Hopes are high that changes to the Income Tax Act will make it easier to fund non-qualified donees, meaning more resources, more flexibility, and more collaboration between funders and organizations that have often been shut out. The two-month consultation period on the draft guidelines ends January 31.
Jacqueline Dwyer calls 2023 a year of celebration. It’s a year when she will mark a full decade of feeding the hungry, an effort that now stretches across 33 different neighbourhoods of the Greater Toronto Area.
But the years have not been easy for Dwyer’s Toronto Black Farmers and Growers Collective as it fights food insecurity and food deserts that disproportionately affect Toronto’s Black communities.
As a registered non-profit without charitable status, her organization’s funding has been provided under a rigid system known as direction and control in which any funding was overseen by a third-party intermediary, which she and her partner, Noel Livingston, both community activists and farmers, found heavy-handed, micro-managed, overly restrictive, and, often, racist.
“Many of them are very rude, and a lot of good work is being suppressed by this system,” Dwyer says. “This needs to change.”
It is changing, and a pathway to more funding, more flexibility, and more collaboration between granting institutions and equity-seeking organizations like Dwyer’s, known as non-qualified donees, has arrived.
The challenge facing the country’s philanthropic sector is clear: Given the opportunity to flow more money into non-profit organizations, including many smaller organizations doing grassroots work with marginalized Canadians, will it take it? Will a sector that has been notoriously risk-averse begin shedding that attitude, or will it look at these organizations and continue to see risk?
There are millions of Canadians who would be so well-served if we started funding non-qualified donees.Liban Abokor, Foundation for Black Communities
The stakes are immense. Liban Abokor, co-founder of the Foundation for Black Communities, told a Philanthropic Foundations Canada webinar on January 10 that hopes in the non-qualified-donee community are immense. “There are millions of Canadians who would be so well-served if we started funding non-qualified donees,” he said.
Before June 2022, Canadian registered charities wishing to provide funding to organizations without charitable status could use their resources to do so only by conducting their “own activities,” using those resources to direct charitable activities carried out by third-party intermediaries, establishing “direction and control.”
Many still dealt with non-qualified donees through a series of measures that softened a required approach seen to be paternalistic and often racist to smaller, grassroots organizations, disproportionately working with and led by Indigenous, Black, LGBT, or other marginalized Canadians. It was widely seen as a system that smacked more of colonialism than collaboration and forced an onerous reporting and monitoring system that small non-profits chafed at. It also ignored the reality that these organizations knew best the need on the ground and the most efficient way to use limited funds for the greatest good.
Non-qualified donees choose not to pursue charitable status for a number of reasons – including the cost, the required human resources, the bureaucratic dance needed to get there, fear of running afoul of the CRA. Many also don’t have the administrative expertise, while still others simply will not engage in a hierarchical or colonial relationship.
Many did their work under the radar of the sector, starved of funding. Many foundations also did not want to risk running afoul of the CRA if they veered from the meticulous rules governing grants to non-qualified donees. Others had mandates that restricted grants to qualified donees, while others saw too big a risk in using their funds on untested organizations. Many non-qualified donees simply did not apply for funding, knowing they would be ignored.
That changed last June, when the federal government amended the Income Tax Act to allow charities to more easily provide resources to non-qualified donees, enshrined in Bill C-19. The move followed sector lobbying and the legislative efforts of Senator Ratna Omidvar.
Under the new regulations, there is a pathway to funding non-qualified donees, from large non-profits to smaller, grassroots organizations. Now, a charity can disburse funds to non-charities provided the disbursement furthers the charitable purpose of the funder. The charity has to document the relationship and justify the alignment of the two entities. It is meant to foster collaboration and partnerships instead of top-down direction and control.
The kinks need to be worked out.Terry Carter,Carters Professional Corporation
On November 30, 2022, the CRA released a public draft guideline outlining what it expects of charities making grants under a new regime, guidance the sector had long been seeking. The draft is subject to a two-month consultation period, which ends January 31, and whether the consultations lead to improvements or not, most legal analysts believe no final guidance will be issued until at least June of this year. In the short term, many believe the guidelines need to be revised, or as Terry Carter, expert on charitable law and managing partner at Carters Professional Corporation, puts it, “The kinks need to be worked out.”
