OTTAWA, Tuesday, June 1, 2021

The Standing Senate Committee on National Finance met by videoconference this day at 9:30 a.m. [ET] in consideration of Bill S-222, An Act to amend the Income Tax Act (use of resources).

Senator Percy Mockler (Chair) in the chair.


The Chair: Honourable senators, as Canadian parliamentarians, senators and the witnesses who have joined us, it is with a heavy heart that, before we start the meeting, I would like to ask that members of the National Finance Committee and the witnesses here today take a moment of silence in order to show our support to the families and share their mourning of the devastating news of the 215 children found buried at the former Kamloops Indian Residential School. Let us, honourable senators, take one minute of silence please.


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Honourable senators, we will now begin the official portion of our meeting, as per our order of reference received by the Senate of Canada.


My name is Percy Mockler, Senator from New Brunswick, and I have the honour to chair the Standing Senate Committee on National Finance.


Now I would like to introduce the members of the National Finance Committee who are participating in this meeting: Senator Boehm; Senator Dagenais; Senator Deacon, Ontario; Senator Duncan; Senator Forest; Senator Galvez; Senator Klyne; Senator Loffreda; Senator Marshall; and Senator Smith. We also welcome Senator Pate to the meeting. I will officially introduce Senator Omidvar shortly.


Welcome to all viewers across the country who may be watching on


Honourable senators, this morning we begin our study of Bill S-222, An Act to amend the Income Tax Act (use of resources), which was referred to this committee on May 25, 2021, by the Senate of Canada.

For the first panel, we welcome a colleague of ours, the Honourable Ratna Omidvar; from Carters Law Firm, we welcome Terrance S. Carter, Managing Partner at Carters Law Firm, appearing as an individual; and from Cooperation Canada, we welcome Gloria Novovic, Policy Lead, Cooperation Canada.

Welcome to all of you and thank you for accepting our invitation to appear in front of the National Finance Committee. Senator, welcome to our committee and thank you for the leadership that you have provided.

Hon. Ratna Omidvar, Senator, Senate of Canada: Good morning, honourable senators. Thank you for inviting me to speak to you about Bill S-222, the Effective and Accountable Charities Act. I appreciate the opportunity.

One of the first statements that the Senate Charities Committee heard from a witness was that, given their mandate, charities should be given the red carpet. Instead, they are tied up in red tape. The red tape starts in the Income Tax Act. Currently, the language in the Income Tax Act limits registered charities to spending their charitable dollars on their own activities. Charities can, of course, make gifts or grants to other charities or qualified donees, but the act as it is currently worded limits them otherwise to spending their charitable dollars on activities that they undertake themselves. The phrase “charitable activities carried on by the organization itself” is sprinkled throughout this section of the act. By doing so, the Income Tax Act shifts the focus in law from the charitable purpose of a charity to its activities.

However, I think we all recognize that there are times — especially in these times — when the best way for a charity to pursue and achieve its charitable purpose is to work with and alongside other non-charities, such as not-for-profits, social enterprises, co-ops, civil society groups and others who are on the ground and may well be the best partners for the charity to achieve its impact.

Colleagues, this is where the problem starts, because “own activities” and its language limits them from partnering with non-charities. If they do, the Canada Revenue Agency, or CRA, has provided guidelines that interpret the law in the Income Tax Act such that all activities of a non-charity must be directed and controlled by the charity as if the activities carried out by the non-charity are the activities of the charity.

This creates red tape, legal expenses, administrative hurdles and inefficiencies for charities internationally and domestically. Some charities simply walk away from doing good work because it is all just too much and too risky for them. Others fall into line with the law even though they are forced to be part of a domineering, top-down approach which has been called colonial and racist. As I stated in the chamber, this law has an outsized, even if unintended, impact on communities seeking justice, such as the Indigenous and BIPOC organizations, because, by doing so, they lose agency, voice and control. You may well ask: Why does this law exist?

In the 1950s, the government was keen to assure accountability of charitable dollars and deal with the possibility of self-dealing between and among charities. It has not been reviewed since that time, although for more than 25 years the sector has been calling for reforms.

Bill S-222 provides an alternative. It will provide accountability, but also effective partnership and empowerment. Accountability and empowerment, colleagues, are not mutually exclusive; neither are accountability and efficiency. The bill introduces language of resource accountability into the act. I want to be crystal clear. Accountability for tax-exempt dollars is paramount. Through resource accountability, the charity will engage in upfront due diligence, develop agreements on deliverables, activities, budgets, reporting and timelines. The non-charity will be required to provide full accountability to the charity for receiving and reporting on the use of funds.

When these agreements are complete, the non-charity will report to the charity on how the money and resource were spent and report on the progress of outcomes and impact. But the non-charity will not be controlled or dictated to by the charity. This approach shifts the charity’s focus from ongoing operational control of activities to project management, an approach focused on taking reasonable and appropriate steps to ensure that the charity’s resources are devoted to achieving charitable purpose.

This amendment, colleagues, brings us in line with other like-minded jurisdictions such as the U.K., the U.S. and Australia.

In closing, I hope you will support this bill and I welcome your questions.

The Chair: Now I will recognize Mr. Carter. Please proceed with your comments.

Terrance S. Carter, Managing Partner, Carters Law Firm, as an individual: Honourable senators, thank you for inviting me to appear today. I am doing so in support of Bill S-222, the “Effective and Accountable Charities Act,” introduced by the Honourable Senator Omidvar.

As you have heard, the Income Tax Act, or ITA, currently contains archaic provisions that have been in place since the 1950s requiring charities to devote all of their resources to charitable activities carried on by the organization itself. This is known as the “own activities” test. This has led the Canada Revenue Agency to implement an administrative policy that charities must direct and control the use of their resources when working through an intermediary. Such a requirement, however, severely limits how charities can work with third parties that are not qualified donees under the ITA.

Many in the charitable sector have expressed concern with the CRA’s interpretation of the “own activities” test and the direction and control regime, including a recent open letter signed by 37 charity lawyers. Although the CRA updated its guidance in November 2020 by relaxing some of its more onerous requirements, there were no substantive changes to the CRA’s direction and control policy. Bill S-222 proposes to replace the “own activities” test and direction and control requirements with a practical test of resource accountability, which I support.

The bill happens to coincide with Report No. 1 of the CRA’s Advisory Committee on the Charitable Sector that itself proposed removal of the “own activities” requirement from the ITA and the introduction of a resource accountability test.

I would like to briefly outline some of the key problems with the current “own activities” test and the CRA’s related direction and control regime.

First, requiring programs to be the “own activities” of the funding charity creates a legal fiction. This methodology is outmoded, impractical, inefficient, inordinately expensive, unpopular and fails to meet the objectives of the ITA. It is built upon the fiction that everything that a charity does through an intermediary must be structured as the activity of the charity itself even though the parties know that the activity is that of the intermediary. As a result, the direction and control regime has created a fictitious counter-reality that charities have significant difficulties complying with.

Second, requiring a top-down approach to dictate how charitable activities are carried out is at odds with current international development philosophy that emphasizes the importance of empowering partnerships with local communities.

Third, the micromanagement required of charities, including monitoring and reporting rules, distracts charities from focusing on their programs and pursuing their charitable purposes.

Fourth, complying with CRA’s onerous requirements draws scarce resources away from charitable work, for example, having to incur legal expenses to ensure compliance, even where the charity has no concerns with a trusted foreign or domestic partner.

Fifth, the direction and control requirements impose a paternalistic and patronizing relationship between charities and Indigenous communities that are not registered charities or other types of qualified donees.

Sixth, the direction and control regime requirement is an outlier in the international development community. It is at odds with all other credible jurisdictions, including the U.S., England and Wales.

Bill S-222’s most important change is the removal of the “own activities” test by amending the ITA to require charities to carry on simply “charitable activities” in pursuing its purposes instead of “charitable activities carried on by the charity.” The focus is no longer on whose activity it is, but rather on the purpose of the activity.

