{"id":34061,"date":"2022-03-03T14:19:26","date_gmt":"2022-03-03T19:19:26","guid":{"rendered":"https:\/\/www.cccc.org\/news_blogs\/?p=34061"},"modified":"2022-03-03T14:19:29","modified_gmt":"2022-03-03T19:19:29","slug":"update-bill-s-216-on-direction-and-control","status":"publish","type":"post","link":"https:\/\/cccc.org\/news_blogs\/legal\/2022\/03\/03\/update-bill-s-216-on-direction-and-control\/","title":{"rendered":"Update: Bill S-216 on Direction and Control"},"content":{"rendered":"\n

On February 3, 2022, Bill S-216<\/a> on direction and control passed first reading<\/a> in the House of Commons.<\/p>\n\n\n\n

Also known as the Effective and Accountable Charities Act<\/em>, Bill S-216 would amend the Income Tax Act <\/em>(ITA<\/em>) to eliminate the \u201cown activities\u201d test. It would end the requirement that charities exercise \u201cdirection and control\u201d and replace it with \u201creasonable steps\u201d to ensure resources are used for only charitable purposes.<\/p>\n\n\n\n

The status of the bill was raised in question period<\/a> on February 14, 2022, but no clear answer as to the government\u2019s position on the bill was provided.<\/p>\n\n\n\n

What is Direction and Control?<\/h2>\n\n\n\n

What are we talking about when we say direction and control? This term doesn\u2019t even appear in the ITA<\/em>! <\/p>\n\n\n\n

What does<\/em> appear in the ITA<\/em> is a definition of \u201ccharitable organization.\u201d Among other characteristics, a charitable organization is one devotes all of its resources to either (1) charitable activities \u201ccarried on by the organization itself\u201d or (2) gifts to qualified donees.<\/p>\n\n\n\n

For a charity to show that it is carrying on charitable activities itself, the charity must exercise direction and control over the funds it spends.  Charities can meet the test by using their own staff to carry out their activities or by working through an intermediary. It is usually straightforward to demonstrate direction and control when a charity uses its own staff, volunteers, etc., but it becomes a bit more complicated when intermediaries are engaged to carry out the charity\u2019s activities, particularly when the activities are outside of Canada.<\/p>\n\n\n\n

Direction and control means that charities need to have intermediary agreements and exercise operational control over projects. That means there are additional policy documents, protocols, processes, and periodic payment. Pooled funding agreements are basically impossible for Canadian charities unless they can exercise direction and control over the funded activities. That is difficult, if not impossible, when the Canadian charity is not the majority contributor.<\/p>\n\n\n\n

Why is S-216 Important?<\/h2>\n\n\n\n

The current approach to accountability is \u201ccostly, inefficient and inconsistent with contemporary values of equal partnership, inclusion and local empowerment\u201d (Senate Debate on December 1, 2021<\/a>).<\/p>\n\n\n\n

At first reading in the House<\/a>, the purpose of Bill S-216 was enthusiastically summarized by the Member of Parliament as:  <\/p>\n\n\n\n

\u2026help[ing] charities do their great work around the world. Currently, charities are unfortunately encumbered by significant red tape and bureaucracy. This legislation would go from granular control, where charitable organizations in Canada have to okay nearly every decision of the partners they work with around the world or in Canada, to a system of accountability and transparency that will increase accountability for charities while giving them the autonomy to do their great work.<\/p><\/blockquote>\n\n\n\n

The move away from direction and control toward resource accountability provides the necessary transparency and<\/em> flexibility to charities to accomplish their charitable purposes, a change that CCCC supports<\/a>.<\/p>\n\n\n\n

What are the Specifics?<\/h2>\n\n\n\n

The Bill would make this change in three ways:<\/p>\n\n\n\n

  1. Replace \u201ccharitable activities carried out by the organization itself\u201d with \u201ccharitable activities\u201d in the ITA<\/em><\/li>
  2. Expand the definition of charitable activities so that charities that take reasonable steps before using funds will fall within the definition<\/li>
  3. Set out what reasonable steps are, including: