Full transcript: Interview with Sharmila Khare, CRA’s Director General of the Charities Directorate

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It’s an exciting time for charity policy geeks, with a boatload of consequential federal charity policy changes on the horizon. In the midst of it, Future of Good reporter Gabe Oatley spoke with Sharmila Khare, the Director General of CRA’s Charities Directorate — the team responsible for the implementation of many of the government’s charity sector promises. 

This transcript, from a conversation that occurred on Feb. 24, 2023, has been lightly edited for clarity. 

Let’s dive in with the consultation on the draft guidance the CRA has released about how charities can newly grant to non-qualified donees. How many responses did the CRA receive on the consultations? 

To date, we’ve received about 60 unique responses from the sector. There certainly has been quite a bit of interest in this particular guidance document. Before we went out for the formal consultation, we had a few conversations with our Technical Issues Working Group — a group of about 15 people who represent the charitable sector. We also had some targeted consultations with stakeholders who expressed a particular interest in the guidance. We’ve also had a few meetings since the consultation period opened so we’ve received lots of feedback and there is a healthy amount of interest in the guidance document, which is great.

When can we expect a final guidance product?

We’ve been reviewing the submissions as they have come in, and we’ve been tweaking the guidance, where we thought the feedback has really led to some substantive comment that merited a change to the guidance document. We’re hoping to finalize the document in the coming months. And then we go through our publication process and seek approvals from various levels within the CRA. But it is in everybody’s best interest to see that final product in the public domain as soon as possible because the new rules are in effect right now.

So not immediately, but soon-ish? 

It is the policy product in the Charities Directorate that is getting the most attention right now. It is our priority in terms of all of the policy products we’re working on.

What steps is the CRA undertaking to support funders to use this new approach to grantmaking? One charity sector professional I’ve spoken with was supportive of the draft guidance product, but said he worried that without marketing the new guidance, funders might not change their behaviour to take advantage of the new rules. 

I’ve heard similar comments. As the regulator of the sector, our responsibility is to put out administrative guidance so that the sector understands how we intend to administer the new legislative framework. We’re not necessarily the marketers of the new policy. I think the sector has an important role to play and also helping to ensure the sector understands the new framework and the new opportunities that will be available to charities who wish to work with non-qualified donees to further their charitable purposes.

So that’s the sector’s job? The sector needs to get on it, and start hustling and talking to people to make that happen? 

I think that’s an appropriate role for the sector to play, and I think the appropriate role for the regulator to play is to provide the administrative guidance. We will certainly be doing what we can to promote that guidance and make sure that the new framework is understandable to those who want to use it — but I think the sector is probably better placed to promote the new rules.

Some have expressed concern that many foundations, particularly those whose charitable purposes are focused on “providing support to qualified donees,” might need to amend their charitable purposes to be allowed to leverage this new way of working with non-qualified donees. What is your perspective on that?

I think that is an important consideration that’s come up through the consultation process. We will be providing a little bit more guidance to the sector on how they can update their charitable purposes. Because at the end of the day, the charity needs to be able to demonstrate that resources were used to further their stated charitable purposes. It’s important for any charity to ensure that their purposes reflect the type of work they’re engaged in today.

So that will need to be updated for foundations for whom their stated charitable purposes are supporting qualified donees — they will have to make that change? 

It will always depend on the particular fact and what the charitable purposes of any foundation currently look like, but it is likely that some adjustments will need to be made. 

Moving onto another issue: As a reporter, I love the T3010 — there’s a lot of data that I would love to have added to it; but it still provides some great information. However, three years ago, when the Special Senate Committee report came out, they recommended the government include questions on both the T3010 (for registered charities) and the T1044 (for federally incorporated not-for-profit corporations) related to the diversity of board members based on existing Employment Equity guidelines. What can you share about progress on that file? 

