible Individuals, and CCCC discussion of the CRA guidance, A Matter of Balance: CRA’s Implementation of the Ineligible Individual Rules of the Income Tax Act

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Context, they say, is king. And the context of this report is certainly important. First, the report contains non-binding recommendations. Second, the report was released near the end of the Parliamentary session in an election year. Third, the report tasks government agencies, departments, and bodies – some of which do not yet exist – with examining and evaluating issues that the CSSB has simply noted or recognized in the report.

All of this means that there is a great deal of uncertainty about the report, particularly whether and to what extent it will tangibly impact the charitable sector.

For example, the report in Recommendation 25 tasks the new Advisory Committee on the Charitable Sector (“ACCS”) with reviewing the common law meaning of charity. Undertaking an evaluation of the very meaning of charity, and whether its definition should remain in the common law or should be legislatively defined is, on its own, a massive question with significant implications for the sector.

Further, the ACCS is going to be made up of 12 senior-level representatives from across sectors, but as of yet only the co-chairs have been appointed. It is to include “registered charities, national umbrella organizations, professional associations, charity researchers/academics, and legal experts.” The Report, in Recommendation 21, adds that the ACCS should also include “smaller organizations, organizations in rural and remote communities, organizations representing and serving newcomers to Canada and organizations supporting and serving Indigenous communities.” Will this prompt the Minister of National Revenue or the Commissioner of the CRA to revisit pending appointments? Will this guide appointments not yet made? We’re left to speculate.

As we noted at the outset, the speculation inherent in elections also plays a key part in understanding the Report. It may be that the Federal Government of Fall 2019 is elected with a totally different mandate than the present government, regardless of which party forms a majority. It could be that a new mandate is prioritized by departments and agencies over and above this report. Or, this report and its recommendations may be central to their priorities. Again, we’re left to speculate.

Since these recommendations are not binding, there may be little reason for the government to make the report a priority and it could simply be shelved. All of this means – you guessed it – we’re left to speculate as to the ultimate impact of the report’s contents.

Depending on if and how the recommendations are understood, applied and advanced, they could have a significant or subtle impact on the charitable sector. Despite the uncertain future of the recommendations, it is important to know what they are, and in forthcoming posts we’ll identify and discuss them by categories such as finance, operations, donations, reporting, procedure and legislation.

Stay tuned!

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