The bill proposes to allow charities to make their resources available to non-qualified donees provided that charities take “reasonable steps” to ensure that those resources are used exclusively for charitable purposes. A new section would be added to prescribe what constitutes “reasonable steps” in order to ensure that exclusive use of resources for charitable purposes is achieved. This would include obtaining appropriate due diligence information of the third parties and imposing restrictions and conditions on the transfer of resources to the third party for charitable purposes.

In conclusion, the amendments proposed in Bill S-222 would, one, lift an unnecessary burden from Canadian charities that have been hampered far too long by antiquated income tax provisions that are out of touch with reality and international standards; and two, would replace it with a regime of resource accountability that would allow charities to work with non-qualified donees, both internationally and domestically, in order to more effectively achieve their charitable purposes.

Thank you.

The Chair: Thank you, Mr. Carter. Now we will hear Ms. Novovic from Cooperation Canada. The floor is yours, please.

Gloria Novovic, Policy Lead, Cooperation Canada: Thank you, honourable senators. My name is Gloria Novovic. I am Cooperation Canada’s Policy Lead and a doctoral fellow specializing in international development policy. I am joining this meeting from the unceded, unsurrendered territory of the Anishinaabe Algonquin Nation, colonially Canada.

I am speaking on behalf of Cooperation Canada, which is a national association of 90 organizations working in the humanitarian and development context here in Canada and abroad. Our members work in every corner of the world, responding to disasters, providing essential services and helping to construct a safer, healthier and more sustainable world for us all. It is quite an ambitious mandate, I think we can agree, but it is one that has been made much more difficult by the outdated and normatively harmful legislation Canadian charities are facing under the banner of “direction and control.”

We expect the Canadian framework to, as the Supreme Court suggests, “. . . accommodates and addresses the realities of modern life.” However, Canada’s charitable sector, employing over 2 million people and accounting for over 8% of the nation’s GDP, continues to be regulated by 70-year-old Income Tax Act provisions. Our sector has made a lot of headway in the last seven decades. The problem is our legislation has not followed suit.

Because of these reasons, we strongly support Bill S-222, proposed by Senator Omidvar, which removes the impractical and costly provisions embedded in ethnocentric and racial bias while ensuring a solid framework of resource accountability. The proposed changes would, in fact, not be surprising. Resource accountability is the guiding principle employed by most development actors such as, in my opinion, Global Affairs Canada and UN agencies.

In practical terms, Canadian charities working with actors without a charitable status are faced with cumbersome administrative processes, which slow down context-informed decision making and undermine the agency of local actors. It is essentially a problem of a broken traffic light. Our peer countries, the U.S., the U.K. and others, consistently operate on a yellow light system: proceed with caution. Their partners, which have undergone due diligence checks as this bill would also suggest, can continue their activities as they make operational, context-informed adjustments. They later report on their efforts and demonstrate how they have used funds towards a very specific charitable purpose.

In the case of Canadian global development actors, the light is always red. A slight change in a single project activity legally requires the approval of the Canadian charitable actor. This means that the programing is halted and staff are burdened with additional paperwork despite working in complex humanitarian and development settings that actually might change again by the time they receive that approval.

For Canadian charities, this red light is a red light to more innovative partnerships, to collaboration with other donor countries who do not wish to get wrapped up in 70-year-old legislation and, more importantly, it is a red light to historically marginalized communities, to Indigenous, Black and other racialized groups that deserve to be treated as more than mere intermediaries of their own development.

This “Canadian exception,” as it is called in the global development community, has become a laughing matter. However, in humanitarian contexts, these delays cost millions and also jeopardize life-saving interventions. “Direction and control” also goes against the principle of national ownership, which is encapsulated in global promises Canada has made through, for example, Sustainable Development Goals and our own Feminist International Assistance Policy.

Canadian charities work in countries with well-known histories of Western actors speaking on their behalf, making decisions about them without them and assuming that “West always knows best.” Our sector has been and continues to address its colonial legacy. Around the world, the more marginalized the group is, the less likely it is to have a charitable status. The current legislation dissuades Canadian charities from working with actors without a charitable status, thereby ignoring existing inequalities we work really hard to address.

At Cooperation Canada, we believe that public trust is the most valuable resource of any charity. Our ability to be accountable to the communities we support, but also Canadians and the Canadian government, is of existential importance to us. We have conducted research, consulted legal minds and discussed with political leaders across the spectrum. Everyone agrees that the ITA provisions addressed in Bill S-222 require an update. We hope you will agree that after seven decades and in the given context of rising humanitarian and development needs, those updates are truly urgent. Thank you.

The Chair: Thank you for your comments. I would like to remind senators that for this meeting we will have a maximum of three minutes each for the first round. Therefore, please ask your questions directly. To the witnesses, please respond concisely.

Senator Marshall: Welcome, Senator Omidvar, Mr. Carter and Ms. Novovic. You all spoke about accountability. Could you further elaborate on what you envision as the accountability regime if this change goes ahead? I am interested whether there will be a standard template for reporting for oversight, a standard contract. Could you talk a little bit about what the accountability regime will look like?

Senator Omidvar: Thank you, senator. If I may, let me attempt to answer your excellent question. The accountability mechanisms are spelled out in the legislation itself. We lay out what we mean by due diligence, reporting, et cetera. However, should this, and if, this law is called into effect — and I certainly hope it will be — it will then be followed by consultations that the CRA itself must undertake to determine the guardrails, the particularities, the templates and the reporting mechanism.

If I can think myself into the head of the CRA — and you can ask them that question — I would imagine that one of the outcomes would be further questions in the T3010 form that all charities must fill out. There could be questions that ask a charity: How much money did you spend with a non-charity? It will all have to be developed through consultation.

Senator Marshall: One of you mentioned that this has been implemented in other jurisdictions. There is some risk in moving in this direction. Has there been any type of risk assessment or any review of this possibility?

Senator Omidvar: Because this is a private member’s bill, it has not gone through the normal processes of the government. But let me assure you that the U.S., which is the most security-conscious regime in the world, with the U.K. not far behind and Australia all have had these regimes and, as academics have pointed out and studied, Canada is an exception — not quite the exception we would like to be. In addition, those other three regimes have not experienced the kinds of problems that — you know, you are absolutely right. There is risk in everything. But so far, as we know, the risk has been well contained through the due diligence processes that they use.

Senator Marshall: Thank you.

Mr. Carter: To add to what the senator mentioned, we have at our firm done a study of similar provisions in the United States and in England and Wales, and Canada certainly is different, without question. The types of provisions that are in those other jurisdictions focus on what is referred to in the U.S. as “expenditure responsibility test,” which is very similar to a resource accountability approach that the senator is talking about. In England, they have a program called a grant funding guidance, which focuses on the ability to transfer funds over to recipients but to do so in a responsible way to ensure that the charitable purpose is being achieved.

I think that this bill brings Canada in line with other international players. These are major players, of course, the U.S. and England, so we’re no longer different. We’re really the same as the rest of them with regards to accountability.

The Chair: Thank you, Mr. Carter.


Senator Forest: Thank you to our guests for joining us. Senator Omidvar, I would like to begin by thanking you and congratulating you on the work that the Special Senate Committee on the Charitable Sector has done.

I know that you are fully committed to this project, as are the other members of the committee. I think your work is a very real demonstration of the unique contribution that a renewed Senate can make to our country. So my first question is for you. Could you share with us some experiences of the many hours you have spent with charities? Can you give us some concrete examples of the aberrations and absurdities that even the Canada Revenue Agency’s guidance on direction and control can create as projects are carried out on the ground?


