Advisory Committee on the Charitable Sector releases third report

7 octobre 2021 | Katrina Kairys, Susan M. Manwaring

( Disponible en anglais seulement )

The third report of the Advisory Committee on the Charitable Sector (the “ACCS”) released on July 15, 2021 (the “Report”), expands on the Committee’s first report and second report, adding a series of recommendations for reforming the relationship between charities and the Canada Revenue Agency (the “CRA”), as well as modernizing the rules that limit the business activities of charities.

The ACCS, established in 2019, is a permanent forum for the Government of Canada to gather feedback from the charitable sector on emerging issues and to promote the regulatory environment’s support of charities.  The ACCS comprises fourteen individuals who have extensive experience in the charitable sector, including researchers and academics, legal experts, and representatives of registered charities, national umbrella organizations and professional associations. Susan Manwaring, the lead of our Social Impact Group, is a member of the ACCS and had direct input into the Report.

The twenty-three recommendations contained in the Report were researched and developed by two of the five ACCS working groups: the Vulnerable Populations Working Group and the Purposes and Activities Working Group.

The recommendations of the working groups touch on three common themes:

  1. Lack of awareness of the CRA Charities Directorate’s “education-first” approach, in which a charity will generally have the chance to correct its non‑compliance through education before CRA resorts to other measures such as sanctions or revocation;
  2. Lack of transparency in written communication, guidance, and explanations by CRA, as well as concern regarding accessibility of language; and
  3. Lack of expertise and resources within the charitable sector to understand and interpret CRA guidance and policy decisions.

Readers will recall that these themes are consistent with those raised in the second report arising from the work of the Indigenous Peoples Working Group.  Related to these themes is the perception that the charitable model adopted by Canadian law and policy is patriarchal.  Rather than a model that perpetuates a colonialist attitude, the consulted charities called for an inclusive system in step with today’s society.

Vulnerable Populations Working Group

The Vulnerable Populations Working Group consulted charities serving marginalized groups across the country to learn about the barriers they face in delivering their services, ranging from the provision of food and shelter to counselling and disability supports.

The ACCS heard that charities face difficulty finding clear, straightforward resources on compliance and procedures.  In particular, they noted a need for clear information on the advocacy activities of charities.  When charities advocate to retain, oppose, or change law or policy, they are engaging in a “public policy dialogue and development activity” (a “PPDDA”).  Charities are permitted to engage in PPDDA’s, but within the confines set by CRA administrative policy.  CRA recently released its policy on PPDDA’s in November 2020, which has likely raised many questions for charities regarding its interpretation.  When asked about CRA policy more broadly, the consulted charities expressed the need for CRA to publish more models and examples in their guidance and forms, providing simple and effective ways for those in the sector to understand the regulatory requirements.

A large segment of charities that serve vulnerable populations provide cultural / racial / ethno-specific programs and services.  Consulted charities urged CRA to recognize organizations that seek to address systemic issues as charities by deeming anti-racism / anti-discrimination work to constitute a charitable purpose.  This would require CRA to update its policy on promoting racial equality, which has not been updated for almost twenty years.

Many charities that serve vulnerable populations provide direct services and therefore rely heavily on volunteers.  Consulted charities, especially smaller organizations, expressed difficulty recruiting and retaining volunteers.  A similar observation was made in the 2019 report of the Special Senate Committee on the Charitable Sector, which recommended that funding by governments include support for the recruitment and retention of volunteers.

When charities cannot recruit their own volunteers, they may rely on the resources of non-profits (non-charities, or “non-qualified donees”).  However, the Income Tax Act (Canada)  and CRA’s regulations that impose “direction and control” requirements on charities working with non-charities make such collaboration costly and time-consuming.  The direction and control rules are particularly cumbersome for Indigenous and Black-led organizations which focus on addressing deep-rooted community needs, often requiring them to support community-led initiatives and collaborate with non-charities.

