On Thursday, June 20, 2019, the Senate Special Committee on the Charitable Sector, which was established to review the impact of the voluntary sector in Canada and the federal and provincial laws and policies governing charities and non-profit organizations, released its report, Catalyst for Change: A Roadmap to a Stronger Charitable Sector (hereinafter the “Report”).
The Report (190 pages – a tour de force) contains the results of the committee’s 24 public hearings, including the evidence of 160 witnesses representing a wide-range of organizations of all sizes from across the sector and around the country; additional written briefs from more than 90 individuals and organizations; and an e-consultation with 695 respondents directed at stakeholders who might not otherwise participate in its study, particularly small and rural organizations.
These consultations resulted in 42 recommendations covering a wide-range of issues important to the sector that detail the strategies and regulatory reforms needed to maximize the sector’s impact in communities both in Canada and around the world. While a number of important themes run through the recommendations, the main message is encapsulated in the forward as follows:
To continue its good work, the sector needs meaningful law and policy reform, as well as a renewed relationship with the federal government. This report is a roadmap to ensure that genuine change is delivered so that the sector can reach from great to exceptional.”
This reflects the general perception of the Senate Special Committee from many of the participants that while the issues and fixes are myriad and complex, a stronger relationship between the sector and the federal government is essential:
The legal framework governing the sector is out of date and can sometimes impede organizations’ work. And the relationship between the sector and the federal government should be strengthened by identifying a home for the sector within a specific department or agency.
To support the development of a renewed relationship with the sector, the committee recommended that the Minister of Innovation, Science and Technology be tasked with creating a regular venue for interaction and collaboration supported by a secretariat on the charitable and non-profit sector (Recommendation 22).
From both a legal and policy point of view, one of the most significant recommendations resulted from the Committee’s finding that the best way to ensure the continued evolution of the common law relating to the definition of charity would be to grant the Tax Court of Canada jurisdiction over charity law cases for reasons of consistency, cost, clarity and quality (Recommendation 23, while Recommendation 24 further suggests the establishment of funding or other measures to support charity appeals). Other parts of the legal framework considered out of date by the Committee include a recommendation to replace the current three categories of registered charity with two new categories: public charity and private charity (Recommendation 27); updating the existing CRA guidance on the related business test and potential replacement of the existing statutory rules with the implementation of a “destination of funds” test following a pilot project (Recommendations 28 and 29); and changing CRA’s interpretation of the “own activities” test related to carrying on charitable activities through third parties from “direction and control” to careful monitoring through the implementation of an “expenditure responsibility test” similar to the test used in other jurisdictions, with particular application to gifts to non-qualified donees (Recommendations 30 and 31).
With respect to incentivizing charitable giving, the Report recommends that the CRA engage in a pilot project on the impact on the charitable sector of exempting donations of private shares from capital gains tax (Recommendation 34). The Report further recommends that the CRA study the extent to which the donation of non-ecologically sensitive land could be incentivized without undermining the Ecological Gifts Program (Recommendation 35). An entire section of the Report focused on donor-advised funds, perhaps reflecting their importance as the fastest growing destination for charitable giving in Canada and the U.S. However, the recommendations related to the topic reflect the diverging views presented to the committee: further study by the Advisory Committee on the Charitable Sector of the advantages and disadvantages of amending the disbursement quota, including setting the disbursement quota in regulation, rather than statute and consideration of other means of ensuring that donations do not languish in donor-advised funds, but are instead used to fund charitable activities in a timely fashion (Recommendations 36 and 37).
The Special Committee heard from a number of witnesses about the rules governing non-profits (not charities) and accepted the general view that the statutory language in paragraph 149(1)(l) of the Income Tax Act is less restrictive than the CRA guidance suggests, recommending that CRA revise its interpretation of the provision to provide greater clarity and certainty regarding the extent to which it is permissible for them to hold surplus income and to reflect the language of the Income Tax Act, which focuses on the purposes of the organization (Recommendation 38).
Much of the first part of the Report focused on recommendations to modernize and strengthen the sector in the main areas of recruitment and retention of volunteers and staff, supporting greater financial sustainability and capacity, and improving data collection and dissemination. These recommendations are critical to strengthening the sector and our understanding of it—they merit more detail than this short summary.
As the Report itself notes in conclusion:
Above all, the overall lack of respect for the enormous economic and social contributions of these organizations, their volunteers and their staff undermine its potential. Taken together, these impediments bar the road to finding better answers to complex problems and richer communities for all Canadians, in all regions of the country.
A careful read and review of the Report, the results of the e-consultation, and the recommendations should be essential summertime reading for government officials, legal and policy experts, funders, volunteers, the CEO’s, and front-line workers and board members of organizations involved in the charitable and non-profit sector and interested in supporting its renewal. The Special Committee ably discerned the areas of general consensus, making specific recommendations for reform, while at the same time paying heed to areas of diverging views, suggesting further study and review either by front-line government organisations or the Advisory Committee on the Charitable Sector. The Report concludes with a government call to action, suggesting that the Canadian core value of giving is at risk otherwise.
By: Karen Cooper