It’s not a file that is within my area of responsibility, per se. I believe there’s some work underway in the Senate — there’s a motion in the Senate that would see diversity data being collected on both of those forms. When it comes to the T3010, it’s an interesting form because it serves two functions. One is public transparency: to provide Canadians with information on the charitable sector. But it’s also a compliance tool: we use it to collect information that we need to help ensure that charities are in compliance with the provisions of the Income Tax Act. And currently there are no provisions in the Income Tax Act that relate to collecting information about the diversity of the directors in charities or nonprofit organizations. 

So that would need to be true in order for CRA to make an update to that form? 

CRA would need a reason to collect that information. From a compliance perspective, that is not information that I need to run my program, today. 

Onto impact investing: Many folks in this sector have called in recent years for the federal government to require foundations to have at least some portion of their invested assets aligned to their mission via impact investments. I’m curious what exploration your office has done, if any, in exploring policy options in this area? 

Again, our role is administrative: we’re a regulator. We’re not necessarily the leaders when it comes to policy development. That generally would be Employment and Social Development Canada (ESDC) in this space, as well as the Department of Finance, if they were going to make any tax policy changes to support that type of investment. But, it’s also an interesting term: What does impact investing really mean? Because if you look at the charitable sector today, I think most charities would say, the way they use their resources and deploy their resources, it’s all about having impact in their communities and abroad. So the definitional aspect, I think, is important to look at.

A question now, about donor advised funds. Many sources we’ve spoken to for several stories have been pleased to see the increase to the disbursement quota, but have expressed continued concern that individual DAFs are not bound by a DQ obligation. What is the rationale for why it might be reasonable to not require DAFs to share where their dollars are flowing to on a DAF-by-DAF basis, as is required of private foundations — especially given that many DAFs might be just as large as some public and private foundations? 

I don’t think I can answer that question specifically, but if you look at the last federal budget from the Department of Finance, when the disbursement quota changes were introduced, they also asked us to collect more information on the T3010 form on DAFs. I don’t think we know enough as a government on the use of DAFs in the charitable sector. So, the first step will be for us to collect more information through the T3010, which will inform tax policy development in the future and compliance activities and the future.

What information do you anticipate collecting on DAFs and what is the timeline for that change? 

I can’t speak to the specific changes at this time, but we are anticipating the revised T3010 form will be available in fall 2023. All of the changes related to the disbursement quota modification that were introduced in 2022 will appear on that version of the T3010. So, it is coming.

What other DQ-related changes will we see? 

Of course, the DQ rate has changed for assets in excess of a million dollars. We will be also collecting more information on investment as per the Budget 2022 announcement, as well as information on DAFs. 

A more philosophical question: I worked on a story about CRA’s non-qualified donee draft guidance document. For that piece, I spoke with a foundation executive who was happy with a lot of what was in there but was disappointed to see the heavy focus on risk in the document. He said he believed the heavy focus on risk was indicative of the fact that this policy document was being created by what is, fundamentally, a tax enforcement agent. The charitable sector does not have a “home and government,” as has been long demanded by the sector. And for many charities, it seems, its front door into government is through CRA, which is a tax enforcement agent. As someone who’s been doing this work for a long time, what’s your perspective on what CRA is able to do; and any tensions that arise from the responsibility that CRA holds vis-a-vis its work with the sector.  

First and foremost, the Charities Directorate, we’re a group of very passionate people who are there to serve the charitable sector. Our role may originate through the regulatory framework for charities and other qualified donees that is laid out in the Income Tax Act, but really what’s in our heart is a desire to see a strong and vibrant charitable sector — a sector that Canadians can trust — and Canadians will trust the sector if it is in compliance with the regulatory framework. So, I think the sector needs a regulatory body. It just so happens that the model we have in Canada has the Canada Revenue Agency playing an important role. But that doesn’t mean the agency is not supportive of the sector. We want to educate and support the sector so that they are in compliance with the regulatory framework and that’s what Canadians expect. That’s what parliamentarians expect.

Does the CRA’s role as a tax enforcement agent shape the relationship that charities are able to have with the federal government? 