In some ways, things were already evolving. Toronto Foundation introduced its Black and Indigenous Futures Fund (BIFF) in 2021 and made $80,000 available to non-qualified donees. The fund, it says, is a response to systemic inequality in Toronto and racism that permeates all aspects of society, including philanthropy.
It granted $10,000 to Dwyer’s organization for a pop-up market in Downsview, in north Toronto. It allowed her to verbally apply and provide a mid-project report with a check-in call. The foundation also allows video applications, and the final, written reports are simplified and streamlined so donees are not burdened with onerous paperwork.
Dwyer says the Toronto Foundation grant broke new ground for her and gave her the freedom to receive the grant and do her work. Livingston no longer felt he was being “watched like a hawk,” which he found offensive. “We have no secrets here. Anyone can come and see our work any time they want,” he says.
Other foundations have funded non-qualified donees with much more and for much longer, but Mohamed Huque, director of community impact for Toronto Foundation, says other foundations have reached out for guidance about establishing a program similar to BIFF. “We know it struck a chord,” he says. It was well known that organizations like Toronto Black Farmers chose not to pursue charitable status, whether because of the financial burden or years of policy that limited the political and advocacy work of registered charities, he says.
A lot of red tape is out there to register as a charity, and for what result? You want to make sure you get an awful lot from private foundations to justify the extra work.Glenda “Sam” Maracle, Aboriginal Labour Force Development Circle
That feeling is prevalent and was the case for Glenda “Sam” Maracle, the executive director of the Aboriginal Labour Force Development Circle, a non-profit corporation that receives government funding and provides job training and employment placement for Indigenous Ontarians from Sault Ste. Marie to Brantford. “It’s just easier for us to be a non-profit,” she says. “A lot of red tape is out there to register as a charity, and for what result? We just didn’t see the benefit. It would be great to receive private funding, but is it worth the hassle?”
Maracle runs a lean operation, and time is always at a premium. The entire $35 to $40 million operation is run by nine people. “Everyone wants to run as tight a ship as they can, and the extra work that comes from being a charity – well, you want to make sure you get an awful lot from private foundations to justify the extra work,” she says. “But I’m not going to lie. Would it help us if some of these foundations came along and said, ‘Hey, Sam, I’m willing to help you build three or four family homes – we’ll provide the material and you do the training’? Perfect. Put your name on the project. We could provide much, much more.”
For lots of Indigenous organizations, this was seen as a legacy of colonialism because they had to seek approval of another non-Indigenous entity in order to receive funding.Mohamed Huque, Toronto Foundation
Huque knows how direction and control often stymied non-profits. “For lots of Indigenous organizations, this was seen as a legacy of colonialism because they had to seek approval of another non-Indigenous entity in order to receive funding,” he says. “We knew there were hundreds of non-qualified donees in Toronto – very small grassroots organizations, often volunteer-run at the very early stages of their development – and we wanted to open up access to funding for those organizations.”
Toronto Foundation received a record number of grant applications under its BIFF program. About 55% were from non-qualified donees. Abokor says that when his Foundation for Black Communities invited grant applications, two rounds attracted more than 800 applications, nearly 95% of which were from non-qualified donees.
I think the conservatism in the sector remains. They are less likely to take risks on smaller, untested organizations.Mohamed Huque
Huque says the new funding pathway will lead to an increase in funding available to organizations that have often been shut out, but he doesn’t foresee the opening of floodgates. “I think the conservatism in the sector remains,” he says, noting that foundations have very well-defined strategic directions, with programs designed to meet specific goals and objectives. “They are less likely to take risks on smaller, untested organizations. It might be the larger non-qualified donees that might benefit disproportionately.”
Toronto Foundation will continue to focus on the smaller, untested, underfunded grassroots organizations, Huque says. “The community has long advocated for this, and foundations have said they have been hamstrung by the rules. But that doesn’t mean that because foundations feel more at liberty to provide funding that their risk tolerance is going to increase.” He believes familiar funding patterns may persist, meaning the sector must still ensure that the funding flows equitably.
We need to take some risks. Foundations are well-placed to do that because of the space we occupy between the government and the public sector.Claire Barcik, Catherine Donnelly Foundation
The Catherine Donnelly Foundation has long worked with non-qualified donees on affordable housing, civic engagement, and climate justice and stresses reciprocal partnerships instead of traditional transactional relationships defined by giving and receiving. Its executive director, Claire Barcik, is urging her peers to take advantage of a historic opportunity. “We support systemic change, and that often happens with grassroots organizations,” she says. “They are more nimble, they are more representative of the communities they serve, and they are closest to the work. We need to take some risks. Foundations are well-placed to do that because of the space we occupy between the government and the public sector.”
