Why charitable giving outside Canada is so hard, and who's trying to fix it

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Many people worry about making enough money, but for some, the trick is giving it away. There’s no problem, of course, if you simply want to hand out cash, but if you’d like to receive a tax receipt – as most people, quite reasonably, do – then your gift is subject to the regulations of the Income Tax Act.

And while no one would disagree that charitable giving should be carefully scrutinized, a growing number of Canadians want to change the wording of the act.

Specifically, they want to revise a few phrases that make it onerously difficult for donors to support some legitimate causes, especially if the intended recipients are outside Canada. On Dec. 1, Senator Ratna Omidvar presented Bill S-216, a.k.a. the Effective and Accountable Charities Act, to the Senate. Its aim is to amend the Income Tax Act to help registered charities partner with organizations that aren’t charities, enabling Canadian donors to support a broader range of causes without sacrificing accountability or transparency.

“Providing help to institutions and organizations overseas is a complex situation,” says Omidvar. “The rules are pretty tight. They stipulate that Canadian charities may only give to other charities or conduct their ‘own activities,’” she says.

“When you are building a school in India, or giving to educational institutions, or women, or farmers, those organizations may well be charities in their own jurisdictions, but they’re not registered in Canada.”

The current rules stop “a lot of innocent people who want to do work outside Canada,” says Marvi Ricker, managing director, family philanthropy and legacy, with BMO Family Office in Toronto, “mainly people who have immigrated from outside Canada and want to support education or healthcare in their country of origin – sometimes even the village they grew up in. It’s a very personal need to help the people that they grew up with.”

37 lawyers support the effort

According to an open letter from 37 top charity lawyers in support of Omidvar’s proposal, “The complexity of the [current] rules results in high administrative costs that could instead be spent on charitable work, and in some cases prevents the delivery of charitable programs altogether.”

Cooperation Canada has been working with Omidvar on the issue. It is the national association of organizations that focus on international co-operation, humanitarian causes or international development, including the Canadian Red Cross, Oxfam Canada and Plan International.

“The regulations from Canada Revenue Agency have always impacted our members significantly in terms of how they’re able to carry out their charitable activities outside Canada,” says Cooperation Canada interim CEO Maxime Michel, who is based in Ottawa.

Providing help to institutions and organizations overseas is a complex situation. The rules are pretty tight.

Senator Ratna Omidvar

Changing the Income Tax Act is not only about clearing red tape for donors, she says, but also about changing the nature of the relationship between donors and recipients.

“Working internationally, there’s an inherent power dynamic when a rich country is providing assistance in a poorer country,” Michel says. “We’re working on really big questions about how we do our work and how we decolonize our work.

“How do you ensure that the people receiving assistance can influence that assistance, lead it, own it?”

Exercising ‘direction and control’

The Income Tax Act currently states that a Canadian donor must exercise “direction and control” over the initiative they are supporting, a terminology that Michel says is not comparable to that used by any other country. She suggests that in many situations – working with a group of women in a refugee camp in Uganda, for example – exercising “direction and control” is the wrong approach.

“We want to be very accountable for where the money is used,” Michel says. To maintain accountability while empowering recipients to have some say in the kind of assistance they receive, the Effective and Accountable Charities Act proposes a wording change from a focus on “direction and control” to “resource accountability.”

Omidvar offers a real-life example.

“Farm Radio International does brilliant work,” she says. “It raises funds in Canada and then helps farmers in Kenya learn about sustainable agriculture, so their lives are improved. The best way for them to do this is not to write books and give them to farmers; the best way is to partner with local journalists to carry this on Kenyan radio.”

Under the current regulations, however, this would not qualify as a Canadian charity’s “own activity,” which raises reporting complications with CRA.

“Now imagine how that is interpreted in a developing country,” Omidvar continues, “as a form of white saviourism, neo-colonialism: ‘You don’t trust us to spend the money!’ Canada has exactly the same problem in dealing with Indigenous organizations,” she adds.

Making things difficult

A 2018 study called Canadian Charities Giving to Indigenous Charities and Qualified Donees found that “Even though Indigenous people are about 4.9% of the population, Indigenous groups received just over one half a percent of gifted funds,” due in part to the same gap in the funding pipeline to praiseworthy grassroots causes that are not registered charities (known officially as “non-qualified donees”).

Omidvar explains that this situation forces charitable foundations and other registered charities to construct complex agreements with recipient groups that fulfill the requirements of “direction and control,” but at a significant cost.

“It means that any intellectual property is the property of the sponsoring charity. Press releases have to be approved in advance by the sponsoring charity. Many organizations swallow the bitter pill and say, ‘We will do this, but we don’t like it,’” she says.

Marvi Ricker says, “I think that there have been good reasons in the past, but I do believe that we could probably find a way to make it easier for honest brokers. The world is changing, and the reasons for these rules still exist, but maybe there are better ways of getting around these challenges.”

In the short term, Omidvar says, “lifting restrictions on ‘own activities’ is the way to get more charitable dollars to the right people, both in Canada and outside. If we really want to do this, we need to move the needle.”

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