The Charities Directorate — it’s kind of like we’re our own little world within the tax agency. People in this directorate are here because they’re very passionate about this particular sector. They’re here in the directorate working by choice. Even though we are part of a big tax agency, and can benefit from many of the initiatives that the agency has put forward, we’re still very much a boutique group and a unique place to work with a very focused mandate.

There have been concerns, especially from Muslim charities across the country over a study that found that of the sixteen charities audited by the CRA’s counterterrorism financing group, the Review and Analysis Division, between 2008 and 2015, eight had their status revoked — six of which were Muslim-led. A study by a University of Toronto academic also found that Canada’s anti-terrorism financing and anti-radicalization frameworks can produce bias. Can you explain what the Review and Analysis Division is, why it exists, and what efforts have been made to limit possible anti-Muslim bias? 

Our Review and Analysis Division is a niche area in the Charities Directorate that was really set up to protect the charitable sector from the abuse of terrorist financing. Charities are particularly vulnerable when it comes to the possibility of being used to flow monies for the wrong purposes. This is part of a global commitment that we have to protect this sector from abuse. Our Review and Analysis Division has three primary functions. The first is to review all applications for charitable registration to ensure that there are no risks of terrorist financing. Right at the entry point, we want to ensure that that risk is mitigated. That’s part of the workload that is, perhaps, a little bit less well understood. They also monitor the sector to see if there are trends or new developments in the charitable sector where these risks may emerge. And we have a small compliance function as well, where, if there is a risk — and we are working off the national inherent risk assessment that is published by the Department of Finance — if there is a risk of potential abuse, then that’s a flag for us and we will go in and do a full audit on the charity. There have been allegations of bias, but I think the policies and procedures and systems that we have in place in the Charities Directorate are designed to prevent bias presenting itself in the selection of a charity for audit or the denial of a registration. We work in team environments so it’s not one person making the decision. It’s done in collaboration with colleagues, and there’s lots of checks and balances in the system. Those are all designed to minimize or eliminate bias in our decision making process and our officers pursue a lot of training on the topic of unconscious bias.

We published a story last winter, which included the voices of several folks from the sector who were expressing frustration about the lack of what they felt was racial and experiential diversity on the ACCS and expressing frustration that there wasn’t broader consultation from the ACCS with the wider charitable sector, in particular on the disbursement quota issue. I know there have been new folks who’ve been brought on to that committee since then. But I’m curious what efforts your office has been making to ensure that you’re hearing from a broader array of folks than maybe some of the go-to experts who might be closer to the office when developing policy that will affect the sector for many, many years.

I think we try our best to hear from a variety of voices. So, when we established the Technical Issues Working Group we invited a number of umbrella organizations to the table and in certain cases, asked those umbrella organizations to name their representatives. We let them know that we’re looking for a range of diversity and voices on our Technical Issues Working Group, and provided them with a list — urban, rural, geographic, small charity, large charity experience. Then we will go in and invite additional individuals to the table to try and be as broad and representative of the sector as we can. As you know, the sector is very diverse, and I think this is a challenge that some from the sector have also raised with me when it comes to the Advisory Committee on the Charitable Sector. They are a group of 17 sector representatives, as well as three government representatives, and many will say they don’t represent the sector. While they are members on the ACCS, they have an opportunity to explore priorities, make recommendations to the government. And, in the recent years, we’ve had an open call for membership on the ACCS and we have asked individuals to provide us with some information about themselves that we can then use when we’re briefing up to the Minister to ensure that we have geographic representation, gender representation and a whole range of diversities. I was there at the inception of the ACCS and I helped design it, in my previous job. And, I will say through the ACCS, I have met so many new stakeholders that I hadn’t had the opportunity to work with before and that’s been really positive for myself and other staff in the Charities Directorate.

What is the Technical Issues Working Group? What is that group and what’s its mandate? 

