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A group of foundations, charities and sector advocacy organizations are engaged in a rapid lobbying blitz on Parliament Hill, seeking last-minute changes to a draft federal legislation that, they say, would make it more challenging for charities to partner with non-profits and other non-qualified donees.  

In April’s federal budget, the government promised an amendment to the Income Tax Act to make it easier for charities to support non-profits, international development organizations and other organizations without charitable status.

The government said the proposed Income Tax Act amendment would “implement the spirit” of Bill S-216, a bill led by Senator Ratna Omidvar that has been in development for more than 18 months and has already passed through the Senate and its first reading in the House of Commons. 

The senate bill, the Effective and Accountable Charities Act, proposed minor, but significant changes to the Income Tax Act, which would put the onus on charities to thoroughly vet a prospective non-qualified donee partner up-front prior to funding; rather than the existing framework, which requires charities to retain “direction and control” of the non-qualified donee throughout the entirety of a collaboration.

Under current law, when a charity wants to fund a non-qualified donee, they must dictate how money is spent, oversee any project budget changes, and pre-review all press releases and other communications distributed by the organization. The funding charity — not the non-qualified donee — also retains all intellectual property rights that might come out of the collaboration.

Imagine Canada, a charitable advocacy organization, initially welcomed the announcement in the federal budget about the proposed amendment to the Income Tax Act, believing it signaled the government might act on this issue faster than the proposed implementation timeline of Bill S-216. 

But they, and a group of other foundations and charities, are now raising the alarm, after the government recently released a draft of Budget Implementation Act, 2022 (BIA), which would enshrine the first round of government budget promises — including the Income Tax Act amendment — into law. 

“While the government’s intention was to act in the spirit of Bill S-216, the details of the BIA don’t reflect that intention,” said Bruce MacDonald, Imagine Canada CEO. He said the proposed legislation “retains the most problematic aspects of the previous rules,” and would result in relationships between charities and non-profits that are “complex, expensive [and] patriarchal.”

In a policy brief sent to MPs this week, Engineers Without Borders Canada, an international development charity, called the government’s draft legislation a “shocking and incomprehensible reversal.” The organization said it was “absolutely essential” that the BIA be amended before being passed to restore the true spirit of Bill S-216.

In their policy brief to MPs, EWB has asked the government to remove a clause that would require a non-qualified donee to provide their partner charity with a “written final report,” offering a summary of the results achieved with the charity’s resources, details on how funds were used, and “documentary evidence” to show that the resources were used only for their intended purpose. 

EWB said this provision reflects a “fundamental misunderstanding” of how charities work with non-qualified donees. “There is no such thing as a time bound project but rather there is an investment on impact and a long lasting partnership. Instead of increasing the paperwork required, in the spirit of Bill S-216, we suggest removing this requirement in its entirety,” they wrote in the briefing document.  

They also suggested removing a clause that would require non-qualified donees to give accounting documents and other records related to the use of the charitable disbursement to their charitable funding partner or keep them on hand for at least six years. EWB Canada said that this clause makes it unlikely that any non-profit would want to work with a charity.

Future of Good asked the Ministry of Finance for comment on the language in the BIA and the concerns posed by sector advocates but did not receive comment by press time.

Draft legislation remains ‘paternalistic and ‘patronizing’: Imagine Canada

Imagine Canada has expressed concern that the draft legislation would continue to block partnerships between charities and Indigenous groups — a main driver behind national advocacy on this issue. 

In a briefing note sent to MPs this week, Imagine Canada said the BIA would continue this “paternalistic and patronizing” relationship between registered charities and non-qualified donees.

Liban Abokor, co-founder of the Foundation for Black Communities, has also expressed concern that without modification, the legislation could run the risk of “diverting resources away from where they are needed most.” 

In the federal budget, the government also committed to increase the disbursement quota — the rate that funders must spend annually on charitable activities. It promised to raise the rate from 3.5 percent to 5 percent for charities with assets over $1 million.

Abokor and many others in the charitable sector welcomed this news. But the Foundation for Black Communities co-founder said that without an amendment to the BIA, the DQ increase will not result in increased funds flowing to Black organizations, Indigenous organizations, and other grassroots groups — many of which do not have charitable status, and as such, would not be able to benefit from increased funds. 

He said the proposed legislation inadvertently curbs the government’s own ambitions to drive more resources into communities. 

MacDonald and Abokor are among the group of a dozen organizations lobbying MPs to introduce an amendment to the legislation. But time is in short supply. MacDonald said his team is working on the assumption that the vote on the legislation might occur as early as next week.

“Once put into the Income Tax Act these changes will be very difficult to undo,” he said. “It is essential that the groups most affected by this problematic legislation ensure that their concerns are taken directly to their MP.”

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