New toolkit aims to debunk idea that funding non-qualified donees is riskier
Why It Matters
A hard-fought legislative change has allowed funders to grant to grassroots groups and non-profits. But without a roadmap, many may sit on the sidelines.
For funders keen to grant to grassroots groups but unsure where to start, life may have just become a little easier.
In late May, a group of private and public foundations launched a new report to boost the number of peer funders granting to social purpose organizations without charitable status — non-qualified donees (NQDs).
The toolkit, created by the McConnell, Inspirit, Laidlaw, and Lucie and André Chagnon foundations, offers a case for why others should grant to NQDs and tips on how to do so.
“If you’re wanting to flow support to organizations that are by and for equity-deserving groups or impacted communities, then you should be looking at how to support NQDs,” said Jane Rabinowicz, chief program officer for the McConnell Foundation, one of the four grantmakers behind the initiative.
The toolkit follows a change in the law in 2022, which newly allowed charities to grant to non-qualified donees.
While funder interest in such granting has increased since the policy change, Rabinowicz said it’s unclear whether that has translated into new dollars for grassroots groups.
The new toolkit aims to help.
Early-stage initiatives get a boost with NQD funding
The report offers examples of several funders who have boosted their support for NQDs in recent years and insight into what motivated the change.
Equity motivated the Montréal-based Lucie and André Chagnon Foundation, one of the country’s largest private foundations.
Groups from isolated or marginalized communities may not have the same capacity or interest in securing charitable status, according to the report.
By funding NQDs, the foundation can increase equity in its grantmaking.
In 2022, 66 per cent of the foundation’s portfolio went to NQDs. A year later, that figure has increased to 71 per cent.
The Toronto-based Inspirit Foundation has also been motivated to fund NQDs because of its focus on early-stage organizations, according to the report.
Many new organizations haven’t yet had the capacity to determine whether they want to seek charitable status, said Rabinowicz.
Funding NQDs thus gives new organizations support during the initial months and years.
In 2022, 45 per cent of Inspirit’s grantees were NQDs, according to the report.
Debunking the increased risk myth?
Yet despite the benefits, is granting to NQDs more risky? Are organizations without charitable status more likely to commit fraud or lack necessary financial controls?
“In our experience, given our work supporting NQDs for a number of years, we have not found that they come with a higher risk of fraud and mismanagement or bad governance,” said Rabinowicz.
In 2023, 16 per cent of the foundation’s funding went to NQDs, totalling about $5 million.
Rabinowicz said some funders may be concerned about risk because it has been emphasized in CRA’s guidance on NQD granting.
While it’s fair for the country’s tax administrator to try to reduce risk, she said the extra concern doesn’t square with the foundation’s experience.
“Part of the motivation for creating the toolkit was to debunk the notion that NQDs come with enhanced risk.”
Updating charitable objects
However, granting to NQDs may require some additional upfront work.
To begin granting to NQDs, the McConnell Foundation and others are choosing to update their charitable objects—the statements in their CRA filings that detail how a foundation can use its funds.
This costs some money and takes some time, but it ensures the foundation’s objects clearly allow them to support NQDs, said Rabinowicz.
“You pay a few thousand in legal fees, and you’re able to direct hundreds of thousands or millions of dollars towards very worthy initiatives,” she said.
“To me, that math checks out.”
Higher disbursement quota provides equity opportunity
The report’s authors say the time is now for the peers to boost funds to grassroots groups.
In 2022, the federal government increased the disbursement quota — the rate at which foundations with assets over $1 million must grant — from 3.5 to 5 per cent for a foundation’s assets not used for charitable activities beyond the $1 million threshold.
Research has found initiatives led by Black and Indigenous organizations receive fewer charitable dollars.
“If funders increase disbursement without diversifying grantees, inequities within the sector will only be reinforced,” the report says.
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