It’s a working group that’s been in place since 2014. They have a two year membership. It includes lawyers, accountants, representatives from umbrella organizations, from organizations like the Ontario Nonprofit Network, which represents the non-profit sector in Ontario, as well as some targeted technical experts from across the country. They’re generally our go-to group when we are consulting on a new policy document or when we are thinking about an operational change within the Charities Directorate. So, we had many discussions with them — we call them the “TWIG,” even though that’s not phonetically correct — when we introduced the new online services for the charitable sector, and they can provide us with real life, on-the-ground experience of our services and our technical products.

What else is on the horizon from the Charities Directorate that I haven’t asked about?

This year, you can definitely expect changes to the T3010. This coming spring, there will be changes to reflect the new granting regime. This fall, there will be changes to reflect the changes to the disbursement quota. We’re also waiting for the Taxpayer Ombudsman to release a report of a systemic investigation that he carried out on the work of the Charities Directorate and the RAD program in particular. We’re looking forward to those recommendations and seeing how that will shape our work going forward.

What’s the focus of the Taxpayer Ombudsman’s report?

Our Minister asked him to conduct an investigation into our audit selection, into the training our employees receive on unconscious bias, as well as the services we offer to the sector. Those recommendations, I’m looking forward to them and seeing how that will shape the way forward. I’m also looking forward to being on the road more, and so are our colleagues in the Charities Directorate. Prior to the pandemic, we launched charity information sessions and we were across the country delivering information sessions to charities and that had to stop during the pandemic. So, I’m looking forward to relaunching some of those information sessions.

What is one thing you wish the sector better understood about your team’s work? I’m sure it’s frustrating having people like me poking around, while not understanding much about your team’s day-to-day work. What do you wish we better understood? 

I think fundamentally, we are here to help. I would encourage charities to contact us if they have questions, if they have concerns, if they need some guidance, or if they’re having trouble navigating our website. We have some great online services for charities as well — charities can now file their T3010 form online, and they get an immediate confirmation that it’s been submitted to the CRA. Once you’re on the system, it’s a great tool that we have available for the sector. So, I’d like to see more take up of our online services going forward. But, you know, at our heart, we are here to serve the sector and provide the education and support they need to be in compliance with the regulatory framework that we have.

It sounds to me like charities should not be envisioning a call to your team like a traditional call to the CRA, which perhaps inspires a lot of fear. But rather one to a more helping-oriented friend on the other end of the line? 

That’s definitely what people will discover when they give us a call — and you can make an anonymous call. You don’t have to identify yourself if you’re seeking information — but, I don’t think I’ve worked in a place with more passionate and dedicated people. They’re here because they want to help the charitable sector. So, I hope that’s the experience that your readers will have too.

And what about you — what draws you particularly to this work? You’re trained as an economist, you’ve worked for many years in tax policy, you worked for the World Bank, and now you’ve been 13 years in charity sector policy. What is it from your background, volunteer work or your work experience that has drawn you to this work and kept you here? 

Well, ah! I’ll tell you something more personal. Definitely, my mom was a big inspiration. She came to Canada as an immigrant. She was a trained architect, but couldn’t practice in Canada as an architect. So, her life really became about being that great grassroots volunteer, and she impacted so many people. And many of the things she worked on, for immigrant women and seniors in the community where I grew up, they still exist today. So, I had that role model growing up and I was very involved with Girl Guides and the Duke of Edinburgh award — and both of those organizations are focused on service. I can’t remember a time of my life, since I was a young person, where I wasn’t engaged in some type of regular volunteer work. So, it’s a sector that I really care about. I also did some studies at Carleton University, after I became a public servant. And I took a course with Susan Phillips in public administration, and I decided to compare the regulatory framework for nonprofit organizations and registered charities. And I just dove right into the research and I found it so fascinating. And then, at the Department of Finance, I got to work on tax policy related to non-profits. And at the World Bank, I worked with civil society organizations. And then I became the Chief of Charities and so, wow — what a great public service role that is, where you can work in an area that you’re passionate about?

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