Senator Omidvar: Thank you, Senator Forest, for that question. We’re imagining into the future, and I love to do that. I imagine if this bill is passed, the guidelines would relate to what we mean by reasonable resource accountability. Resources are not just money, for instance. Resources can include people, volunteers and technology. It is possible that the definition of resources would be expanded upon by the CRA in the guidelines.

It is possible a template would be produced as Senator Marshall has suggested. I am certainly hoping that the consultations will provide the kind of rigour we need to make sure that that yellow light, which my colleague Ms. Novovic noted so appropriately, allows us to proceed with caution.


Senator Forest: My second question is for Mr. Carter. In the open letter you mentioned, which you co-signed with 37 charity lawyers, you said that the current rules are inefficient, too complex and a world removed from the rules that other global players have. What mechanisms do other jurisdictions have in place to ensure a better balance between freedom of action for charities and checks and balances to ensure that funds are used in accordance with the wishes of the donors and that they target the people we want to help?


Mr. Carter: Thank you very much, senator, for that question. It’s a good one.

I think that the approach is two parts. One is by the removal of the archaic words “own activities.” We then become equal to the other jurisdictions that work in the international context. We get rid of the burden that is on the back of charities. By having the provisions that the senator talked about concerning resource accountability and the provisions that are in the act, then there are fence posts in place so that Canada Revenue Agency can create guidance that will help charities ensure there is accountability in place.

For the second approach, I want to direct your attention to one part of the bill: clause 149.1(27). It talks about which indicia would be looked to ensure that reasonable steps to charitable purposes are achieved. I won’t go through them, but the legislation provides those important reference points so that the CRA through the work that they do will be able to craft guidance that will assist.

Those would be the two ways of moving forward.

The Chair: Thank you, Mr. Carter.

Senator Klyne: Welcome to our panellists this morning. A special welcome to my colleague Senator Omidvar.

During the second reading speech of Bill S-222, Senator Omidvar stated:

. . . I propose that we amend the Income Tax Act to move away from the current language of “own activities” to new language of “resource accountability.”

As I understand it, resource accountability is the accountability of a government or intergovernmental entity to fulfill its commitment to sufficient, equitable and effective resources for the people it governs.

I had difficulty finding any other legal definition for resource accountability. The closest reference being “expenditure reference responsibility,” which Mr. Carter referenced, and “expenditure responsibility” used by the Internal Revenue Service, or IRS, in the U.S. and by other countries, referring to the test to hold the charity accountable for their funding decisions and their monitoring of outcomes without requiring the charity to do it all themselves.

In section 2.4 of the federal government’s guidance for charities titled “Using an intermediary to carry on a charity’s activities within Canada,” the document outlines that the Income Tax Act requires a charity operating through an intermediary to maintain direction and control over the activities as a safeguard to prevent the charitable organization from becoming a conduit.

Can you provide some clarity to the committee as to how resource accountability has been defined by law in other jurisdictions such as the U.K. or other Commonwealth nations? How does resource accountability or expenditure responsibility differ from the responsibility to direct and control? What would be gained by shifting from direct and control to resource accountability?

Mr. Carter: I would be happy to respond to that.

First of all, there is no other jurisdiction that uses the words “resource accountability.” That is made-in-Canada terminology that reflects the unique situation in Canada as reflected in Bill S-222. The closest would be the term “expenditure responsibility” in the U.S. There is much that is similar in the provisions between the two, but they are not identical. Frankly, I think it’s an opportunity for Canada to do a little bit better. There are some challenges with regard to the U.S. legislation.

Instead, what there is with regard to the concept of resource accountability, if you look at two sections, one is where charitable activities are defined as making resources, including grants and gifts and transfers available. Then it goes on to explain it must be done in order to achieve a charitable purpose in a way that reflects reasonable steps.

There is a separate section that explains what those reasonable steps are. It requires that the charity, before making the transfer over to the qualified donee, would have to do appropriate due diligence. Then, while making that transfer of resources, the charity would have to have accountability in place.

Senator Klyne: Thank you, we need to move on, thanks. I wasn’t looking for maintaining accountability. Thank you.

The Chair: Thank you.


Senator Galvez: Senator Omidvar, thank you very much for your diligence and perseverance on this issue that is very important for Canadians.


I would like to ask a question, but please don’t talk too much in terms of technical terms for the benefit of the public that is listening to us.

I understand that we want to move away from the “own activities” test so the charitable organizations can deal with and work with other organizations that do charitable work.

However, I understand that corporations can also be new partners for these charities, and when you talk about sharing resources — you’re saying it’s not only money, could be land, people or technology — how do we take care to make sure there is a symbiotic relationship and that there is no abuse in cases where corporations are involved? Then I will have a question for Ms. Novovic.

Senator Omidvar: Thank you, Senator Galvez, for that question.

Let me give you an example of where charities work with businesses. It’s mostly in international development, and perhaps Ms. Novovic could weigh in on that. For instance, there could be a Canadian charity that wants to provide seed loans to female entrepreneurs in some part of the developing world. The best way of getting these loans out to the people in need is through a local bank, which is a business. They have the structure. They have the systems. They have the controls. In that case, a relationship with that particular bank would be created, again with due diligence up front, reputational and reference checks, contracts, agreements, timelines and filing of reports, not just about the money, but maybe about other resources. That’s the way I see it working.

Let me also tell you that it’s not usual, this relationship with businesses and charities, but it does happen. I hope that example makes it crystal clear when, in fact, it furthers the charitable purpose of an organization’s path to work with a business.

Senator Galvez: Thank you. I have a question for Ms. Novovic. You mentioned several times that in the current regime there is a preservation of colonialism and racism. Can you please elaborate and give an example of the present situation in that sense? Thank you so much.

Ms. Novovic: Absolutely. Even when we work as a sector with the private sector, it is very often to our benefit. Generally, private sector actors engage with us in ways that strengthen our own resources to work within that system. I know of an interesting example where companies that are providing motor taxis were used to train these young men who are literally everywhere on the streets of Uganda to stop and prevent gender-based violence. You really are thinking outside of the box, going beyond the resources after seven decades of some of these problems persisting.

In relation to the question of colonialism, it is essentially a document that you, as a charity, have to present to your women-led group, for example, or to a group of Indigenous youth, and that document essentially states that they are merely your agents. They are not conducting their activities, they do not have the agency to impact their own activities to inform the actual projects, they are simply your agent. That is something that we have seen a lot in our sector, I’m sad to say.

The Chair: Thank you.

Senator M. Deacon: Good morning, thank you all for being here today. We greatly appreciate it.

If this legislation is passed, I’m wondering who would be accountable if, for instance, a registered charity gives some funding to a non-qualified donee under the amended act and that money is then spent in a way that is deemed to be inappropriate. Is the charity still fully liable for the misspending of the funds or would it only need to be determined that they met the reasonable steps required at the front end? Senator Omidvar, would you mind?

Senator Omidvar: Thank you for that question, Senator Deacon. I do think Terry Carter probably has the right legal answer for you, but I will say this: the charity can take steps as well against the non-charity that was in default of the agreement, but the CRA may also have a role.

Mr. Carter: Thank you. It would be the responsibility of the Canadian charity to ensure that the expenditure of those resources was done correctly to ensure the charitable purpose, and it would have to ensure in the relationship that there was recourse available. That will all be part of what would need to be explained to the regulator, Canada Revenue Agency, to ensure that appropriate steps had been taken.

That’s very much part of what charities have to do every day in everything that they do. This is nothing new.

Senator M. Deacon: Thank you. I’ve been trying to work through this suggestion as a donor to international NGOs. When I give to a charity, I assume, rightly, that they would be in control of how the money will be spent. Even with this change, it is still up to them to decide whom to distribute the funds to, but now it’s in the hands of a third party after that. Will it be up to the individual charities to determine how much they want to keep track of, the projects undertaken by the non-qualified donees? It’s similar to part B.

