Income Tax Act

Bill to Amend--Second Reading--Debate Continued

May 6, 2021


Honourable senators, I rise today to speak to Bill S-222, the Effective and Accountable Charities Act. I thank Senator Omidvar for introducing this bill. While I will try not to repeat much of what Senator Omidvar has said, I would like to offer some thoughts of my own. The introduction of this bill clearly demonstrates the outdated, complex and costly rules and regulations that prevent great works of charity on behalf of Canadians, not only in Canada but around the world.

As we saw in our report from the Special Committee on the Charitable Sector, this is but one of the many issues that needs to be fixed. What will this bill’s proposed changes do to help the sector? The bill:

. . . amends the Income Tax Act to permit charities to provide their resources to a person who is not a qualified donee, provided that they take reasonable steps to ensure those resources are used exclusively for a charitable purpose.

Charities currently use their resources to fund projects that they support through their charitable purpose. But what if they want to fund a similar project with an organization that does not have charitable status in Canada or in another country?

They can, but the direction and control provision in the Income Tax Act specifically lays out the control the registered charity must have over that project for it to meet the purpose and requirements of the law.

This was, at one time, intended to protect the donors’ money and the integrity of the charity. It is now untenable for many small groups to comply. As a result, there are unfortunate limits on the great works of charity many of them want to accomplish. As Senator Omidvar rightly laid out, the partnership process is overrun with problems. Our report stated:

According to stakeholders, demonstrating “direction and control” in such partnerships involves “complex written agreements” and “onerous reporting requirements,” which engender “unnecessary” administrative costs.

The report went on to say:

In the view of the Canadian Bar Association, the CRA’s guidance on direction and control could be relaxed without falling foul of the statutory requirements.

Senator Omidvar reviewed some examples of how this regime is hurting the smaller organizations that want to do works that a larger, recognized charity wants to help them with.

My question is also how it makes any sense for charity A to fund a project by organization B — which could be hundreds of kilometres away or, indeed, across the globe — if they must exercise complete control over the project? Who is on the ground? Who understands the needs of a community when it comes to what is being funded? That’s right — the organization.

So if they share a similar charitable purpose, how can we make it easier for a charity and an organization to accomplish their goals? Adam Aptowitzer, Lawyer, Charities and Not-for-Profits for Drache Aptowitzer LLP, noted in his testimony before the committee:

I’m not in favour of the control and direction test. As my colleagues suggest, in some cases it’s a bit of a farce to suggest that Canadian involvement in an international project at a minority level should have control over the project. It’s simply unworkable in many circumstances. It’s certainly offensive in many circumstances, and it doesn’t do Canada any favours.

He goes on to say about direction and control:

Whatever test does replace it, as I hope this committee will suggest, does both accentuate the idea that Canadians are accountable for spending of the funds but also portrays to the Canadian government that the funds are being spent as they were originally intended.

I believe this is what this bill is trying to do.

Witnesses at our committee suggested different approaches to improve the situation. For example, Kevin Perkins, Executive Director of Farm Radio International said this:

My feeling is that, rather than putting the expectation on direction and control of the daily spending decisions or the activities that the intermediaries do, we should be putting more emphasis on the due diligence, monitoring and assurance sides of things.

He went on to say:

That includes making sure there is a system to monitor and ensure that the partner is doing what it said it would do and using the money the way it said it would use it, and putting in more emphasis on the due diligence but also more flexibility in terms of allowing the partner to make more decisions about the priorities for that community.

Honourable senators, I couldn’t agree more.

Some witnesses used the United States model as an example of a system of due diligence. As Senator Omidvar noted, their model uses the language of “expenditure responsibility” while her bill proposes “resource accountability” — both similar approaches that will ensure oversight but withdraw the burden of direction and control. This bill’s approach may indeed solve the dilemma charities face.

If a charity can take “reasonable steps” to ensure that their resources are being put to good use, and as long as the charitable purpose of the charity is in turn being followed, this legislative change would allow charities to expand their reach and help them do what they do so well: accomplish the greater good across Canada and around the world.

Everyone is held accountable, and the delivery of services remains trustworthy.

I look forward to seeing this bill moved to committee, where senators can further explore what the bill intends to do and how effective it can be. I invite you to read our special committee’s report as well.

As Senator Omidvar and I wrote in a recent op-ed, charities and non-profits have been one of the sectors hardest hit by the COVID-19 pandemic. I cannot underscore enough just how much Canadians have relied on charities during this time. Their services are going to be needed more than ever in the post-pandemic period. Let’s see what we can do to help them be at their best and operate as efficiently as possible, to maximize the benefits to all Canadians. Thank you, honourable senators.

Hon. Mary Coyle

Honourable senators, I rise to speak in support of Bill S-222, An Act to amend the Income Tax Act (use of resources).

