In June 2022, the Government of Canada adopted a new version of the Income Tax Act (ITA). Two relatively significant modifications were at the heart of the changes: an increase in the disbursement quota from 3.5% to 5% for grant-making foundations with assets in excess of $1 million; and a significant relaxation of the rules concerning the allocation of philanthropic resources to non-qualified donees.
These changes were made following extensive consultation by the Canadian government with key stakeholders. The Senate Special Committee on the Charitable Sector conducted a comprehensive study of the sector. As part of this, 24 public hearings were held, and an online survey gathered 695 responses from organizations in the sector1. In fact, no fewer than 42 proposed amendments2, not including the increase in the quota to 5%, resulted from the work of the Committee tasked with noting the desired improvements to charitable tax regulations. These recommendations are collected in the report entitled “Catalyst for Change : A roadmap for a stronger charitable sector“. For this special edition, a video interview was conducted with Hilary Pearson, former co-chair of the Committee, to take stock of the work accomplished and the benefits generated by this working group.
Among the proposals, some focused on recognizing and supporting the essential role of volunteers in the charitable sector, including developing a national volunteer strategy, facilitating access to criminal record checks and developing volunteer recognition programs (recommendations 1 to 4 in particular). Others focused on overhead costs to recognize the real costs associated with delivering charitable programs and services, including reflecting overhead and administrative costs as eligible for funding, educating donors and the public about the importance of overhead costs, and encouraging charities to adopt transparent and accountable practices (including recommendations 9 to 12).
It was mainly the recommendations relating to charitable status that interested us at PhiLab. Two recommendations specifically concerned the four main charitable purposes enshrined in the Act: the relief of poverty, the advancement of education, the advancement of religion and any other charitable purposes beneficial to the community. Inspired by British charity law, these purposes date back to a case law decision in the late 19th century3. They are in dire need of updating, given the profound transformations that Canadian society has undergone over the last one hundred and twenty years.
Recommendation 24
That, given the importance of encouraging the evolution of the common law definition of charity, the federal government consider taking steps to assist organizations whose applications for registration are denied or whose status is revoked to appeal decisions of the Charities Directorate of the Canada Revenue Agency.
Recommendation 25
That the federal government, through the Charities Sector Advisory Committee, review the common law meaning of charity to determine whether Canada should follow the approach taken by other jurisdictions, notably Australia and England, and enact legislation that would broaden it.
Among the new dimensions to be taken into account in terms of philanthropic goals, we find the issue of justice or injustice in all its forms, including environmental injustice. On this important issue, the recent COP28 reminds us both of the importance of broader mobilization and of the need for each major group of social players to adopt cross-cutting policies in favor of greater social justice and greater mobilization on environmental justice.
Collective policies for social and environmental justice
There is no doubt that a transition is underway. It is being promoted by various levels of government around the world, by the international business class and by many civil society organizations. Several examples from Quebec deserve to be highlighted here for their methods and commitments. These include:
- ENvironnement JEUnesse4 works to raise awareness, educate and mobilize young people in Quebec on environmental and social issues by taking collective action against the Government of Canada to ensure that it respects the fundamental rights of young people and takes action to counter the climate crisis.
- The Québec ZEN initiative of the common front for the energy transition5, which produced a roadmap of concrete measures for Québec’s transition to carbon neutrality, following collaboration between more than 200 people from 85 organizations and 12 universities.
- The Transition en commun (TeC)6 initiative, an alliance between citizens’ groups, civil society organizations, the City of Montreal and other institutions to advance social-ecological transition initiatives in neighborhoods.
In contrast to these citizen initiatives, the transition is largely presented by governments and the business world in the form of one big answer: the energy transition. Although the UN’s Sustainable Development Goals touch on a variety of dimensions, the promoters of the energy transition approach are betting that mitigating the climate crisis will essentially involve substitution. This would involve abandoning the use of fossil fuels and replacing them with soft energies: eco-performance, electrification, bio-fuels, green hydrogen, decarbonization, solar energy, green transport…
The energy transition: is it enough?
Definitely not. While the economy represents a key dimension supporting the functioning and development of Canadian society, it’s clear that all social problems transcend the economic sphere. We need a holistic, ecosystemic approach to the transition, not a one-dimensional, systemic one. It is to our advantage to think of the policies guiding the functioning and development of our society in a broad, inclusive, complementary, subsidiary, supportive, allied and viable way. It’s a question of thinking in terms of “collective policies”, not sectoral ones, as put forth by the government. Sectoral policies are essentially conceived and deployed in silos.
What does this mean for philanthropy?
This means looking at philanthropy from a new angle. It’s no longer about responding only to emergencies or failures of the government, but also about doing so in a transformative way that strengthens understanding of the root causes at the source of these emergencies. It is also about doing so in a transformative way to act and eradicate these root causes.
This dual challenge – working to mitigate structural effects and eradicate root causes – calls for a range of innovative approaches and policies.
- Postures: in the sense of changing the angle, the position of analysis and the commitment to action. This will enable the development of new behaviours and habits of thought and action.
- Political: in the sense that novelty needs to be institutionalized, but that this institutionalization should be built on a positive note, rather than being restrictive and alienating.
- Innovative: in the sense that it’s not just a question of responding to emergencies to fill a gap or a deficit, but also of setting in motion the people, organizations, institutions or territories concerned so that they participate fully, not only in the mitigation effort, but also in a better understanding of the processes and dynamics in place.
- Innovative: working critically to build a new social order.
Hence the importance of action and an enlightened government leadership in philanthropy. This requires foundations and other charities to engage politically and take part in public debate. Doing so was complicated and risky before the regulatory changes implemented in 2018. These recognized the right of charitable organizations to conduct or fund non-partisan political activities.
We must not lose sight of the fact that philanthropic actions are partially regulated by the government. Many private charitable schemes are run by banks or groups of social investors. These are all areas that are partly exempt from charity regulations. Therefore, the government has a key role to play in guiding philanthropic action. Government regulatory mechanisms need to be aligned with the new reality of investment with a social or environmental vocation and scope. The aims of philanthropy should therefore take ecological considerations into account.
It’s been more than two years since the 42 recommendations were submitted to Justin Trudeau’s federal government.
- What are the impacts of the adopted changes on the charitable sector (the increase in the disbursement quota and the relaxation of rules concerning the allocation of funds to non-qualified donees)?
- What is happening with the projects that are still pending and not currently covered by the new version of the ITA?
The special report we’ve put together brings together content in several forms (articles, podcasts, video) with the aim of providing some answers to these two questions. It is intended to contribute to ongoing reflection and debate on current and future changes to the Canadian charity system.
Prendre du recul avec Hilary Pearson: Qu’est-ce qui a changé dans la réglementation de bienfaisance? Avec Hilary Pearson
This article is part of the January 2024: Unpacking Charitable Law Modernization. You can find more here.
[1] Pour information, on dénombre environ 170 000 organismes de bienfaisance et sans but lucratif au Canada.
[2] https://sencanada.ca/fr/info-page/parl-42-1/cssb-catalyseur-du-changement/
[3] Chambre des lords, 20 juillet 1891 : https://www.parliament.wa.gov.au/publications/tabledpapers.nsf/displaypaper/3912668a6ae5511fce7ec38e48257df8003568fc/$file/2668.pdf
[4] https://enjeu.qc.ca/justice-climatique/
[5] https://www.pourlatransitionenergetique.org/
[6] https://transitionencommun.org/