Mr. Carter: The board of directors of the charity has to be in full control of all the resources provided to them in order to achieve their charitable purpose. The only difference here is that, instead of this fiction that when we transfer to a third party it’s still our money and our resources, as we transfer the fund over to the third party, it has to ensure that the third party is carrying it out for the charitable purposes that the Canadian charity has set forth. Full accountability, very similar to what happens in all of the other developing countries that work internationally.

Senator Boehm: First, I want to thank our colleague Senator Omidvar for her passion and her energy in putting this bill forward. I support it 100%. I would like to see it passed in this session. I do know a little about international development and have followed it closely.

My question is for Ms. Novovic. With the advent of the Feminist International Assistance Policy — and I was involved in that in a previous life — but now with the overlay of the pandemic, would you say that the problems that you are encountering with this archaic system, which was put into place before we even had any sort of an international assistance program in Canada, are accentuating the problem for your membership in Cooperation Canada?

Ms. Novovic: Thank you for that question, senator. Obviously, this is a very difficult period for all of Canada’s charitable actors here and abroad. What this means for international actors, however, is an absolute barrier to understanding what is happening on the ground and halting projects in ways that are really difficult to manage when you are working with 20 countries and you are getting incessant requests for approval for minuscule activity level changes. By the time the project officers here in Canada even get to some of those requests, the situation on the ground might have already changed. Now they are in lockdown and they can no longer proceed with those activities. By the time they get back to you, maybe the local government has put in additional barriers, which again require changes in the activity of these organizations. We see Canadian actors being slower than our counterparts in every other country and being able to adapt less than even some of the larger multilateral agencies of the UN, for example.

Senator Boehm: Thank you. The idea behind the new policy was also to work more with actors on the ground, and what I was hearing before I left my job as Deputy Minister of International Development was that we were really looking at a situation of what I call “death by template”. The actors on the ground were obliged to fill out so many forms and do so many things to meet the requirements of the Canadian partners under this act.

Are you sensing an openness on the part of Global Affairs Canada? Because after all, CRA is going to have to work on the accounting framework, the templates, as Senator Marshall has suggested, but they can’t do that without the policy expertise that exists, not just with you in the sector, but also in the other department concerned.

Ms. Novovic: Absolutely. First of all, that is the whole point of the — to make sure that everything is led by the organizations and the communities we aim to support. Usually the more paperwork you have, as a scholar of public policy, it leads to obfuscation. That does not allow you to have a clear, transparent idea of what is happening on the ground. Clearer, streamlined financial records give you that option, as Senator Boehm has said. That is also CRA’s strength in terms of having staff that is able to address these financial records and not development-related activities.

Senator Boehm: Excellent, thank you.

Senator Duncan: Thank you to Senator Omidvar and our witnesses this morning. I’m speaking to you from the traditional territory of the Kwanlin Dün First Nation and the Ta’an Kwäch’än Council.

There has been mention of consultation and focus on international work. I can think of at least a few, very small charitable organizations that are working from the Yukon internationally.

I’m curious as to what input and what communication has been done with smaller charitable organizations on these changes. I appreciate very much the work that was done on the Senate committee on charitable organizations and the need for these changes. Senator Omidvar has mentioned that consultations will take place through the Canada Revenue Agency. But I’m wondering what consultations have been done to date with the smaller charitable organizations on these changes and the need for them.

Senator Omidvar: Thank you, Senator Duncan, for that question. It’s an excellent question. The Senate Charities Committee consulted widely throughout the country and we initiated something quite unique, which was an online survey. It was filled out by 750-plus individuals and sector leaders throughout the country from all regions, although there was a heavy emphasis on Ontario and British Columbia, I believe.

In addition, we have consulted with and have the backing of member organizations like Cooperation Canada; Imagine Canada, whom you will hear from; the United Way of Canada; Community Foundations of Canada, which are located all across the country in small places and big; the Canadian Council of Christian Charities that operates nationally and internationally; and the 37 top lawyers — who, I should state, make a pretty penny out of advising charities on this law — themselves have stood up and proposed doing away with this law. Many of them advise small and big charities.

I have spoken to countless youth charities across the country and countless small and big organizations across the country. Charities are like no other sector. They are small, medium, large. They cover the landscape of our nation. They go from sports to religion, to the environment, to culture, to arts, to beekeeping, et cetera.

Certainly, future consultations will be necessary, but I present to you that you have some excellent representatives of sector councils here.

Senator Duncan: Thank you so much.

Senator Loffreda: Welcome to Senator Omidvar and our witnesses for being here this morning.

I fully support this bill. I do see many positives in this bill, which, in my opinion, will add creativity and enhance purpose in many different ways for future activities.

I know that this bill has been well received in the charitable sector. We did talk about the smaller charities.

However, are some larger charities appreciative of the current model as it allows them to control or ensure funds are properly spent? Did you have any discussions with some of the larger charities across the country? The question could be for any of our panellists, especially Senator Omidvar.

Senator Omidvar: Thank you. Senator Loffreda, I can tell you with full honesty that I have not spoken to a single charity that is against this legislation. They have asked questions, for sure. I have had to explain to them how it would work. But there isn’t a single charity actor who has said to me, “This will make our job more difficult for us because we will lose control.” Quite the opposite.

Just as in different pieces of legislation, there are people who have questions and want to understand how it works, but the principle of empowerment and accountability has not been questioned.

Mr. Carter: Could I maybe add to that as well? In 41 years of working with charities, I never had a charity say to me that they like the direction and control provisions. I have had many of them say they are frustrated by it, that they find it an unnecessary cost. In both large and small charities, without question, there is a desire for change to be unhampered by these unnecessary restrictions.

Senator Loffreda: Thank you for the response. Ms. Novovic, would you like to add to that?

Ms. Novovic: I just thought I should mention that it is actually the largest organizations that are currently under an immense amount of pressure to shift their models so they can allow for greater agency of local actors, so they are actually the first ones being called out on an international stage for failing to address some of our global commitments that we have made to OECD, the UN and so forth.

Senator Loffreda: I do support the bill. We touched on the accountability of tax-exempt dollars, and I’m assured that all charities are in favour of these changes. I think it’s about time we process the changes, put forward and approve this bill. Thank you.

Senator Smith: I have a question for Senator Omidvar. In your second reading speech, you illustrated a hypothetical example of a situation of the YMCA being better off to partner with a non-profit to teach Afghan women English as compared to a charity that does not have the capacity to do so. What other real-world problems has the charitable sector been working on but unable to solve as a result of the technical compliance rules from CRA?

Senator Omidvar: There are many technical compliance rules of the CRA that the sector has issues with. The CRA does an excellent job interpreting the law as it is. I do not want to in any way suggest that the CRA is in any way the monster in this cage. It is not. It is doing its job as public servants to make sure that the law is complied with and monitored. It is the law that is the problem, not the direction, not the guidance of the CRA, which is why I’m focusing on changing the language in the law. Does that answer your question, senator?

Senator Smith: I wasn’t trying to imply CRA wasn’t doing its job.

I have another question for you and Mr. Carter. Mr. Carter is saying that for years the bigger charities have been complaining about the rules. Why has it taken so long to mobilize to put this into place?

Mr. Carter: Maybe I could speak to that, senator. There has been a groundswell over the last two decades. We talked amongst ourselves. We talk with clients. The sector talks. It’s because of the leadership of the senator that we have the legislation moving forward.

I want to give an example of how problematic the law currently is. There is the ability right now, under guidances, for a charity to make an investment in a micro-financed bank in another country. It’s done through the program-related investment rules. But you can only do it if you’re exercising direction and control over what the micro-financed bank is doing. You can well imagine trying to do that with a bank in India or another country. It just doesn’t work. So the concept of wanting to help is there, but the law is restricting the ability.

Finally, we have this groundswell happening throughout the sector. I’m so impressed with the Senate for taking the leadership on this matter and for the senator to lead the charge. This is something good for Canada and for the reputation of Canada internationally.


