Direction & Control – Advocacy Update, Bill C-19 Amendments

We have an advocacy update for you! It’s all about amendments to Bill C-19, Budget Implementation Act, 2022 No. 1 (BIA) and how it impacts direction and control.

The Finance Committee reviewing the BIA listened to concerns from the charitable sector, including those expressed in an open letter that CCCC and many of you signed. The result was amendments that improve the BIA.

Bill C-19 Budget Implementation Act vs Bill S-216 Effective and Accountable Charities Act

Recall that Budget 2022 pledged to make changes to the Income Tax Act (ITA) that were “in the spirit” of Bill S-216. But when the BIA was released, the proposed changes looked very different from Bill S-216.

In brief, the two proposals for change were:

1. Bill S-216, Effective and Accountable Charities Act – remove “own activities” from the Income Tax Act and require charities to take reasonable steps to ensure resources are used for only charitable activities
2. Bill C-19, Budget Implementation Act, 2022 No. 1(BIA) – keep “own activities,” keep direction and control, and add a new category of “qualifying disbursements” that allows charities to transfer resources to non-qualified donees (basically non-charities), subject to mandatory conditions

If you need more context and background, we’ve talked about how they are different in our blog Budget Implementation Act, Bill S-216 and Direction and Control.

Advocacy Update – What Changes Were Made?

Amendments to the BIA eliminate the list of mandatory conditions for making “qualifying disbursements.” Instead of having to meet mandatory conditions, charities need to maintain documentation sufficient to demonstrate (1) the purpose for the disbursement and (2) that it is exclusively applied to charitable activities in furtherance of a charitable purpose.

This brings the BIA more in line with S-216 by removing a mandatory list that was reminiscent of direction and control requirements. The focus is on the purpose of the disbursement and ensuring the activities are charitable, rather than a focus on means of control.

You can see the changes in the amended (second reading) version of the BIA, or you can see the amended definition of “qualifying disbursement” at the bottom of this post.

What’s the Same?

The BIA does not eliminate “own activities” and direction and control from the ITA. Instead, as explained above, it creates a new category of “qualifying disbursements.”

The BIA will still require charities to report on every qualifying disbursement greater than $5,000, including the name of the grantee organization and total amount received, and the purpose of the disbursement. As others have noted, this section creates problems because it requires disclosure of potential sensitive information (e.g. charities working in areas with security risks or potential persecution).

The BIA will still prohibit charities from receiving donations that are expressly or implicitly conditional on the charity making a gift to another organization. As others have noted, this section creates problems because it precludes charities “from fundraising for programs being run by grantee organizations.”

The BIA will repeal Bill S-216 if it were passed into law before the BIA.

What’s Next?

First the amended BIA needs to pass through the House of Commons and the Senate.

Once passed, we will likely see guidance from CRA as to what it considers “sufficient” documentation. Without the mandatory list, charities will want some parameters as to what will be accepted or rejected. Even though the mandatory list is gone, we shouldn’t be surprised to see some of the same elements appear in a guidance document.

Looking for More?

Direction and Control – Advocacy Opportunity (26 May 2022)

Budget Implementation Act, Bill S-216 and Direction & Control (6 May 2022)

Update: Bill S-216 on Direction and Control (3 March 2022)

Bill S-216 on Direction and Control – Different Name, Same Aim (9 December 2021)

What’s Happening with Bill S-222? (30 June 2021)

Bill S-222: From Direction and Control to Reasonable Steps (10 February 2021)

For a deep dive on the BIA and Bill S-216, you can also check out Carters recent Charity & NFP Law Bulletin.

For more information on direction and control, see our Resource Page in CCCC Knowledge Base. And for members interested chatting about the topic, you can head over to our dedicated discussion space in The Green.

Amendment Details: Definition of “Qualifying Disbursement”

Before Amendments

Qualifying disbursement means a disbursement by a charity, by way of a gift or by otherwise making resources available,

(a) subject to subsection (6.‍001), to a qualified donee, or

(b) to a grantee organization, if

(i) the disbursement is in furtherance of a charitable purpose (determined without reference to the definition charitable purposes in this subsection) of the charity,

(ii) the charity ensures that the disbursement is exclusively applied to charitable activities in furtherance of a charitable purpose of the charity, and

(iii) the disbursement meets prescribed conditions;

After Amendments

Qualifying disbursement means a disbursement by a charity, by way of a gift or by otherwise making resources available,

(a) subject to subsection (6.‍001), to a qualified donee, or

(b) to a grantee organization, if

(i) the disbursement is in furtherance of a charitable purpose (determined without reference to the definition charitable purposes in this subsection) of the charity,

(ii) the charity ensures that the disbursement is exclusively applied to charitable activities in furtherance of a charitable purpose of the charity, and

(iii) the charity maintains documentation sufficient to demonstrate;

(A) the purpose for which the disbursement is made, and

(B) that the disbursement is exclusively applied by the grantee organization to charitable activities in furtherance of a charitable purpose of the charity;