I’m honoured to be speaking to you today from Mi’kma’ki, the unceded territory of the Mi’kmaq people.

Honourable colleagues, Bill S-222 is an important bill affecting Canada’s charitable sector. That sector employs approximately 2 million Canadians and represents $135 billion, or 8.1% of GDP. Our international cooperation sector alone includes over 1,200 charities, employs 14,000 Canadians and spends more than $5 billion annually.

Senator Omidvar, the sponsor of Bill S-222, explained that this bill amends the language of the Income Tax Act, which currently limits registered charities to spending their charitable dollars on their own activities or those of other registered Canadian charities. With the hoped-for passing of this bill and the development, by the Canada Revenue Agency, of the related regulations, Canadian charities would be able to expand and adjust their funding relationships with non-profits, international partner organizations, social enterprises, Indigenous organizations and others, as long as the funding was directed at a recognized charitable cause.

To be clear, with this change, the “what” funds are spent on would remain the same — funds would be spent on charitable purposes — but the “how” and “through whom” would be broadened, thus emancipating resources for their intended purposes and transforming, for the better, relationships among partner organizations.

In their February 19 article Making it Easier to do Good: Doing Away with the “Own Activities” Requirement, a group of 37 lawyers who work regularly with Canadian registered charities commented:

The current rules are inefficient, overly complex, and out of touch with those of other global actors. They create lost opportunities by making it difficult, in some ways prohibitively so, to carry out legitimate charitable work. Further, they impede collaborative partnerships between Canadian charities and their ally organizations around the world.

Senator Omidvar’s solution, as detailed in Bill S-222, is to move away from the current language in the Income Tax Act of “own activities” and its related and required “direction and control” by the Canadian charity over a donee, to new language of “resource accountability.”

The amendments to the act proposed by this new bill replace the reference to “charitable activities carried out by it” throughout the act, with the words “charitable activities.” It amends one section of the act to expand the definition of “charitable activities” to allow charities to use their resources for charitable purposes by taking reasonable steps, and it inserts a section outlining what “reasonable steps” means.

The Income Tax Act does not define the terms “charitable activities” or “charitable purposes.” The Canada Revenue Agency relies on the common-law definition, which describes a charity as an organization established for any of the following four purposes: the relief of poverty, the advancement of education, the advancement of religion, and other purposes beneficial to the community in a way the law regards as charitable.

As many of you know, colleagues, my life before joining you in the Senate involved decades of work in the non-profit and charitable sectors, both locally and internationally. From 41 years ago, working as a Cuso cooperant on rural industries in Botswana; to becoming a rural development adviser in Indonesia through the University of Guelph; to running Calmeadow, a Canadian NGO working in micro-finance in Canada and internationally; to leading the Coady International Institute at St. Francis Xavier University; to supporting Stephen Lewis in the early years of his foundation and Roméo Dallaire with his Child Soldiers Initiative; and more recently, working with Haitian leaders to establish the Haitian Centre for Leadership and Excellence, I have seen my fair share of what the international and domestic development community can accomplish through effective partnerships.

My intention today is to focus most of my remarks on how Bill S-222 can improve Canada’s role in international cooperation. However, I would first like to briefly highlight some critical issues regarding the relationship between the charitable sector and the Indigenous community in Canada.

Kris Archie is Executive Director of The Circle of Philanthropy and Aboriginal Peoples in Canada. The Circle is an open network that promotes giving, sharing and philanthropy in order to support the empowerment of First Nations, Inuit and Métis communities and individuals in building a stronger and healthier future.

In a recent presentation, Ms. Archie was critical of the existing charities legislation, which she characterizes as being based on and perpetuating a paternalistic view of Indigenous Canadians. The Income Tax Act not only ties their hands as they look at creative ways of community advancement through philanthropy, but it also causes harm. It further entrenches colonial histories, hinders the establishment of horizontal partnerships initiated by or involving Indigenous communities and groups, imposes overwhelming administrative burdens, and most importantly, causes so many lost opportunities that are essential to building self-reliance, prosperity and well-being.

She went on to say that with the current “direction and control” elements required of charities by the Income Tax Act, there is also significant concern about the appropriation of the intellectual and cultural property rights of Indigenous peoples.

There is so much more that could be said on this matter, but I will leave it there for now and recommend that Ms. Archie would be an excellent witness when this bill is being studied by committee.

Honourable colleagues, Canada is an important player in the international arena, and it has committed itself to being a strong advocate for sustainable development and achieving the goals of Agenda 2030.

In the preamble to Transforming our World: The 2030 Agenda for Sustainable Development, it is noted that eradicating poverty is not only the greatest global challenge facing us, but it is an indispensable requirement for sustainable development. Ending poverty cannot be done by the efforts of governments alone. It requires a network of partners across the globe working together.