Senator Dagenais: My question is for Mr. Carter and is along the same lines as Senator Smith’s question.

Mr. Carter, legislation always needs to be clarified and simplified, and I believe that we must not lose sight of the control that the Canada Revenue Agency needs.

I am curious to find out whether the 2 million Canadians who work for charities are directly employed by these organizations or whether they work for the subcontractors of the 90 or so organizations you represent.

What is the proportion of direct workers to indirect workers? Can the Canada Revenue Agency control the nature of potential ties between the heads of charities and the owners of subcontracting companies?


Mr. Carter: Currently, charities can work with third parties through complicated contractual relationships that pretend to have the activity, that of the charity. What will be different in the future is we can still work with third parties and have contracts in place and hold them to account, but we don’t have to pretend that it is the activity of the Canadian charity.

That’s significant for liability back to the Canadian charity. When we have to pretend that everything is the activity of the Canadian charity, it raises questions of agency, principle, exposure to liability — that’s problematic. We are putting Canadian charities through that risk in order to comply with the provision of the Income Tax Act that’s 70-years-old.

We do have the ability to call contractors to account with the new system, but in a better way that gets rid of the encrustation that currently is in place.

Senator Pate: Thank you very much to all of our witnesses.

In particular, Senator Omidvar, I am pleased to see the work you have been doing. As you know, I was in the voluntary sector as well before joining the Senate. You have vast experience internationally.

In terms of what is happening in Canada, many times we were prevented from assisting First Nations groups, those groups of African descent and other racialized groups in particular, as well as anti-poverty groups, from doing their work.

I am curious as to the options for third-party intermediaries and how we can ensure that businesses and organizations actually prioritize those groups that are often unrepresented, don’t have charitable status and therefore don’t benefit from the types of partnerships that you have been very laudably promoting.

Senator Omidvar: Senator Pate, thank you for that question. I know many foundations in this country that want to work with Indigenous communities, that would like to be in a relationship where they can achieve their charitable purpose by transferring some charitable dollars to unqualified donees who are not-for-profit groups, but they are prevented from doing so. Frankly, the risk, as they say, is really high, which is why Black and Indigenous organizations get less than their fair share of charitable dollars. Only 6% of grant-making organizations in Canada give grants to Indigenous organizations. Seven cents on the charitable dollar goes to Black organizations. So just as they are victims of racial injustice, Senator Pate, they are also victims of philanthropic injustice and inequity under this law.

The Chair: This concludes our first panel. Ms. Novovic and Mr. Carter, thank you very much.

Honourable senators, we continue our study of Bill S-222, An Act to amend the Income Tax Act (use of resources), which was referred to this committee on May 25, 2021, by the Senate of Canada.


For this second panel, we welcome Bruce MacDonald, President and CEO, Imagine Canada. We also welcome from the Canada Revenue Agency, Tony Manconi, Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch; and from the Department of Finance Canada, we welcome Blaine Langdon, Director, Charities Section, Personal Income Tax Division, Tax Policy Branch.


Thank you for accepting our invitation. We will first hear comments by Mr. MacDonald and then Mr. Manconi.

Bruce MacDonald, President and Chief Executive Officer, Imagine Canada: Thank you, Mr. Chair and committee members, for the opportunity to testify under these unique, unprecedented and, at times, trying circumstances.

Charities, non-profits, and social enterprises have, like most sectors, been seriously and negatively affected by the COVID-19 crisis. Almost half of organizations are continuing to report that the demand for their services has risen since the start of the pandemic. At the same time, revenues have plummeted with the average decline being 46%.

The non-profit and charitable sector is a vital part of the Canadian economy, contributing 8.7% of Canada’s GDP and employing over 2.5 million people, 77% of whom are women. This sector also encompasses a wide range of missions and causes ranging from mental health services to skills training and employment to animal welfare, to name but a few.

The global pandemic has highlighted that the need for a vibrant, dynamic charitable and non-profit sector has never been greater. In order to achieve this, the sector needs to operate in an environment that fosters innovation, can continually modernize and enables, rather than hinders, public benefit.

Imagine Canada is here today to support Bill S-222, the Effective and Accountable Charities Act. There are a number of reasons why we think the time is long past for evolving the legal and regulatory regime in this area.

First, the current system represents an antiquated and colonial approach to partnerships. By requiring Canadian charities to maintain “own activities” and direction and control over the relationships they forge with other entities, the current regulatory regime does not allow for the creation of equitable and respectful partnerships. When charities enter into funding partnerships, they do so because the other entity is on the ground, understands the community or context and is best positioned to determine how to use those funds. Direction and control enforce paternalistic and unhelpful arrangements that carry potential damage to what might be otherwise productive relationships. Our shared national priority of reconciliation is hindered by this regulatory barrier.

Second, the current system creates reporting and administrative burdens on charities. The need for intermediary agreements, policy documents, separate protocols and processes, costly legal advice and significant planning costs makes it far more difficult and expensive for organizations to deliver on their missions. With so many organizations experiencing crisis-level funding shortfalls, resources are much better spent on programming.

Third, the problems we face in Canada and abroad are becoming increasingly complex. Charities alone cannot solve them. They are limited in number, and they don’t exist everywhere. As such, partnerships with entities such as non-profits, social enterprises and co-ops will be required in order to bring the necessary resources and nimble focus to forge sustainable solutions.

There are a few other points that are key to this discussion.

We need to be clear that support of changes to the current direction and control rules does not mean that charities will be less accountable or transparent.

Charities well know that they need to ensure Canadians can feel confident that their donations are being used for the furtherance of an organization’s charitable purpose. We rely on this kind of trust. This accountability is maintained through the proposed change.

This bill is another example of the need to evolve the regulatory and legislative framework in which social good takes place. As leaders in government, I think you would agree that you wouldn’t be using privacy legislation from 1980 to navigate privacy issues in today’s digital world. So why do the rules related to charitable practices remain stuck in the past? Bringing Bill S-222 into effect represents a major step forward in the evolution of the environment in which our sector operates.

In closing, we are asking for you to vote to adopt Bill S-222. This is a common sense approach to improving the ability of charities to work in meaningful partnership with non-charities in a manner that ensures both accountability and transparency. Thanks very much.

Tony Manconi, Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency: Good morning, committee members. Thank you for the invitation to appear before you today. I am the Director General of the Charities Directorate within the Canada Revenue Agency. In the next few minutes, I would like to provide an overview of how the CRA manages legislative changes. However, before doing so, I would like to clarify that the Department of Finance is responsible for federal tax policy and legislation, including the policy and legislation relating to registered charities under the Income Tax Act. The role of the CRA is to interpret and administer the provisions of this act.

Through the CRA’s charities program, there is a jurisdictional issue to consider in that section 92(7) of the Constitution Act of 1867 grants general authority over charities to the provinces. Nevertheless, due to the tax privileges available to them through the Income Tax Act, the CRA has been the primary regulator for charities in Canada for over 50 years. The CRA charities program operates within these federal and provincial boundaries. The program includes a registration process, a variety of client services, a compliance program and a development of guidance to help charities navigate the Income Tax Act rules related to registered status.

With respect to the CRA’s approach to guidance, including our guidance on how charities confront intermediary organizations that are not qualified donees who must abide by the provisions of the Income Tax Act and the decisions of the Federal Court of Appeal relating to these provisions, our existing guidance reflects this. In the event of amendments to the Income Tax Act, such as those proposed by Bill C-222, the CRA would first evaluate the impact on the charities program. Following this, we would develop new guidance, both for internal purposes as well as to inform the charitable sector and the public of the CRA’s approach to legislative changes.

