By Todd Jaques, Director of Policy and Research
Last week, we looked at the federal budget’s proposed changes to the disbursement quota. Today, we’ll have a look at another change for the charitable sector that would allow charities to provide funding to non-charities, a diverse group generally referred to as non-qualified donees.
It’s a bit difficult to determine how this change will impact communities as, unlike the straightforward increase to the disbursement quota, this proposed change is short on details. The budget indicates that the government will “amend the Income Tax Act to allow a charity to provide its resources to organizations that are not qualified donees, provided that the charity meets certain requirements designed to ensure accountability” and that this change is intended to “implement the spirit of Bill S-216”.
There are two main problems this change is trying to solve: 1) an unnecessary administrative burden and 2) the inequity of the charitable sector’s regulations around charitable status and access to funding. Under our current rules, charities must have written agreements and undertake onerous oversight duties if they want to provide funding to non-charitable entities such as nonprofits, individuals, businesses, and First Nations that have not been registered with the CRA. Without knowing the ‘certain requirements’ the new legislation will mandate, whether this will mean a less cumbersome process for charities remains to be seen.
One thing is certain—the matter of inequality in the charitable sector is an important problem that requires a solution. The regulations that govern charities in Canada have created an inequitable system. Accessing charitable status, a pre-requisite for funding from public and private foundations, and issuing charitable tax receipts to individual contributors, is disproportionately difficult for groups who are under-resourced or lack political connections to navigate the Canada Revenue Agency (CRA) registration process. This creates a two-tiered system for community work, where those institutions recognized by the CRA can access charitable dollars, while others such as unincorporated groups and non-charitable non-profits are left out. Some have noted that this regulatory limitation disproportionately impacts Black- and Indigenous-led, and low-income groups.
The budget doesn’t go into detail about this issue but alludes to it in ‘allowing greater flexibility for charities to support non-profit groups that may not have the ability to pursue charitable status of their own’. Again, the details will determine its effectiveness; however, it is interesting to see the government specifically name non-profit groups. Bill S-216 made no such distinction, allowing individuals and for-profit businesses to access charitable dollars.
It is possible that the government is using the term non-profit groups in its broadest sense, including incorporated non-profits and informal groups that operate on a non-profit basis, but at the very least it seems to exclude for-profit businesses. This exclusion is important, and it may help mitigate the possible unintended harms of Bill S-216. These include charities ‘outsourcing’ activities to circumvent employment laws, the continued privatization of public services, and competition between for-profit companies and charities for the same limited dollars.
But even with the exclusion of for-profits, the question of effectiveness remains. The problem of inequitable access, and inequitable funding, exists in the administration of charitable status and in processes and decisions that take place in institutions across the sector. This de-regulation runs the risk of further entrenching the problem. In the CRA, we at least have a central point for intervention that could address the issue across the sector through the creation of new equity requirements for grant-making institutions, new programs and resources for groups seeking charitable status, or perhaps new less-cumbersome registration requirements. Under a less regulated environment the issue may become more difficult to solve, more diffuse, requiring thousands of policy and process changes at thousands of institutions. Just changing who charities are allowed to fund and expecting better outcomes is like expecting unregulated markets to direct themselves toward greater equity.
Finally, these changes may remove a significant portion of the regulatory oversight from the CRA, and instead put it into the hands of charities themselves. Perhaps these changes will allow any charity to deliver funds to another entity. But most of the transactions, and therefore the bulk of the compliance determinations, will take place at private foundations – this effectively translates to the privatization of regulatory oversight itself. This means that the change may actually expand the power of private foundations, allowing them to wield their influence via new vehicles and in sectors where they had previous been restricted.
The ability and moral necessity of providing funding to groups systemically excluded from the formal designation of qualified donee status is paramount. And it’s true that removing the qualified donee requirement will make this more possible. But much like the changes to the disbursement quota, the government’s approach relies on foundations themselves to implement solutions instead of mandating them to do so. This means it will be important for foundations to make commitments to use this new found ability to address systemic inequities.
Next time we’ll have a look at the third and final change announced in the budget, increased reporting.