The commitment to action through partnership has been well enshrined in Canada’s foreign policy and international cooperation strategy for many years. Global Affairs Canada describes itself as strongly committed to advancing sustainable development at home and abroad. Working with a wide range of diverse partners, Global Affairs Canada is contributing to the elimination of poverty and inequality, and building a more peaceful, inclusive, prosperous and resilient world for everyone. Canada is committed to a whole-of-government, whole-of-society approach to implementing the 2030 Agenda at home and abroad.

Further, Canada’s Feminist International Assistance Policy — which seeks to reach the poorest and most vulnerable, particularly through advancing gender equality and the empowerment of all women and girls — is meant to underscore the importance of human dignity, defend the rights of women and girls, and contribute to building local capacity for sustainability.

So there we have it. Canada is committed to working with a wide range of diverse partners, is committed to taking a whole-of-society approach, wants to build resiliency and is committed to building local capacity. Our current rules governing the Canadian charitable sector in the Income Tax Act work against these policy commitments.

At the May 2016 Humanitarian Summit in Istanbul, Canada signed onto the Grand Bargain, a unique agreement to get more means into the hands of people in need and to improve the effectiveness and efficiency of humanitarian action. Included in the commitments of the Grand Bargain are more support and funding tools for local and national responders, and an effort to ensure the people receiving aid participate in making the decisions that affect their lives.

In order to achieve the overall purpose of the Grand Bargain, and now with the COVID pandemic causing increased global devastation, Canadian humanitarian organizations and their partners urgently need this simple change to our Income Tax Act. As Senator Omidvar explained, the wording in the Canadian Income Tax Act and related administrative policy guidelines require charities working with other types of organizations abroad to impose direction and control over them.

The current Income Tax Act requires that all resources of what it defines as a charitable organization be devoted to charitable activities carried on by the organization. It also further clarifies that its status as a registered charity could be in jeopardy if it makes a gift to a non-qualified donee.

What this means in practice is that local organizations abroad must essentially surrender control to the Canadian charity they are partnering with if they wish to receive funding. As is the case with Indigenous partnerships, this paternalistic and colonial approach permeates and taints our charitable work abroad.

Bill S-222 responds to the Senate Special Committee on the Charitable Sector recommendation that the Government of Canada direct the Canada Revenue Agency to revise Guidance CG002 “Canadian registered charities carrying out activities outside Canada.”

The current wording of the Income Tax Act goes against the important concept of local ownership, which, as highlighted by Cooperation Canada, is central to any effective development approach.

Kevin Perkins, the Executive Director of Farm Radio International, put it this way in his testimony:

Our ultimate success depends on helping local development partners to become more effective and sustainable. If these organizations function only as intermediary service providers, their critical role in effective development may be diminished, which could undermine the long-term goal of self-reliance.

Canadian organizations are trying to contribute to making the world a better place, but they are challenged by a regulatory framework at odds with best practices.

Honourable colleagues, I understand this frustration and, frankly, the embarrassment from my own experiences over the years. After the devastating 2010 earthquake in Haiti, the world rushed in to help with the immediate humanitarian emergency and then the critical effort to “build back better” so Haiti would be stronger and more resilient in the future and, as Haitian colleagues would say, would no longer be a graveyard for well-intentioned and expensive — but unsustainable — dependency-creating efforts. Haitian organizations themselves are best placed to reach local communities and respond to local needs and opportunities. If they need to depend on a Canadian intermediary, it takes more resources, runs the risk of not “scratching where it itches” and takes away from the development of local institutional capacity.

As Ilana Landsberg-Lewis, co-founder of the Stephen Lewis Foundation, has noted of the Income Tax Act:

The provisions carry an unmistakable whiff of colonial imperialism and are a truly regrettable holdover of an old model of international development that Canada should have by now completely outgrown. The 21st century is about development cooperation, not development command and control.

Colleagues, the international development community has known better for a long time. Now is the time to adapt. Bill S-222 will make that critical adaptation possible.

This welcome change will result in Canadian charities sharing power instead of holding power over their international partners. It will foster and support local ownership and increased capacity for achieving more and better results. It will reduce the administrative burdens and ensure more funds will be used to achieve the charitable purposes.

It will improve accountability. It will increase Canadian charities’ ability to more swiftly pool funds with others when responding to emergencies. It will reduce dependency and help establish partnerships based on trust, mutual respect and equality.

Colleagues, most importantly, it will result in less poverty, better health and education, greater economic opportunities, less economic disparity, stronger democracies, improved gender equity, less violence and a healthier planet for all. Colleagues, who could argue with that?

Honourable senators, please join me in supporting Bill S-222 and let’s send it to committee as soon as possible for further study. Thank you. Wela’liog.