publication date: Jun 7, 2011
author/source: Terrance S. Carter
government grants are inevitable. Innovative social enterprise could replace
that revenue. Those conclusions of the Mowat
Centre for Policy Innovation
at the University
are highlighted in the Centre's March report, Strengthening the Third Pillar of the
publication predicts that governments will cut grants to charities and nonprofits
as they are forced to "tighten their belts" to rein in fiscal deficits. To help
the sector overcome these cuts in funding, the publication suggests that
charities and nonprofits should be able to turn to innovation in social
enterprise. This would require loosening the current restrictions on charities
and nonprofits engaging in for-profit ventures.
Why charities, nonprofits matter
publication highlights the importance of the charitable and nonprofit sector in
Canadian society. There are over 161,000 charities and nonprofits in Canada,
which accounts for $106.4 billion, or roughly 7.1% of the Canadian economy.
approximately 46,000 charities and nonprofits. Together they account for approximately
$50 billion of annual revenue and 1 million jobs. The report highlights the important
role of volunteers in these organizations, as well as the fact that charities
and nonprofits raise $813 million in funding for research.
role that charities and nonprofits play in providing government-sponsored
programs and services cannot be understated. Maintaining a healthy and well
funded charitable and nonprofit sector should be an important priority of
government, the report states.
Government-imposed red tape
publication also highlights the problem of overlapping federal and provincial
jurisdiction in regulating the sector. While interprovincial trade barriers
have come down with regards to for-profit businesses, the same cannot be said
for the charity and nonprofit sector.
publication also suggests that the Canada
may have overstepped its authority under the Income Tax Act
. "It is also argued that
CRA's role has expanded into aspects of nonprofit sector operations that have
nothing to do at all with the Income Tax
- specifically political activity, advocacy and fundraising."
regulation of fundraising activity is characterized as "overly rigid and
lacking in the nuance and flexibility necessary to accommodate the realities of
charities of vastly different sizes and circumstances." On the question of
social enterprise, the publication states that there is "...mounting frustration
in the sector with the CRA's interpretation of policies governing social
enterprise activity undertaken by charities and nonprofits."
makes five recommendations.
1. Federal and provincial/territorial
governments should embrace the sustainability of Canada's nonprofit sector as
an explicit policy goal and address problems in the current policy and
regulatory frameworks governing the sector that are barriers to this.
2. Federal and provincial/territorial
governments should establish a formal federal-provincial/territorial process to
address nonprofit sector issues and challenges, giving particular attention to
the pressing issue of sustainability.
3. The federal government should
undertake changes to the Income Tax Act
and interpretations of the Act to allow charities and nonprofits more
flexibility in how they generate funds, giving attention to the example of the
UK and the Province of Ontario, which have liberalized rules to allow
enterprising activity as long as all proceeds are directed to fulfillment of
the organization's mission.
4. The federal government should also
aim in the longer term to limit CRA's regulatory role to administration of the Income Tax Act
, and work with
provincial/territorial governments to find an alternative means of addressing
policy and regulatory decisions governing other aspects of the sector, such as
the definition of charity, registration of charities, advocacy, fundraising and
5. Provincial/territorial governments
should establish a joint process to modernize and harmonize provincial/territorial
rules and regulations affecting the sector on a national basis.
Download the Mowat Report
Terrance S. Carter is the managing partner with Carters
Professional Corporation, and Counsel to Fasken Martineau DuMoulin LLP on
charitable matters. He is a member of Canada Revenue Agency's Technical
Issues Group, past member of CRA's Charities Advisory Committee, Chair of the
National Charity and Not-for-Profit Section of the Canadian Bar Association,
and has been recognized as a leading expert in Canada by Lexpert and Best
Lawyers in Canada.
Mr. Carter is also editor of www.charitylaw.ca, www.churchlaw.ca and www.antiterrorismlaw.ca and a
consulting editor of Charities Legislation and Commentary 2009 Ed. Email for more information.