Reforming Income Tax Act’s “direction and control”

Senator Ratna Omidvar earlier this month introduced legislation in the Senate that proposes amendments to the Income Tax Act to allow charities to partner with non-charities and give Indigenous and racialized organizations greater freedom and power to operate.

Omidvar’s Bill S-222, the Effective and Accountable Charities Act, would end the “direction and control” provision in the Income Tax Act, a directive seen as a remnant of a paternalistic and colonial era, and out of step with the sensibilities of 2021.

Canadian charities are compelled to ensure direction and control of their programs when partnering with non-charities, whether an agricultural project with Indigenous organizations or the building of a school in a remote African village. Omidvar’s bill would allow the organizations to become full partners under “resource accountability,” which builds in proper reporting and transparency regulations for all charitable spending.

The country’s charitable sector has for years chafed under the cumbersome and costly direction-and-control rule, but the push for change has picked up speed as the sector scrambles to address increased demands during the pandemic.

According to an open letter signed by 34 lawyers who do work in the charitable sector, “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 cases prohibitively so, to carry out legitimate charitable work.”

Susan Manwaring, who leads the Social Impact Group at Miller Thomson, says the signatories felt it was time to make it clear to the public and policy-makers that the charitable sector needs change.

“The letter reflects the frustration that many of us have that the rules are overly complex and require agreements, documentation, and oversight in a way that is outdated and leads to relationships that are not consistent with how people work together today,” she says.

Omidvar’s bill will now move to second reading, with committee study possible by April.



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