Lastly, the ACCS heard from communities in need of specific resources, including the seeing and hearing impaired.  These communities expressed challenges accessing CRA resources and services.

Summary of Recommendations

In response to the consultations, the ACCS made twelve recommendations, which can be grouped into four broader recommendations as follows:

  1. Improve accessibility to information, simplify language and seek client feedback on CRA interactions with charities;
  2. Clarify the inclusion of anti-racism work as part of a charitable purpose, update the policy on promoting racial equality, and expand CRA services for seeing and hearing impaired;
  3. Consider incentives for volunteer support; and
  4. Make changes to ITA to allow for changes in the “direction and control” rules and expansion of the category “qualified donee.”

Purposes and Activities Working Group

The Report of the ACCS also considered the work of the Purposes and Activities Working Group.  This group has reviewed issues related to regulation of charities that arise because the current framework focusses on both charitable purposes and charitable activities.  In the first report the ACCS recommended that the framework move away from a focus on activities.  This is because there is a view that this focus within the regulatory regime creates barriers for charities that if removed would enable more work in support of those in need.  The focus of the recommendations in the Report is around the regulations that govern the income-earning activities of charities.  Revenue generation by generally charities falls into the following four categories: (1) fundraising / donations from the public; (2) grants / contributions from funders and governments; (3) investment income from property; and (4) earned income.  Charities are subject to restrictions on earned income that may be considered to be “business” income.  Where the facts suggest the earned income is “business” income the regulations state that the charity is only permitted to carry on a “related business”.  “Related business” is defined to include a business that is run substantially by volunteers and is otherwise unaccepted to be a business run by a charity that is linked to a charity’s purpose and subordinate to that purpose.

Consulted charities had many questions about how to apply the related business rules mandated by CRA policy, and particularly the use of thresholds and tests for determining when a business activity is “linked’ or “subordinate.” The ACCS recommended that the Charities Directorate’s current guidance on related business (CPS-019) could be more useful to charities if it was drafted with an enabling perspective and was expanded to better describe how charities can earn income in compliance with the rules.

Charities find it difficult to diversify and expand their revenue sources under the current regime and do not believe there is flexibility within the current related business rules.  Echoing the recommendations of the Special Senate Committee, the ACCS urges the government to modernize the income-earning regime relating to charities.

The ACCS also heard that there is a lack of services to help charities generate earned income, which could in part be due to the absence of guidance and support from governments (both provincial and federal) regarding earned income.  Without an enabling environment, charities and their service providers may be reluctant to think outside the box, relying on the more traditional, and perhaps less effective methods of earning income.

Consulted charities also expressed that they would benefit from the increased use of shared platforms (including services such as insurance, IT, and back-office administration), however CRA’s rules regarding social enterprises can be confusing and complex for smaller charities, and it is unclear whether offering these services to other charities constitutes operating a business.

Summary of Recommendations

The second set of recommendations in the Report aim to achieve greater clarity for charities around activities designed to earn income from business activities:

  1. Expand and clarify the guidance on related business and adjust all guidance documents to clarify an education first approach;
  2. Consider a new guidance on all the categories of earned income;
  3. Simplify and clarify financial reporting requirements for charities and improved internal CRA coordination on reporting; and
  4. Add language to explicitly encourage use of shared platforms as revenue-generating enterprises.


While the implementations of the ACCS recommendations will likely have lasting positive effects on the sector, change doesn’t happen overnight.  Recognizing that some reforms require more resources and time than others, the ACCS separated its recommendations into “short, medium and long-term actions.”  “Short-term” describes actions within the operational and administrative scope of CRA, which could be proactively addressed with limited internal deliberations, while “medium and long-term” actions will require in-depth discussions and possibly regulatory or statutory amendments.

The Report is available on the CRA’s website.

The ACCS is continuing its work and will be studying issues regarding charitable sector revenue, data, and regulatory definitions of charity.  Miller Thomson’s Social Impact Group will continue to keep you updated on the work of the ACCS.

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