The CRA has released draft guidance for new rules that will allow grantmakers to provide resources to organizations that are not qualified donees. Philanthropic Foundations Canada encourages others to share their feedback so that PFC may consider it as part of its submission to the CRA in response.
Earlier this year, in response to calls from across the sector to replace “direction and control,” the federal government introduced a new framework for partnerships in the charitable sector – calling it “qualifying disbursements.” In June, Parliament amended the Income Tax Act to provide a new way to allow foundations and other charities to provide resources to organizations that are not qualified donees, so long as certain criteria designed to ensure accountability are met.
On November 30, the Canada Revenue Agency released draft guidance for these new rules and requests public feedback on the guidance by January 31, 2023.
Disbursements to non-qualified donees must be made to further a charity’s charitable purposes. The charity must have an agreement for the charitable activities carried out by the grantee and keep records of these disbursements.
This new regime for supporting non-qualified donees is one of the biggest advancements in legislation regulating our sector in decades.
Philanthropic Foundations Canada (PFC) was very pleased to see this change. Along with other sector leaders, we have long advocated for regulatory changes to ensure that more charitable resources reach equity-seeking communities. This is because there are times when the best way for a charity to pursue its charitable purpose is to partner with non-charities, such as non-profits or grassroots initiatives.
This new regime for supporting non-qualified donees is one of the biggest advancements in legislation regulating our sector in decades.
Before these changes, a charity that wanted to provide funds to non-qualified donees had to demonstrate that activities carried out by the donees were the charity’s own and maintain ongoing “direction and control” over the use of the resources. This was problematic for many reasons. For one, it forced the parties to form an inequitable top-down relationship, rather than a partnership, contributing to systemic racism and discrimination. It is well known that, as with most sectors, racialized and other marginalized communities are underrepresented in charity leadership and that grassroots initiatives are overwhelmingly led by and serve Black, Indigenous, and other equity-seeking populations. Some in the sector even called this a “legal fiction,” because in practice the activities of partners by their very nature could not be those of the charity. The very reason why charities want to partner with non-qualified donees in the first place is because of the unique capability and expertise of non-qualified donees that charities themselves do not, and cannot, possess.
It is common knowledge that non-qualified donees are vital actors in advancing equity and justice, but charities have been deeply restricted by the ‘direction and control’ rules – until now.
The truth is that on-the-ground initiatives are often the best equipped to identify and advance solutions for their own communities, and much-needed resources in historically excluded communities are often provided by grassroots leadership. The gap is often filled by leaders serving their own communities without a charitable registration number, and all the costs and restrictions that go along with having one. In our sector, it has become common knowledge that non-qualified donees are vital actors in advancing equity and justice, but charities have been deeply restricted by the “direction and control” rules – until now.
PFC has reviewed the CRA’s draft guidelines and we will be making a submission.
Our preliminary assessment is that we do not have fundamental concerns with the guidelines. They are written in the spirit of enabling a wide range of partnerships, including pooled funding.
As we shared with the government in our 2023 pre-budget submission, pooled funding allows one charity to raise funds from others for a common purpose and to manage the relationship with grantees and other partners who have the best on the-ground relationships and know-how to reach a community in need and deliver on a given initiative. This essential practice is used frequently, especially during urgent and quickly evolving contexts, as has been seen during war, natural disasters, and the COVID-19 pandemic in Canada and globally.
One potential pitfall PFC has identified in the draft guidelines is with the term ‘risk.’
We are pleased to see language in the guidelines on pooled funding (section 7.7, starting at point 83) and an inference that this type of practice is normal and legitimate. We also appreciate the CRA’s clear articulation in the guidance that gifts can be accepted by charities for programs that support non-qualified donees; however, ultimate authority on where the resources go rests with the charity, not the donor.
One potential pitfall we have identified in the draft guidelines is with the term “risk.” It is mentioned 62 times throughout the document, including a detailed risk-assessment chart, but a thorough definition (risk of what?) is absent. Because risk is not always clearly defined, it’s sometimes hard to understand what the guidelines are referring to. For example, one risk factor identified is “grant amount,” with a higher risk factor the larger the grant amount. What risk are they referring to? Risk of the proposed activities not being carried out based on size of grant? Risk of intended social impact being low or not achieved? Risk of theft of the grant or fraud? General undesired, unintended consequences?
It is important that everyone affected by these new rules work to ensure that the guidance is as helpful and accessible as possible.
This is important, because the guidelines’ frequent reference to “risk” implies that there is something intrinsically wrong with risk and with partnering with non-qualified donees. Experienced grantmakers know that there is always an element of risk of something unintended or undesired happening but that that is an inherent part of grantmaking, and that sometimes the grants made to support new ideas, unknown or emerging organizations, or different approaches lead to the greatest outcomes. In fact, philanthropy and the non-profit and charitable sector as a whole are best placed – if not expected by government and the public – to take risks in addressing all sorts of social challenges, so implying that risk is bad and something to be avoided is unreasonable and prejudicial. To address this, the guidelines should define more clearly what they are referring to and also articulate up front that there are potential benefits of risk, that charities range in their own risk tolerance, and that they should consider this in all of their activities, including granting to non-qualified donees. The guidelines should highlight that the key risk that charities are directly responsible for managing is that the proposed activities by the non-qualified donees fall within charities’ charitable purposes.
It is important that everyone affected by these new rules work to ensure that the guidance is as helpful and accessible as possible. For instance, we feel that the guidelines could be more concise and clear: some of the text could be turned into annexes. We encourage our members to share their thoughts with PFC so that we may consider them for our submission. We hope all funders, charities, and non-qualified donees alike across Canada will spend the time to review the guidelines and share their feedback. Technocratic and dry as these things may be, these guidelines will have major ramifications for access to resources across our country on the most important issues we face, notably for the most vulnerable – and underrepresented – in our communities.
PFC will be hosting a webinar on January 10 to discuss the guidelines, answer questions, and garner thoughts and foster discussion. (Panellists to be confirmed.) We will also be opening a survey in the new year for members who would like to share their thoughts in writing and inform our submission. You can register for the webinar on our website here.
