Updated charity form to deliver new investment data to Canadian government — but is it enough?

This independent journalism is supported by MakeWay and Waterloo Region Community Foundation. Read our editorial ethics and standards here.

When board members complete their annual charity reporting forms this year, they’ll notice something different. 

In January, the Canada Revenue Agency rolled out the latest version of the T3010 form, which adds several questions to collect more data on emerging areas of charity sector policy, including donor advised funds, impact investing and foundations’ adherence to the disbursement quota. 

“When you want to do evidence-based policy, you need to [be] grounded in data,” said Kate Bahen, managing director of Charity Intelligence, a non-profit that assesses the impact of Canadian charities. 

“These changes to the T3010 are giving policymakers better data to make evidence-based decisions. I’m all for that.” 

But while researchers and academics studying all three fields welcome the changes, some say significant data gaps remain. 

Update will provide new data on number of DAFs

The revised federal charity form adds five new questions about donor advised funds (DAFs) — a charitable giving vehicle that has exploded in popularity over the past decade. 

Every charity is now required to state whether they offer DAFs, the number of DAFs they hold and the total value of their DAF assets, mirroring the information collected in the United States. 

The form will also ask charities the total amount donated to and granted out of their DAFs during the fiscal year. 

The new questions will help researchers assess the number and value of DAFs held by foundations with multiple types of funds, said Celeste Bannon Waterman, partner with consulting firm KCI, which has analyzed the DAF landscape in Canada. 

This will be useful for researchers trying to analyze the holdings of community foundations, which often have endowment or scholarship funds in addition to DAFs, she said. 

Nonetheless, the new fields won’t answer the biggest question critics have about DAFs, said Ray Madoff, a professor at Boston College. 

“You need more if you’re going to see if DAFs are working for the public good.” 

Madoff, who has studied DAFs extensively, said the government should require charities to provide information on a per-DAF basis, detailing how much money flows in and out of each fund annually.

Doing so would allow Canadians to assess whether DAFs are genuinely being used to distribute grants to charities or are just holding charitable capital long-term, she added. 

In Canada, individual DAFs are not required to meet the disbursement quota (DQ) — the minimum annual rate required by each foundation to spend on charitable activities. 

Some DAF proponents argue the current system is fine, because once a donor establishes a DAF, the charitable assets in their account are the property and responsibility of the charity, thus making it the institutions’ obligation to follow the minimum granting rate.

But Madoff said individual DAFs should also be subject to the DQ because donors get an immediate charitable tax receipt when establishing a DAF and retain the right to recommend grants from their account long-term. 

“This is perfectly fine as a first step,” Madoff said of the T3010 update. 

“But it doesn’t answer any of the questions about whether these donor advised funds are providing public value.” 

New impact investing question may offer a ‘nudge’

The new T3010 form also includes one new question about impact investing, which experts say may help expand the field. 

The form asks charities the total amount they hold in impact investments, defined by the CRA as investments intended to generate a positive financial return and to have a measurable, positive environmental or social impact. 

“For the next few years, I think that the importance of this new field will be its ability to nudge an old guard into considering new ways of allocating a charity’s financial assets,” said Kate Ruff, associate professor at Carleton University and the executive director of the Common Approach to Impact Measurement. 

“This tiny little field will be a big conversation starter.”

Yet CRA’s broad definition of impact investing will make it challenging to use this data meaningfully, said Bill Young, founder of Social Capital Partners and a prominent social finance advocate. 

Some charities will likely count ESG or negatively screened investments in the impact investment category, muddying the data, he said. 

ESG investing involves investing in funds or companies that score well on social, environmental and governance metrics. Negative screening involves proactively eliminating from your portfolio companies that do the most social or environmental harm, such as weapons, mining or tobacco companies. 

While both approaches steer a portfolio toward better social impact, they are widely seen as distinct from impact investing, which involves proactively identifying companies achieving the greatest social impact and sometimes earning less than market-rate returns. 

A tighter definition of impact investing would have been better, and it would have also been helpful for CRA to collect data by impact investment type — fixed income, equity investments, or otherwise, said Young. 

Still, like Ruff, the social finance advocate said he also believes the change is a positive step as it will signal to foundations that the CRA may collect additional impact investing data in the future. 

New DQ questions may help improve compliance 

The updated T3010 form will also make it easier for board members and researchers alike to assess whether charities are meeting their disbursement quota obligations, according to experts.  

The updated form includes a new section where foundations must calculate their DQ obligation and how much money they’ve spent toward it. 

In the past, charities had to provide this information, but it was never so explicit, said John Hallward, chairman of Giv3, a charity that has advocated for a higher DQ. 

In 2021, the federal government consulted the charitable sector about a potential increase to the DQ, which subsequently passed. 

To provide a data-informed submission to that consultation, Hallward was forced to assess the rate at which foundations met their DQ by creating a massive spreadsheet, pulling information from various sections of the T3010 and making assumptions where data was missing. 

The T3010 changes will make this analysis much easier, he said. 

The new questions may also help board members ensure their charity is DQ compliant because the form walks users through the calculations in a more straightforward manner, he added.

But despite the improvements, the data will only be as good as the quality of the information submitted, said Hallward. 

T3010 returns are rife with errors and empty fields. 

To boost the quality of charity sector data, the CRA should use artificial intelligence to proactively identify errors and prompt corrections, he said. 

“The benefit of software is that it can rattle through 85,000 of these things and red flag the ones that just don’t make sense.” 

Tell us this made you smarter | Contact us | Report error