The House of Commons finance committee passed key amendments to the BIA at the end of May, ridding the bill of language described as “‘direction and control’ on steroids.” But a prohibition on “directed giving,” which prevents pooled funding if those funds are solicited for a specific cause, remains.
For years, Canadian charities working abroad have endured the inevitable contradictions that spring from the collision of an archaic Canadian tax regime and the international charitable sector’s momentum toward a concept known as “localization.”
Some, like Barbara Grantham, the CEO of CARE Canada, had to decline project funding from the federal government that could not work because of the so-called “direction and control” rules established by the very government that was offering the funding.
She had seen a federal government advocate for empowering women’s organizations on the ground in Africa while maintaining a policy that prevented Canadian NGOs from doing just that. They had been prevented from contributing to “pooled funds,” generally accepted as the most efficient way to quickly respond to humanitarian disasters.
Now, those charities committed to localization can claim a victory. It is now easier to empower local organizations with the expertise and efficiency to deliver programs in their own backyard without Canadian direction and control.
But when it comes to the desire to contribute to pooled funds, the sector must deal with further uncertainty.
The House of Commons finance committee passed key amendments to Bill C-19, the Budget Implementation Act, at the end of May, ridding the bill of language that had enshrined a lengthy prescriptive list of restrictions on funding to non-qualified donees.
Senator Ratna Omidvar said she has been assured by the government that it will exercise a ‘light touch’ on the directed-giving prohibition.
But Liberal MPs on the committee blocked a move to remove a prohibition on “directed giving,” which, on the surface, prevents pooled funding if those funds are solicited for a specific cause.
The reaction of Imagine Canada summarized that of the sector. Bruce MacDonald, its president and CEO, applauded the amendments that eliminated the barriers for charities dealing with non-qualified donees but said he was disappointed that the amendment about directed giving did not pass.
Senator Ratna Omidvar said she has been assured by the government that it will exercise a “light touch” on the directed-giving prohibition, raising some hope that Canada Revenue Agency regulations could be sufficiently lax to allow pooled fundings.
The problem is, no one seems to know – meaning the months ahead when those regulations are being finalized will be another period of concerted sector efforts to make its views known, just as it did in ridding C-19 of the “direction and control” language.
What does a ‘light touch’ mean when the legislation says ‘no’?
Carelle Mang-Benza, Cooperation Canada
The amended law now requires charities to maintain proper documentation outlining the purpose of a disbursement and ensuring it furthers the stated purpose of the charity. The government aims to pass C-19 at third reading before the Commons rises for the summer, a move that would kill S-216, Omidvar’s bill, which passed the Senate and was taken up in the Commons by Philip Lawrence (Northumberland-Peterborough South).
Carelle Mang-Benza, the policy lead for Cooperation Canada, says the sector must celebrate its victory in removing the contentious direction-and-control language but is left reading the tea leaves on pooled funding. “This begs the question: what does a ‘light touch’ mean when the legislation says ‘no’?” she says. “If there is a political agreement and the law, it is not clear which one takes precedence.”
“We are ready to keep the lines of communication open with the government to see what transpires,” she adds.
Lawyer Robert Hayhoe, a partner at Miller Thomson LLP, agrees. While applauding the changes in the direction-and-control regime, Hayhoe says he doesn’t understand the harm the federal government is trying to mitigate by maintaining the directed-giving wording. “It will potentially impede a fair amount of legitimate charitable activity, both domestically and internationally,” he says.
Mang-Benza explains what could be lost. A charity that seeks to join with other organizations working with orphans in Ukraine, for example, would raise funds in Canada that would explicitly be targeted for those organizations in Ukraine that have the expertise and experience in doing such work.
That’s not how the law is supposed to work. The law should be clear, and we ought not have to rely on the CRA promising to not apply the law in most circumstances.
Robert Hayhoe, Miller Thomson LLP
“Well, with that clause, you can’t,” she says. “The moment I decide I am receiving gifts specifically for that organization, you cannot do that. And that affects pooled funding because that is exactly what you do. You bring funds together, but you know exactly to whom you are giving the money.”
If funds are raised in Canada with the promise of the Canadian charity to transfer it to a specific program outside of Canada, whether it is pooled or not, it is caught by the anti-directed-giving rule, Hayhoe says.
If the CRA determines it will be flexible on the provision, it potentially sets up a system whereby one charity the CRA likes would be treated differently than another it doesn’t like, he says. “Maybe they will exercise a light touch from time to time, and then they won’t in other cases,” he says. “That’s not how the law is supposed to work. The law should be clear, and we ought not have to rely on the CRA promising to not apply the law in most circumstances.”
There is potential for this to work, but we will have to see.
Terrance Carter,Carters Professional Corporation
Terrance Carter, a leading charity lawyer at Carters Professional Corporation, says that overall, the amendments represent a good-news story for the sector: “This is definitely a win for the sector, and it shows the benefit of the sector coming together to explain a position.”
But he couldn’t speculate as to why the government maintained the directed-giving prohibition. He says there will be work ahead to try to clarify Ottawa’s intentions. “Sometimes these things have to be worked in layers and stages,” he says. “There is potential for this to work, but we will have to see.’’