Barcik believes foundations’ dollars go further in dealing with non-qualified donees. “We’re all mandated to make change and improve people’s lives,” she says. “So let’s take advantage of this and work together to support those grassroots organizations.”
This permits something to happen; it doesn’t require it to happen. This idea that every foundation is going to suddenly start giving money to every grassroots organization that asks for it – I’m not sure those hopes are going to be realized.Bob Wyatt, Muttart Foundation
Bob Wyatt, the executive director of the Edmonton-based Muttart Foundation, is skeptical that the new regulations will result in significant changes in foundations’ funding practices. “It may be that some will fund non-qualified donees, but I don’t think this is a guarantee,” he says. “This permits something to happen; it doesn’t require it to happen. This idea that every foundation is going to suddenly start giving money to every grassroots organization that asks for it – I’m not sure those hopes are going to be realized.”
Wyatt and others have pointed to problems in the draft guidelines. Many foundations have as their purpose the funding of qualified donees only. Unless the CRA clarifies this issue in its final guidance (such as offering a blanket change available to all charities), many foundations that want to work in this area would have to change their purpose and file the revisions with CRA, a process that takes time and adds significant expense.
Carter, too, has flagged this concern. He points out that the Income Tax Act stipulates that qualifying disbursements to grantee organizations must be made “in furtherance of a charitable purpose of the charity.” If the purpose is to make gifts to qualified donees, non-qualified donee grants are off the table.
“The sector would benefit from an explanation that sets out the types of charitable purposes charities would need to have in order to make qualifying disbursements to a wide variety of grantee organizations,” he wrote in a legal analysis.
The draft guideline also lays out a list of “risk matrices” that could further discourage grants to non-qualified donees.
Risk factors include the charity’s experience, the grantee’s experience, grant activity location, grant amount, private benefit concerns, the nature of resources granted, and the duration of the grant. It sets out criteria for determining whether the risk is high, medium, or low, but there is a fear that such an emphasis on risk in the draft guideline will lessen the possibility of grants to small, grassroots organizations. “It is a legitimate concern,” Carter says, calling the risk matrices an unnecessary administrative add-on.
I don’t think anyone is going to jump on the qualifying disbursement bandwagon too quickly until the [Charities Directorate] has fully shown its hand.Terry Carter
Carter believes the guidance needs substantive improvements but believes the sector will benefit from this new road to granting to non-qualified donees. There are complexities and some questions under the guidelines, he says, but they don’t detract from the benefit of going with this option because it eliminates the “very offensive” fiction that under “own activities” you had to pretend the endeavour was the activity of the granting charity.
“I don’t think anyone is going to jump on the qualifying disbursement bandwagon too quickly until the [Charities Directorate] has fully shown its hand,” he says. “The sector is encouraged that there is a new option, but I think they are reticent to march forward until they know what the clear parameters will be.”
The number of foundations dealing with non-qualified donees remains small, but many foundations did not publicize their funding of those donees for fear of attracting negative attention from the CRA. This suggests the need for a new attitude toward non-qualified donees, but those foundations dealing with non-qualified donees say there are rewards.
I would encourage my peers to ensure they are going into this with eyes wide open and realizing there is a lot of fruit to bear from it.Mohamed Huque
Huque says it is both a challenge and an opportunity, and requires a bit more care and attention than a standard funder–grantee relationship. “But what you get in return are deep and rich insights about the sector that we would not otherwise have known,” he says. “Not just the issues they are working on, but the constraints some of these organizations are operating within. You forge strong and close relationships. I would encourage my peers to ensure they are going into this with eyes wide open and realizing there is a lot of fruit to bear from it.”
There may be high hopes among non-qualified donees, but there’s a healthy dose of skepticism as well. “This sounds too good to be true,” Maracle says. “It hasn’t been finalized; will it be administered to the full extent? You’re hesitant to believe this is going to be for real. A lot of people just say sarcastically, ‘Yeah, this is going to happen.’” Dwyer, too, will wait and see. “We want to see a better outcome for the people in need,” she says. “It looks great on paper, but we want to see how it rolls out on the ground.”