In developing our guidance, we engaged with stakeholders form across the charitable sector to ensure our approach meets their needs. This happens at the outset of the guidance development process when we collect information from internal and external sources. We then produce an internal version of the guidance and consult with specialized technical issues working groups along with other key stakeholders. We may also post the draft guidance online for consultation. This is an iterative process that typically results in many revisions to the draft. Once finalized, we post our guidance on the CRA’s charities website and develop related outreach and communications products. Internally, we have to update our staff on the new rules, as they are on the front line for incoming calls and inquiries from the sector on all aspects of the rules related to charities. As we take an education-first approach to our compliance program, the new rules would also have to be incorporated in our review of the charity activities and enforcement. We aim to do a year-over-year review of guidance in order to improve its content. However, our guidance is evergreen and we also welcome comments that may result in changes.

I would like to finish by expressing my appreciation to all stakeholders who work with us to improve our guidance products. We look forward to our conversation today. Thank you.

The Chair: Thank you, Mr. Manconi. We also have Mr. Langdon, the representative of the Department of Finance, with us today, as a reminder to the senators with us.

Senator Marshall: My question is for Mr. Manconi from the Canada Revenue Agency. This bill has a lot of support, and I expect that it will be enacted. You talked about the draft guidance. I think you even mentioned the forms. I am interested in the accountability regime. How do you see this going forward? Would it be specific about what would be required of a registered charity with regard to documentation for oversight and reporting? Would there be a requirement for a contract, and with specific requirements within that contract? Could you just elaborate a little more to tighten up the accountability information?

Mr. Manconi: Thank you, senator. First of all, we would have to do a deep evaluation of the new legislation to see what the changes are from the current legislation to the new, proposed legislation. Then we would have to determine what that accountability would be. We have to keep in mind that we are dealing with money from Canadian citizens. Canadian citizens make donations and have certain expectations of their donations; to make sure that they are going where that charity said they would be going. We have to ensure that accountability.

At the same time, charities have quite elaborate tax incentives. We have to ensure that there is accountability of the Canadian tax dollars aspect as well. However, in the consultation of developing the guidance, we would also be consulting with charities in terms of how we develop the accountability structure, whether it be through agreements or forms or contracts. Something would have to be in place to ensure that accountability still exists.

Senator Marshall: Do you see this as having more risk than the existing system, or do you think it is about the same? Because when I think about what is happening now and what will happen, I could see how it could be argued there is actually less risk with the proposed system. Do you look at that aspect?

Mr. Manconi: We have not done so to date, however, we will have to do that because when the bill talks about reasonableness, we will have to look at what that means and then define that level of reasonableness. Of course, then it will probably be challenged as it becomes interpreted and it will eventually go into the courts for some kind of decision or case law. But at the moment, we have not evaluated the risk. We will certainly take it under advisement.

Senator Marshall: Most likely, as I said, this bill will be enacted. How long do you think it will take before we go from here to actually having it ready to go?

Mr. Manconi: I believe the bill provides us two years to put it into place following Royal Assent.

Senator Marshall: I remember seeing that now. Thank you.


Senator Forest: My first question is for Mr. Manconi. For a number of years, charities have been complaining, with good reason, about the direction and control guidelines. Charities tell us that those guidelines have a number of negative effects and that they prevent them from fully assuming their role and ensuring Canada’s place in the charitable sector on the international stage. Has the Agency done any studies? Have you been proactive? You say that it could take two years before you are able to implement these guidelines. At this point, you have no analysis of how other jurisdictions or other countries are addressing or closing the loopholes that could lead to abuse, which you are rightly trying to control. So are you saying that no analysis has been done in that sense to modernize the direction and control guidelines?


Mr. Manconi: From my understanding of the question, we know that people do not appreciate the guidance as it is today. We do offer online services. People can call us at all times to ask questions for clarification. We continuously look at our guidance. We do consult in the field. We also have a technical issues working group represented by 15, 17 members across the sector whereby we provide opportunities to change guidance.

As was mentioned in the previous session, we did release an updated guidance on direction and control last fall. So we do listen to the sector. We know that the sector evolves over time. Their mandates change, and we encourage those changes and we support those changes. We are here to help charities as they want to evolve and want to expand their mandates and purposes and activities. So we do that. To make sure they act within the law, we do help them make those changes.


Senator Forest: My question is for Imagine Canada. When I was in municipal politics—and still today—I often talked about the principle of subsidiarity. For me, it is fundamental that decisions be made by the competent entity closest to those who receive the service or are affected by the action. Can you illustrate how the direction and control guidelines hinder decision-making in the immediate environment of individuals or organizations, in order to ensure full accountability?


Mr. MacDonald: Thanks very much for the question. Yes, as you’ve heard before, the provisions as they currently stand make it really challenging for organizations to fulfill their charitable purpose because the types of relationships that they want to form with non-charities are not the kinds of relationships that we want to have with them. Insisting that we control every one of their decisions and every one of their choices is not the way that we want to enter into these relationships.

The good news with this act is that accountability is not diminished in any way. Essentially, what we’re looking to do is shift it from operational accountability to financial accountability. So the accountability instruments are still in place, but what it’s creating is a more respectful and authentic relationship and way of fulfilling those charitable purposes.

The Chair: Thank you, Mr. MacDonald.

Senator Klyne: I have a preamble leading to a question for Mr. MacDonald and for Finance Canada. The federal government’s guidance for charities sets out how a charity can work through an intermediary to carry on the charity’s own activities outside of Canada. Whether the charity does the work itself at home or abroad through an intermediary, there needs to be a test or tests to hold the charity accountable for their funding decisions and their monitoring of outcomes to, in effect, protect the interests of donors and taxpayers. The bottom line is when a charity works through an intermediary, the charity remains accountable for the activities conducted on its behalf and for the use of its resources.

To Mr. MacDonald, how does moving away from direct and control to resource accountability provide increased efficiencies and maintain the integrity of accountability to donors and taxpayers? To Finance Canada, the Income Tax Act requires that charities operating through an intermediary must maintain direction and control over the activities as a safeguard. I expect that this bill will be moved forward by the Senate. Will this bill require an amendment to the Income Tax Act? Mr. MacDonald.

Mr. MacDonald: Thanks very much for the great question. As it relates to how organizations will actually function, as I said, accountability is maintained. Due diligence will need to be done. Agreements will need to be in place to ensure that the dollars that are being expended here are being used in furtherance of charitable purpose.

So there is no diminishment in accountability as it relates to this act. It is a change in the way the accountability takes place —

Senator Klyne: The question to get to then is, while that’s all intact, how are efficiencies found? Are you cutting the red tape or —

Mr. MacDonald: Absolutely. You are reducing the amount of red tape. You are reducing the amount of contracts or agreements that might need to be placed in multiple partnerships. You are reducing the legal costs that organizations have to go through every time they want to create one of these. So it actually creates a more effective and more efficient system.

Senator Klyne: And tests can still be held? There is a testing process.

Mr. MacDonald: Yes. Except it’s a reasonable person test.

Senator Klyne: Okay. And from Finance Canada?

The Chair: Mr. Langdon, please?

Blaine Langdon, Director, Charities Section, Personal Income Tax Division, Tax Policy Branch, Department of Finance Canada: Sorry, if I could ask for clarification on the question. The question was would an amendment to the Income Tax Act be required? Do you mean would further amendments be required, because what is proposed is to amend the Income Tax Act?

Senator Klyne: Yes. Is that clear, black and white, or would further amendments be required?

Mr. Langdon: I’m not here to express a position on the bill as much as to answer questions as to how it operates. What I would say is that from a Department of Finance perspective, additional clarity around the accountability rules would be optimal.

Senator Klyne: Okay. Thank you.


Senator Dagenais: My question is for Mr. Manconi.

Mr. Manconi, the WE Charity scandal has highlighted some of the benefits that charities can provide to a rather small group of privileged people, I would say. By definition, charities can take advantage of this status if they can demonstrate that they are of real benefit to the general public or to a significant segment of the population. Those who have observed these organizations have found that, in some cases, the leaders of these organizations are living expensive, not to say luxurious, lifestyles.