Taryn Russell, head of policy and advocacy for Save the Children Canada, is optimistic that pooled funding will be allowed.
“We have been assured that this was because of concerns around terrorism and not because they want to block access to international pooled funds,” Russell said in an emailed analysis. “We are hopeful that we will be allowed to contribute to them – we will just need to see what guidance CRA will develop based on the amended bill and how much flexibility will be included.”
She says it would have an “incredibly positive impact” on the work of Save the Children Canada.
Earlier, before the amendments were won, she explained the value of pooled funds in a brief her charity provided to Omidvar. Rapid-response pooled funds, she writes, feature speed, simplicity and flexibility to ensure rapid life-saving interventions in the case of emergency.
The briefing notes point out that the funds are centrally managed and feature a single, standardized report and a single currency that reduce the administrative burden on charities. Pooled funds also allow members to share administrative costs, which can be significant in large-scale responses, such as the one in Ukraine, that feature many donors and different types of support flowing into the country.
If a resolution to the pooled funding question remains elusive, clarity on localization appears at hand.
“Direction and control” had been seen as an impediment to Canada’s involvement and had been noted worldwide.
Degan Ali, a leading voice in the international movement to decolonize humanitarian aid and consign the “white saviour” complex to the history books, had pushed for the end of Canadian direction and control. Ali, the executive director of Adeso, which seeks to change the way humanitarian aid flows to Africa, now also heads DA Global in Nairobi and advocates for localization around the world.
Hayhoe says the amendments to the budget bill clear the way for Canadian charities to provide more autonomy for local groups on the ground.
Under localization, funding goes directly to local civil-society organizations, which have the expertise, experience, and savvy to know best where the funding should be directed, and know how to get it to those in need quickly. No longer is the local organization the sub-contractor.
But Ali, speaking before the amendments passed, said that under the Canadian system, the local organization was always the sub-contractor and true partnerships could not be forged.
Russell says the elimination of stringent regulations around “qualified disbursements” will open avenues for more equitable partnerships with smaller, local organizations.
Hayhoe says the amendments to the budget bill clear the way for Canadian charities to provide more autonomy for local groups on the ground, as long as the charity demonstrates the funds are used for the intended charitable purpose and monitors the project.
Carter had pointed out the problems faced by charities dealing with organizations abroad under the unamended C-19. Those rules meant Canadian charities had to develop intermediary agreements and prove that they exercised direction and control over those agreements with organizations thousands of kilometres away, he says. In his analysis, he says that Canadian charities were being kept on the outside as others adopted the more contemporary approach of fostering local empowerment. The Canadian regulations burdened charities in this country with the remnants of a colonial system.
Those charities that wanted to support localization in the past and couldn’t will now be able to do so.
Terrance Carter
The new regime does away with the fiction that a program outside of Canada is a Canadian program, Carter says. “When funds are transferred to a recipient, it is no longer the program of the Canadian charity,” he says. “It is now to support the program of the recipient charity.”
“That’s huge. Now we can empower localization because the recipient will use the funds to support their program – provided that their program is achieving the charitable purpose of the Canadian charity,” he says. “This will provide an option that will facilitate localization. Those charities that wanted to support localization in the past and couldn’t will now be able to do so.”
The move to localization has followed an imperfect path, a road marked with potholes. Some of the world’s largest donors and humanitarian organizations pledged in 2016 to get more funding directly to recipients, but progress, under the agreement known as the Grand Bargain, has been uneven.
Two seminal events have given the movement a boost.
The murder of George Floyd and the shooting death of Breonna Taylor led to a summer of racial reckoning in North America, and the charitable sector also was forced to look inward at its white governance and colonial attitudes, including regarding the funding of projects in Africa and the Global South.
The pandemic has been a game-changer in accelerating the commitment, both ethically and morally, to decolonization and the practical understanding that its time has come.
Barbara Grantham, CARE Canada
Then came a global pandemic, and Western aid organizations pulled personnel out of international projects. It created a clean slate.
“The pandemic has been a game-changer in accelerating the commitment, both ethically and morally, to decolonization and the practical understanding that its time has come,” Grantham says.
Local organizations delivered what was needed without international NGOs directing their work, and when the pandemic eased, “local citizens looked at this situation and said, ‘Oh, now you want to come back because it is convenient for you?’” she says. They don’t need or want NGOs coming back in and telling them what their problems were and how to solve them. They know those answers. What they seek is technology support and resources, both financial and human, she adds.
Just as progress on localization was flagging, it received a huge boost south of the border when Samantha Power, administrator of USAID, announced last November the agency would commit 25% of its funding directly to local partners within four years (after the amount of money spent that way had increased only from 4% to 6% in the past decade). Power conceded the goal is a huge shift because working with local partners can be more time-consuming and riskier and those partners may lack the accounting or legal expertise USAID contracts require.
“We’ve got to tap into the knowledge of local communities, and their lived experiences,” Power said. “Otherwise, we risk reinforcing the systemic inequities that are already in place.”
