The Liberal government’s move to legislate the “spirit” of private member’s bill S-216 perpetuates the colonial relationship between charities and groups without charitable status, according to leading sector voices.
After a long, concerted lobbying and legislative effort, the philanthropic sector’s battle to rid itself of the contentious “direction and control” restrictions of the Income Tax Act has been taken up by the Liberal government.
It is confirmation of the success of that lobbying effort. But leading voices in the sector say the government move to legislate the “spirit” of the private member’s legislation, S-216, falls short of the sector’s goals and in some respects is worse than the status quo, which the sector finds unacceptable.
The sector should be going back to the Department of Finance and confirming that what has been drafted is not much of an improvement – if it is at all.Robert Hayhoe, Miller Thomson LLP
According to an analysis of the proposed changes in the Budget Implementation Act (BIA) by Robert Hayhoe, a specialist in charitable taxation law and a partner at Miller Thomson LLP, the government proposal takes an even more paternalistic and colonial approach to charities funding non-qualified donees, and it increases the administrative burden for most Canadian charities that deal with those donees.
“The sector should be going back to the Department of Finance and confirming that what has been drafted is not much of an improvement – if it is at all – and asking for changes to be made,” Hayhoe says.
This is not in the spirit of S-216 … Finance has messed up. It has not been sensitive to the sector’s needs.Terry Carter, Carters Professional Corporation
Terry Carter of Carters Professional Corporation agrees that the sector must now rally to win amendments to the BIA.
“This is not in the spirit of S-216. It’s not close to S-216,” Carter says. “Finance has messed up. It has not been sensitive to the sector’s needs.”
The sector is, indeed, moving quickly to try to win amendments. After an initial wave of optimism following Finance Minister Chrystia Freeland’s budget pledge to implement the “spirit” of S-216, the BIA (Bill C-19) has put the sector in quick reaction mode.
“There was caution because we weren’t sure how to interpret the words of ‘in the spirit of,’” says Carelle Mang-Benza, the policy lead at Cooperation Canada. “It raised some eyebrows. But with the BIA, it crystallized some of our suspicions.” Now, the sector is dealing with something worse than the status quo, she says.
Imagine Canada has taken the lead in pushing for amendments. In its analysis, the government’s move fails on key points. It notes that the current wording of “own activities,” which require direction and control, remains. It also says the government proposal creates a large administrative burden and perpetuates the colonial relationship between charities and groups without charitable status.
Bill S-216, which would have replaced “direction and control” with “resource accountability,” was crafted by Senator Ratna Omidvar, whose bill passed the Senate and was adopted in the House of Commons by Conservative MP Philip Lawrence. It has broad support in the sector and bipartisan backers in the House.
But not only does C-19 retain the “direction and control” provisions; the sector must now fight a government stricture known as “qualifying disbursements.”
Under S-216, the current rule that a charity wishing to deal with a non-qualified donee do so only by ensuring the work carried out be their “own activity” would be replaced by rules allowing grants as long as the charity took due diligence to ensure the funds would be used for charitable purposes. The charity would have to gather sufficient information to convince a reasonable person that the funds were being used for a charitable purpose.
Any misstep could be a criminal offence. Many will feel it’s not worth it, and it will have a chilling effect.Carelle Mang-Benza, Cooperation Canada
Under the “qualifying disbursement” rules, the charity could fund a “grantee organization” (what we now call a non-qualified donee) if an extensive list of strict criteria is met. Gone would be any of the flexibility the CRA often showed under the “own activity” rules. Failure to meet any one of the criteria could lead to deregistration.
Mang-Benza says Cooperation Canada believes the BIA fails on process, substance, and the spirit of S-216, making it likely that even more non-qualified donees would go unfunded because the rigid qualifying disbursement rules are baked into legislation.
“Any misstep could be a criminal offence. Many will feel it’s not worth it, and it will have a chilling effect,” she says. Charities would become more risk-averse and essentially say, “We’re not going to touch that,” she says.
Hayhoe points out another deficiency, known in the legislation as the anti-avoidance rule, which prevents registered charities from accepting gifts where the donor directs the gift be used as a qualifying disbursement to a grantee organization. The anti-avoidance language was drafted to prevent “private benevolence,” ensuring a donor does not direct funds for repairs to his family’s home in Ukraine, for example, but Hayhoe says the language is far too broad, and would ensnare legitimate donations. It could prevent a donation to the Canadian Red Cross going to the Ukrainian Red Cross, he says.
“There is no good reason for that,” he says.
C-19 also says that any recipient of a donation of more than $5,000 has to be listed in the Canadian charity’s tax return. Concerns here go beyond privacy – they also raise concerns about safety.
Hayhoe says that if that information is publicly posted on the CRA website, a Russian recipient of an LGBTQ2S+ qualifying disbursement could be in danger from Russian authorities. The same could be said for a women’s rights organization in Afghanistan, or a group helping persecuted Jews anywhere in the world.
The CRA should ensure that list is confidential, Carter says, but there is no mention of confidentiality in the regulations.
Lastly, the government would repeal Bill S-216 the moment C-19 is given Royal Assent. That is an acknowledgement that the government feels it must protect ownership of changes to tax regulations rather than cede it to the Senate or MPs.
Finance officials did not respond to a request for comment in time for publication.