I would like to hear what you have to say about the controls you have in place and how often you exercise due diligence on the use of funds. For example, how many times in the last 10 years have you asked serious questions about the WE Charity’s expense reports? Do you have the tools to check them?


Mr. Manconi: Thank you for the question, senator. There are rules currently in place today that outline how much money should be spent on activities versus administration, so when I talk about salaries that falls under the umbrella of administration costs. The rules today specify that most of your money earned or donations received through a charity should be spent on activities furthering its purposes and they should be managing the amount of administrative costs, including salaries. So we are able to monitor the distinctions. The charities have to report how much they actually spend on administration every year under their information in terms of T3010. So we do have that information available to us and we do monitor, and when we audit charities, we look at that area of expenditure as well.


Senator Dagenais: Could you tell us to what extent recognized charities, such as those related to the arts, meet the criteria that, in your opinion, satisfy the notion of real benefit to the public?

The Chair: To whom is the question directed, Senator Dagenais?

Senator Dagenais: It is still for Mr. Manconi.


Mr. Manconi: Sorry, could you please elaborate on the question?


Senator Dagenais: To what extent do recognized charitable organizations, such as those related to the arts, meet the criteria that, in your opinion, satisfy the notion of real benefit to the public?

We know that many charities are connected to the arts. How does this benefit the public?


Mr. Manconi: We haven’t done that analysis, so unfortunately I would not have that information available.


Senator Dagenais: Could someone else answer?


The Chair: Are there any other comments on that question from Senator Dagenais?


Senator Dagenais: Thank you. I have no further questions.


Senator M. Deacon: Thank you for being here this morning. Most of my questions have been asked. There is one small piece here that I will add to supplement another question, and this question is for the CRA.

The bill does loosen some of the restrictions on how and where charities can use their money. I have been convinced that this is a good thing, but I’m wondering if this will require more work from your end. You started to touch on the audit process. Will it be harder to audit charities, especially given that the reasonable steps guideline might lend itself to being subjective in its application? Thank you.

Mr. Manconi: Thank you, senator. As I mentioned earlier, we have a general idea of the bill at the moment. We have not done the full review of the impacts of our operations and that will be the first step we would have to undertake. As I had mentioned earlier, when we introduced the word “reasonableness,” this is something we will have to look at in terms of how do we measure and interpret that, how do we ensure there is objectivity, and ensure there is understanding from both the charities organization as administrator and against the sector that is trying to use that reasonableness approach.

Senator Boehm: My question is for Mr. Manconi as well.

I heard you say that it would take two years to put in place the regulations if this legislation is passed. My concern is on the international sector, particularly international development and the various Canadian groups, NGOs and others that provide funding and often the government provides match funding for what they are doing and project work.

The world is moving very quickly. Canadian assistance policy has changed significantly over the past few years and, of course, we’re in a pandemic, and there may be another coming. Is there any prospect that the work to develop the regulations could be accelerated?

Mr. Manconi: Thank you, senator. The act itself allows for two years implementation, but on average it takes us approximately 12 to 18 months to develop guidance. In something new like this, there is quite a bit of change. You’re absolutely right, one of the disadvantages of new legislation is that it does kind of put things on pause. People will be looking for new ways of doing business under the new proposed rules, and many will be waiting for us.

We will do our very best to ensure that if the bill is passed that guidance is done as quickly as possible, but ensuring we have that consultative process will take time to make sure we get it right the first time.

Senator Boehm: In response to a question that my colleague, Senator Marshall, put earlier, you said you would be working closely with the charitable sector in terms of elaborating these regulations because I think we all know that you don’t want to be in a position where regulations then have to be changed yet again because of a glitch or some lacuna in how it was worked out. Would it be your intention as well to work closely with Global Affairs Canada, particularly with respect to the international dimensions and particularly since the officials there are in regular contact with other donor countries through the OECD Development Assistance Committee?

Mr. Manconi: Absolutely. Global Affairs is one of our close partners. We work hand in hand with them throughout the year, every year. They are definitely part of any changes that we would be making towards direction and control. As Mr. Carter mentioned in the previous session of the advisory committee, there have been conversations on this topic and I have shared these conversations with my colleagues in Global Affairs, so they are well up to date in terms of the conversations that are happening at this place and we’ll certainly have them involved as part of the consultations.

Senator Boehm: Thank you very much.

Senator Duncan: Thank you to our witnesses who are here today. In the last round and this morning we have also talked about consultations and working with the charitable organizations. My question is for Mr. Manconi, who has talked about working with organizations as well as those others involved. No one has mentioned working with the accounting designation. We have talked about the lawyers, but I’m thinking of those smaller accounting firms that might also be involved in working with charitable organizations in fulfilling their audit requirements. First, I wonder if Mr. Manconi can address work done with the accounting firms in developing these changes to a very complex act.

Mr. Manconi: Absolutely, and we do have contacts within the Chartered Professional Accountants of Canada, or CPA, across the country to make sure that they are also aware of what’s going on, knowing that at the end of the day a charity will need legal as well as accounting advice on these matters and we do hear from these institutions throughout the year, so as part of our consultation, yes, we also invite accounting representatives as well.

Senator Duncan: In your preliminary consultations and your work on this, have you or has anyone identified any gaps? Frequently in our discussions at National Finance, my colleagues have heard me say one size does not fit all in government programs. We have these anomalies that occur everywhere across the country. Are there any potential gaps that have been identified in these proposed changes?

Mr. Manconi: We have not initiated consultations as yet. We are waiting for the bill to pass.

Senator Duncan: Right. Perhaps Senator Omidvar might wish to answer that or anyone else. Is anyone suggesting that there are areas that we may have overlooked?

Senator Omidvar: Senator Duncan, that is an excellent question. The law that governs charities has not been reviewed for 50 years. There are other issues, including a central one, which is how do we define charities? We are out of step, again, with our partner jurisdictions because we still work with an Elizabethan definition of “charity.” This bill does not go there, not yet, but I have pledged to the sector: one down, more to come.

Senator Duncan: Thank you.

Senator Loffreda: Welcome to our panel of witnesses.

I have a question for Mr. Manconi of the Canada Revenue Agency. Have you seen many breaches, infractions or violations of the current law from charitable organizations?

I also have a question for the other panellists. I’ll ask my two or three questions at the same time and maybe get a response in writing if you’re not able now.

Is Canada the only jurisdiction among our G7 peers that have similar language and conditions in its Income Tax Act when it comes to charities and their association or work with non-charitable third parties?

Another question, maybe for Senator Omidvar. We talked about accountability a great deal here, so what tools does Canada have to deal with the very rare possibility of a rogue charity and their support for terrorism financing? That would be a concern going forward given the change in accountability et cetera. Thank you for your responses.

Mr. Manconi: Thank you, senator. I’ll address the first and last part of your question.

In terms of the number of folks not abiding by the rules, there are some. We audit approximately 700 to 800 charities a year. In these audits, we do find some charities that do not comply with the rules. This is something that we look out for, and we go after.

We can’t quantify how many there are. Like I said, there are 86,000 charities across the country. We do about 800 charity audits a year, but we only revoke 10 to 20 charities a year for various reasons, either for cause or breaking some of these rules. The numbers are not that big.

In terms of the last part of your question, the terrorist financing, again, direction and control is part of that as well. Direction and control does ensure there is a potential risk of terrorist financing that we would need to identify and address, so it is a key factor in our evaluation.

Mr. MacDonald: Maybe I’ll jump in on the part about the other jurisdictions. It is our understanding that Canada is an outlier in the language and approach that we’re using. In our examination, we found that we are the sole nation using this approach, which hasn’t changed in a very long time. As you heard in the first panel, in Australia, the U.S. and the U.K., all of these countries have moved to an approach that resembles what this bill intends to do now.

