Making it Easier to do Good: Doing Away with the “Own Activities” Requirement
A group of prominent lawyers have published an open letter urging the government to change the rules that govern how Canadian registered charities are permitted to work with third party organizations in Canada and around the world to further their charitable purposes. They also published a blog post that outlines how Bill S-222, The Effective and Accountable Charities Act, proposes to solve this problem. Read an excerpt of the blog post below:
Early last week, Senator Ratna Omidvar tabled Bill S-222, The Effective and Accountable Charities Act (the “Bill”), to break down barriers for Canadian charities working with other organizations, both in Canada and abroad. The Bill, if enacted, will bring age old law and policy into the 21st century at a time when charities, non-profits and grassroots organizations need support more than ever. The proposed reforms have been met with applause by sector organizations, their stakeholders, and the communities they serve.
In June 2019, the Special Senate Committee on the Charitable Sector, led by Senator Omidvar and Senator Terry Mercer, published a report following a study of the impacts of current federal and provincial legislation on charities and non-profit organizations. There is one set of rules in particular that poses challenges for charities across the spectrum—both big and small, whether operating domestically or abroad. This is the “own activities” requirement imposed by the Income Tax Act (the “ITA”) and the “direction and control” rules required by Canada Revenue Agency (“CRA”) policy.
The current law requires that Canadian charities spend their resources only on their own charitable activities and maintain “direction and control” over the non-charities they work with. Specifically, the law requires that a charity devote its resources to charitable activities “carried on by the organization itself”. CRA interprets this section of the ITA as permitting a charity to operate in only two ways: (1) carry out its own charitable activities; and/or (2) make gifts to qualified donees (which include, for the most part, other Canadian registered charities). Consequently, if a Canadian charity wishes to work with a charity abroad or a Canadian non-profit organization, neither of which are qualified donees, it must establish direction and control over the activities of the partner organization such that they are the charity’s “own activities”.
Why does this present challenges for charities and the organizations they work with? The charity transferring its funds to carry out charitable work must abide by a laundry list of ill-defined requirements that are inconsistent with the practical reality of how organizations work together. As a result, the onerous requirements imposed by these rules channel donor dollars away from charitable work towards administrative fees spent on compliance.
Click here to read the full blog post on the Miller Thomson Lawyers website.
Click here to read the open letter.
Click here to read an article about the open letter in The Philanthropist Journal.