Policy Update

Background

In Budget 2022, the Government of Canada made several announcements to advance key aspects of the regulatory regime governing the charitable sector. Key promises included:

A rate increase in the disbursement quota from 3.5 to 5 per cent for charities with assets over $1M.
That the Canada Revenue Agency will 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.
Implementing the “spirit” of Bill S-216, The Effective and Accountable Charities Act, which would allow charities to provide resources to organizations that are not qualified donees carrying out charitable activities, provided that the charity meets certain requirements designed to ensure accountability. The bill passed through the Senate and is on its way through in the House of Commons. Supported by many charities and lawyers across Canada, Bill S-216 would have created an accountable but more realistic framework for Canadian charities to fund non-qualified donees and to do so in a less colonial and administratively burdensome way.

On April 26 the Government of Canada tabled Bill C-19, the Budget Implementation Act, 2022, No. 1, which implements a first set of proposals outlined in Budget 2022.

PFC, along with colleagues at Imagine Canada, Co-operation Canada, Ontario Nonprofit Network and other sector leaders, noted new regulations specific to charitable partnerships with non-qualified donees.

Analysis and action

Upon review, we learned of a new regulatory track to govern grants from registered charities to non-qualified donees called “qualifying disbursements” – and had serious concerns with the proposed legislation. As written, it would have made the regulatory regime governing partnerships between charities and non-qualified donees even more problematic than it already is.

Non-qualified donees are much more likely to be led by and serving those who are Indigenous, Black, and other equity-seeking populations, and often are the best equipped to identify and advance solutions for their own communities. Yet, as it stands these groups are far less likely to access available charitable dollars.

So, over the last several weeks PFC engaged in a concerted advocacy effort with many sector leaders for three important amendments to Bill C-19, and we are pleased to report a major victory. Two of the three of our proposed amendments were passed, while a third on directed giving did not.

On May 30, the House of Commons Standing Committee on Finance voted unanimously to pass an amendment we were seeking to remove the reference to disbursements to non-qualified donees meeting ‘prescribed conditions’, and replace it with a requirement that the charity instead take reasonable steps to ensure that the resources disbursed are used exclusively in furtherance of a charitable purpose. Because it passed, this means that the narrow and prescriptive requirements laid out in the original language proposed have been removed. Charities operating under the new “qualifying disbursement” regime in their partnerships with non-qualified donees will now only have to maintain documentation demonstrating the purpose of the disbursement, and require that disbursements are exclusively to be used for charitable activities.

The committee also passed an amendment we were seeking to delete the prescribed conditions for qualifying disbursements, meaning that the regulations will provide guidance, which is more flexible and can evolve over time, rather than being enshrined plainly in law.

However we are disappointed that the third amendment we were seeking on directed giving was defeated. We were hopeful that the government would remove language that effectively obstructs charities from contributing to pooled funds or shared platforms supporting non-qualified donees or allocating more than 50% of its resources to non-qualified donees under the new “qualifying disbursement” regime.

Our key concern is that the rules as proposed under the “qualifying disbursement” regime creates serious risk of the charitable status of organizations supporting non-qualified donees and discourages pooled partnerships and shared platforms – good practices to achieve meaningful impact both in Canada and globally.

Implications and next steps

Despite this setback, PFC is eager to move forward to collaborate with our sector colleagues and the Government. Senator Ratna Omidvar’s office, a key leader and collaborator on this issue, has publicly underscored that the Government has said it will take a “light touch” approach to the enforcement of directed giving rules. While we cannot yet know what this means, we will be monitoring and contributing to the policy development process closely and are hopeful a realistic and enabling framework can be developed. In the meantime, charities are still able to support non-qualified donees through existing structures under the direction and control framework.

Bill C-19 is expected to pass in the House of Commons before the summer recess. Due to specific provisions in Bill C-19, after it passes, Bill S-216 will become null and void.

The details of the new rules will become clearer as the guidance documents are developed. PFC will continue to work with the sector to constructively engage policymakers on this important issue and work with the CRA on the developments of any new guidance to ensure it is helpful and practical for the sector.

In terms of the other two Budget 2022 promises regarding the disbursement quota increase and charity data collection, we are expecting proposals in the second Budget Implementation Act which is likely to be tabled in the fall.

As details and the ramifications of these new policies evolve, PFC will continue to keep our network up to date on these important issues.