Mr. Langdon: I tend to agree with Mr. MacDonald that yes, we are an outlier when it comes to the use of the “own activities” test and the direction and control test.

In terms of your question on terrorism and the ability of these organizations, under proposed changes, to escape the nose of the Canada Revenue Agency, the jury is still out on whether or not the changes provide the same accountability or less accountability.

As I hinted in my previous answer, there is a lack of precision in the requirements for accountability here that we will have to take a close look at. The Canada Revenue Agency is, of course, going to provide guidance, but it is just that, administrative guidance. It doesn’t have the same force of law as you would have if you built the requirements into the statute. That’s all I’ll say on that.

The Chair: Thank you, Mr. Langdon.

Senator Smith: This is for the CRA.

One topic of concern that has been raised by my colleague Senator Plett is that under current regulations, Canadian charities cannot donate to international emergency pool funds, for example, for COVID-19 relief or other major disasters. The CRA would require Canadian charities assume full control of the international program and account for all funds. Could you explain if this is, indeed, the case, and what the reasons behind it are? What type of consequences would Canadian charities face if they did donate into an international pool of funds for some specific program, but did not assume full and direct control as per the CRA regulations? Could you help me with that?

Mr. Manconi: Absolutely, senator. As we mentioned, we deal with the rules in place today. The rules do require that a registered charity in Canada does direct and control the use of the funds. The concern of going into a pool is that it would then diminish the ability to determine where the funds go. Back to my earlier comment, donors want to ensure that their donations go to where the charity said that they would go. If the donations go into a fund, there could be opportunities for those funds not to go where they were intended to originally. As such, the direction and control are required, and the charity would need to be accountable and responsible for where those donations go.

Senator Smith: Do you see some form of modification, adjustment or change in the future? The law that Senator Omidvar wants to get passed is a major move forward, but does this apply to international situations also?

Mr. Manconi: Again, maybe the senator can reply to that. We would have it take a look to see if the proposed bill does address international funds.

Senator Omidvar: Thank you for letting me answer that question. My bill will amend the Canada Not-for-profit Corporations Act as it pertains to charities working nationally and internationally.

Once the law is passed and consultations are held, as Mr. Manconi has said, the issue of pooled funds may well form a separate part of the consultation. Currently, you’re absolutely right. It is extremely difficult for other jurisdictions to work with Canada in pooling funds because we can’t direct and control them, and yet we are required to by law.

Senator Smith: Through your deliberations, senator, you mentioned you talked to many different charities. Did you have a chance to get a lot of international feedback?

Senator Omidvar: It started, in fact, with international feedback with an organization called Farm Radio International, then with PLAN Canada, Samaritan’s Purse Canada and Mercy Ships. All of these charities simply want to spend their charitable resources in a way that furthers their charitable purpose. They are held back because of the law.

Senator Smith: Do you see an opportunity that will open up international projects more concretely like I just asked? Do you see that opening up? Or is that going to be a longer term if it’s going to take two years to implement the present legislation?

Senator Omidvar: I like the question. Why is it going to take two years? Frankly, it is the consultations that will take time. If it happens in less than two years, good for the government. However, I have been told by international development agencies headquartered in Canada, who know this world better than I do, that it would lift afar and enable Canada to be part of more global funds. Sometimes these funds are as small as $250,000. Sometimes they are millions of dollars. Then we would become partners with others in moving forward doing the good work.

Senator Smith: — enhance our leadership position.

Senator Omidvar: And enhance our reputation. We do have a reputation that is, frankly, a little wobbly right now — for many reasons. This is one of them.

The Chair: Before I ask Senator Omidvar if she has a question and/or final comments, I have been informed that Mr. Carter is still connected with us. I will, as chair, give him permission to come forward and answer a question that was asked in the first panel that is pertinent to our discussion.

Mr. Carter, do you hear me? If you do, please connect yourself.

Mr. Carter: I thought I would help by responding to the question concerning whether there would be risk associated with terrorism financing because of Bill S-222. I think the answer is not at all.

We have, in Canada, very robust legislation in place that deals with terrorism financing. We have many provisions under the Criminal Code that deal with prohibiting terrorist financing with very tough wording.

We also have a section in the Anti-terrorism Act, Part 6, that allows a certificate to be issued by the Minister of Public Safety and Emergency Preparedness and the Minister of National Revenue to deregister a charity if there are reasonable grounds to believe that a charity is involved in terrorist financing.

In 2014, there was an amendment to the Income Tax Act that allows for immediate revocation of a charity’s status if it’s involved with a gift from a foreign state that is listed under the State Immunity Act, like Syria or Iran. Additionally, in the federal budget that came out this year, there were two provisions, one dealing with the immediate revocation of a charity if it becomes a listed terrorist entity. That can be done by the Minister of Public Safety and the Governor-in-Council, as well as an extension of the definition of an eligible individual to now include directors and trustees and officers of listed terrorist organizations.

There are many provisions in place, Mr. Chair, that deal with the legitimate concerns about terrorist financing. As well, under the common law, charities, of course, cannot be involved in doing criminal activities — that is against public policy. So there is nothing in Bill S-222 that would in any way impact the ability to ensure that charities do not become involved in terrorist financing.

Senator Loffreda: Thank you for that clarification. Very reassuring.

The Chair: Thank you, Mr. Carter, for the clarity.

Senator Omidvar: I appreciate the time given to me and the panel to answer questions and clarify outstanding issues.

I particularly appreciate the questions around why it will take two years to come into force. If I had my way, it would be much sooner, but I think I’m being appropriately cautious about the length of time it takes to get these things through the process of developing guidance.

I want to thank Mr. Manconi, in particular, because I have had a lot of dealings with the CRA throughout my 30 years of being a professional in the sector. He was not there, but others were. The CRA does an excellent job of clarifying the law and providing help to the organizations so they stay within the limits of the law. Because revocation of charitable status is very serious. In particular, the CRA has issued educational guidelines to help charities come up to speed.

Having said that, I have a question for Mr. Manconi. Are you or members of your team aware of organizations that have said to you that they struggle to do their work with non-qualified donees in Canada, such as Indigenous organizations or internationally?

Mr. Manconi: We do have folks that have issues in dealing with the current rules. Sometimes there are challenges because of what they are trying to do. But to be honest, there are also opportunities and times when people just don’t understand what the rules are. We do take time to educate them. Our role has changed a lot to be more source-oriented. So we do educate folks when they call us and they want to try to do things or they are hesitant or concerned about doing something. We will help them with the rules so they are able to do what they want to do.

As part of the rules being complex, there is also the opportunity for clarification of the rules because there are times when they just don’t understand what those rules are.

Senator Omidvar: May I also confirm with you that the rules and the guidance, as you engage with them, must reflect the spirit and the intent of the Income Tax Act? Without changing the Income Tax Act, that guidance will continue to evolve around direction and control or similar measures?

Mr. Manconi: All of our products are an extension of the interpretation of the act. So whatever the act is, we then have our guidance to support it or to elaborate on it, and as it changes, all of our products and the way we operate changes as well.

Senator Omidvar: Thank you, Mr. Manconi. Thank you, colleagues. I really appreciate the questions and the attention you have paid to this bill. As I have said before, the sector has rated this as the top priority for change coming out of the 42 recommendations in the Senate charities report.

I wish to thank all the members of the Senate Charities Committee who worked so hard. In a way, I’m simply their mouthpiece. I urge you to vote on this bill and send it back to the chamber as soon as you can so that it can be debated at third reading and hopefully passed. Thank you.

The Chair: Honourable senators, there is no doubt that we have given this topic due diligence.

The witnesses have been very informative. Thank you for your professionalism again.

Honourable senators, our next meeting is scheduled to be next Thursday, June 3 at 3 p.m. EST.

(The committee adjourned.)

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