By Todd Jaques, Director of Policy and Research
For this third installment of federal budget reflections, we’re looking at increased reporting requirements. Of the three changes for charities included in the budget, this one offers the least detail, mentioned only in the section about the disbursement quota. Here’s what the budget has to say:
The Canada Revenue Agency will also improve the collection of information from charities, including whether charities are meeting their disbursement quota, and on information related to investments and donor-advised funds held by charities.
This is a short, albeit interesting, list of examples. Let’s skip over the disbursement quota since we’ve covered this subject elsewhere and look at investment reporting, a topic that has been of great interest to us here at MakeWay.
Last summer, we conducted a scan of Canadian foundations, the 50 biggest in terms of investment assets in both the public and private foundation categories, so a total of 100 foundations. We went through their websites to look for transparency in respect to their investments. We learned, among other things, that about one third of the foundations publicly shared their investment policy. And only two foundations disclosed their investment portfolio. We also looked for information about who manages investments and who makes investment decisions and found only a handful of foundations that publicly shared this information.
The findings weren’t surprising. The CRA does not require foundations to report on these specifics, much less publicly disclose this information. This means that foundations in Canada are tax exempt vehicles allowed to dedicate 95% of their funds to private enterprise with no requirements to disclose who makes decisions about these funds or where these funds are invested. Clearly, this leaves a lot for the CRA to improve upon.
At the very least, as part of receiving their special tax status, foundations should be required to report on and publicly share who makes decisions about their investments, the policies that govern these investments, and the specifics investments in their portfolio. The information about these would-be public funds should be accessible to the public. Over the course of the next year, MakeWay will be working towards this level of transparency. Perhaps some others will follow our lead and voluntarily disclose this information, but the only way to ensure its public availability is through new CRA requirements.
The mention of donor advised funds (DAFs) in the budget might also prove promising. One of the many valid criticisms of donor advised funds is that institutions housing DAFs are not required to report to the CRA on specific DAF amounts, disbursements, or investments. As DAFs are often considered an alternative to setting up a charitable foundation, it only makes sense that the reporting requirements for foundations be applied to individual DAFs. Again, MakeWay will be sharing more information about our DAFs over the next year, but increased reporting and transparency across the sector can only be achieved through new CRA requirements.
While the implications for charities are unclear at this point, the budget’s references to improving information collection should be welcomed by those in the sector and the public. To truly make a difference, it will be important for the CRA not to just collect this information, but to make it publicly available. Here’s hoping that this is the kind of improvement the government had in mind.
