Bill S-216 would amend the contentious language in the Income Tax Act that requires registered charities to spend dollars on their “own activities” rather than giving autonomy to organizations whose expertise and experience make them best placed to efficiently use charitable monies.
The moment came in a nearly empty House of Commons. Outside, the capital was still under siege from protesters, and the chatter in the corridors was dominated by a day of political upheaval and the demise of Erin O’Toole. But defining moments are not always accompanied by fanfare and the blare of trumpets.
When Conservative member of Parliament Philip Lawrence rose to introduce a bill that would free the charitable sector from longstanding constraints, known as the “direction and control” provisions, it was deemed a potential turning point for the sector and the beginning of the end for an archaic, 70-year-old rule that is out of step with 2022 attitudes toward partnerships and reconciliation.
The sector complaints over “direction and control” are many and varied, and they have dogged those working both globally and domestically. Many will be taking that message to Canadian MPs during the annual International Development Week (February 6 to 12).
The impetus for change has come from Senator Ratna Omidvar, whose Bill S-216 emerged from the Senate in December 2021, passed with uncommon unanimity and alacrity. Lawrence has sponsored the bill in the House of Commons.
I need not describe to you what the two words, ‘direction and control,’ mean to Indigenous organizations and Indigenous people.Senator Ratna Omidvar
Omidvar believes “direction and control” strangles cooperation and collaboration between donors and non-charities such as community organizations (not-for-profits, social enterprises, co-ops, civil society, or other equity-seeking donees), forcing charities to deal with them as intermediaries, creating a patronizing, colonial, and racist hierarchy that runs counter to the policy priorities promoted by the Liberal government – and language on partnerships espoused by Global Affairs Canada.
“I need not describe to you what the two words, ‘direction and control,’ mean to Indigenous organizations and Indigenous people,” Omidvar said, while speaking to her bill in the Senate.
“This pending legislation is an important moment in the history of the Canadian charitable sector,” said John Clayton, the director of programs and project at Samaritan’s Purse Canada. He likened debate on direction and control to debate over single-use plastics – both concepts are relics whose time has passed.
The bill amends the language in the Income Tax Act that requires registered charities to spend dollars on their “own activities” rather than giving autonomy to organizations on the ground whose expertise and experience make them best placed to efficiently use charitable monies.
These organizations are often the smallest, volunteer-driven entities serving marginalized communities most in need.
[The existing regulations are] an outdated colonial way of thinking about partnership.Shannon Kindornay, Cooperation Canada
Internationally, the regulations prohibit Canadian charities from contributing to pooled, international emergency funds that afford the flexibility and speed needed to deal with immediate humanitarian needs. “Direction and control” regulations require that Canadian funds be spent on a specific project under Canadian control, an impossibility when pooling with other international donors on joint efforts, leading some to label Canadian organizations “black sheep” among those dealing with urgent global efforts, says Céline Füri, Oxfam-Québec’s humanitarian manager.
It also, she says, stands in “hypocritical incoherence” to the government’s stated goals in the Feminist International Assistance Policy (FIAP), which champions the empowerment of women and girls worldwide by creating partnerships.
Shannon Kindornay, the interim CEO of Cooperation Canada agrees. “On a policy level we are saying we want these partnerships, but we are not providing the legislative space to actually make that happen,” she says.
The restrictions have required elaborate workarounds in the sector, some awkward conversations, some opportunities lost, and, in the case of United Way Canada, webinars with the legal team to provide local United Ways the comfort and confidence level that they can operate under “direction and control.”
“All charities want to make sure they are following established legislation and regulations,” says Dan Clement, United Way Canada president and CEO.
“If a charity does not have experience working with a non-qualified donee, or have access to legal advice, the fear of making a mistake and ending up on the wrong side of the law can be a powerful disincentive. The focus becomes risk avoidance and mitigation, and an impediment to doing good work for the community.”
This pending legislation is an important moment in the history of the Canadian charitable sector.John Clayton,Samaritan’s Purse Canada
Omidvar’s bill amends the existing regulations in two fundamental ways. The bill replaces references to “charitable activities carried out by itself” with two words: “charitable activities.”
It allows charities to use their resources for charitable purposes for non-qualified donees by requiring the charities to collect the necessary information on the donee to satisfy “a reasonable person” that the funds are being used for charitable purposes. It compels the charity to impose any restrictions or conditions on the donee to ensure the funds are being used for charitable purposes. Omidvar calls this “resource accountability.”
“This piece of legislation is critical to the sector. Existing regulations dictate how our members are able to work with their partners around the world,” says Kindornay. “It is an outdated colonial way of thinking about partnership.”
“It requires our members to treat our partners like they are an arm of their organization instead of treating them as the independent actors that they are.” It not only creates impediments to donors; it also means some would-be recipients walk away because they cannot abide such control, she says.
Füri describes the current situation this way: “You can imagine how well it goes down in an era of decolonization to say, ‘Hello, I’ve just flown in from Montreal. I know you’ve been living and operating in this area for 30 years, but I’m sure you wouldn’t mind using these Canadian dollars just for these five activities that will really improve your people’s lives. And I’ll be back in three months and six months and I’ll take a few pictures, and by the way, don’t make any important decisions about this project unless you consult me first and have my written approval.’”
If we are making it difficult for organizations to become charities, then we have to make it easier to become a registered charity.Bob Wyatt, Muttart Foundation
Some prominent sector voices are resisting any urge to join the parade and are raising questions.
Bob Wyatt, the executive director of Edmonton’s Muttart Foundation, agrees that “direction and control” create problems for Canadians working internationally, but at home he wonders why more organizations do not become charities.
“If we are making it difficult for organizations to become charities, then we have to make it easier to become a registered charity,” he says. “Others have made it clear that they don’t want to become charities because they don’t like the rules.”
Those rules can be costly and time-consuming: it can cost an organization between $5,000 and $15,000 to set up a registered charity from scratch, according to Mark Blumberg, a leading legal voice for the charitable and non-profit sector. The process of incorporation, organization, and application for charitable status can take up to six months for a foundation charity and up to eight months for an operating charity, he estimates.
Wyatt also believes the legislation is unclear on who is accountable once money has been donated and funds are later determined to have been used for purposes other than charitable purposes.
If a donee receives funding because it purports to serve a marginalized community, but the marginalized community then says the donee is not serving them, then what? Wyatt asks.
“I’m just not sure this has been fully thought through,” he says. “You could end up with regulations that are worse than what we are dealing with now.”
If passed, government would have two years to consult with stakeholders to develop a regulatory framework. Kindornay says the sector realizes the “next big lift” will be working with the Canada Revenue Agency on regulations, and preparatory work on that is already underway.
Right now, the ball is in Lawrence’s court. Before entering politics, he dealt with charities in his law practice and was aware of the “morass” they encountered dealing with direction and control. “This will empower people,” he says. “The ability to impact change is the very reason I got into politics.”
Ultimately, he says, this bill could determine whether those in need will receive timely humanitarian support. Lawrence says he has won over his Conservative Party colleagues by arguing that this bill eliminates bureaucratic red tape and creates efficiencies in the sector. He says he has the support of the entire 119-member Conservative caucus, and the introduction of his bill was seconded by New Democrat Heather McPherson (Edmonton Strathcona). Notably, however, the governing Liberal caucus has been silent so far.
This is the first in a series of articles in which The Philanthropist Journal will focus on this 70-year-old burden on the sector, comparing Canadian rules to those of allies, probing how “direction and control” has made the sector risk-averse, and looking at how it may have contributed to underfunding of Indigenous organizations and others serving marginalized communities.