Advisory Committee On The Charitable Sector Releases Report #4 – Charities & Non-Profits – Corporate/Commercial Law

The Advisory Committee on the Charitable Sector
(“ACCS”) released its Report #4, on October 9, 2024,
subtitled “Towards a federal regulatory environment that
enables and strengthens the charitable and non-profit sector”
(“ACCS Report #4”).¹ This is the fourth of a
series of ongoing reports by the ACCS.² In this ACCS
Report #4, the ACCS makes 18 recommendations for action in several
areas. This Bulletin provides an overview of the ACCS Report
#4.

As previously discussed in earlier Charity & NFP Law
Bulletins, the ACCS was established in 2019 to serve as a
consultative forum between the Government of Canada and the
charitable sector. Its purpose is to foster dialogue on emerging
issues affecting charities and to ensure the regulatory framework
supports the vital work charities undertake.³ Following
the 2019 Senate Special Committee on the Charitable Sector’s
report, Catalyst for Change: A Roadmap to a Stronger Charitable
Sector (the “Senate Committee Report”), the ACCS was
tasked with considering its recommendations.⁴

Report #4 provides insights into various issues affecting
Canada’s charitable sector. It sets out recommendations to
better improve the charitable sector, including modernizing the
regulatory framework for charities, improving transparency,
increasing collaboration with Indigenous organizations, and
simplifying the charitable registration process, among others. The
report highlights the importance of ongoing consultations with
stakeholders to ensure regulatory approaches align with the
sector’s needs, and stresses the importance of
government-charity partnerships to address societal challenges.

A. DEFINITION OF CHARITY AND CHARITABLE PURPOSES WORKING
GROUP

The report from the Definition of Charity and Charitable
Purposes Working Group (“DCCPWG”) examines Canada’s
legal framework for defining charity and charitable purposes. It
was prompted by concerns from sector representatives and the Senate
Committee Report. The report explores whether Canada’s reliance
on common law to define charitable purposes requires minor
revisions or significant legislative reform, acknowledging the
challenges faced by the CRA and the Charities Directorate in
conducting comprehensive research on this issue.

The report outlines stakeholder concerns with the current system
and summarizes consultations with charity law experts from Canada,
England and Wales, New Zealand, and Australia. It highlights three
key areas for further research: the role of independent charities
regulators, the use of legislation to define charitable purposes,
and federalism considerations that might impact potential
reforms.

The Report contains a comparative analysis which shows that
other jurisdictions have moved towards legislating charitable
purposes, offering broader and more inclusive definitions than
those traditionally provided at common law. The report suggests
that relying on the CRA to define charitable purposes, with limited
options to challenge its decisions, raises concerns about
democratic accountability, thereby hints at the potential benefits
of legislative reform. While some argue that federalism is an
obstacle to such reforms, a comparative analysis of provincial and
international practices in the report suggests otherwise.

The DCCPWG offers the following recommendations:

1. Legislative amendments to the Income Tax Act:
   Including objects such as “advancing amateur sport and
   recreation” and “prevention of poverty” as
   charitable purposes.




2. Reconciliation-focused policy review: Recommending a review of
   CRA policies related to Indigenous peoples, informed by the
   principles of reconciliation and the UN Declaration on the
   Rights of Indigenous People.




3. Support for Indigenous communities: Developing outreach and
   support for Indigenous communities to build trust and address tax
   issues affecting their work and contributions to
   reconciliation.




4. Consultations on a “Home in Government”: Exploring
   the establishment of an independent charities regulator or another
   government body to modernize charity law and regulation.

B. NATIONAL INHERENT RISK ASSESSMENT WORKING GROUP

The March 2023 “Updated Assessment of Inherent Risks of
Money Laundering and Terrorist Financing in
Canada,”⁵ released by the Department of
Finance, focused on the vulnerabilities within Canada’s
anti-money laundering and anti-terrorism financing (AML/ATF)
regime. This assessment, following recommendations from the
Financial Action Task Force (FATF), highlights the charitable
sector as particularly susceptible to terrorism financing risks.
The report raised concerns about the unintended consequences of the
current AML/ATF regime on charities, especially those involved in
humanitarian aid and development work in regions deemed high-risk
for terrorism financing.

Amid growing concerns over biases in the auditing of charities
and allegations of systemic Islamophobia, the government initiated
a review of the fairness and objectivity of these assessments. The
National Inherent Risk Assessment Working Group (NIRAWG) was tasked
with reassessing the risk methodologies to ensure that they
accurately reflect the diverse nature of the charitable sector and
consider efforts to mitigate terrorism financing risks since
9/11.

The NIRAWG made five recommendations to improve the
effectiveness and fairness of Canada’s AML/ATF regime:

1. Adopt a more comprehensive risk assessment approach:
   Encouraging the Department of Finance to integrate both inherent
   and residual risk analyses to provide a more accurate understanding
   of vulnerabilities within the charitable sector, aligning with
   international best practices.




2. Ensure Charter compliance: Developing and disseminating
   guidance for AML/ATF regulatory bodies to fulfill their
   responsibilities while adhering to the Canadian Charter of Rights
   and Freedoms.




3. Incorporate gender and diversity considerations: Including
   Gender‑based Analysis Plus (GBA Plus) to ensure risk
   assessments and regulatory duties account for diverse impacts and
   support equitable compliance practices across all sectors.




4. Clarify legal frameworks: Seeking clarification from the
   Department of Public Safety Canada how recent Criminal Code
   amendments affect the charitable sector, ensuring alignment with
   Canada’s policy positions and giving clear guidance for
   navigating potential contradictions.




5. Establish an advisory body: Creating a collaborative advisory
   group, involving key ministries and humanitarian organizations, to
   review and advise on policy applications and decisions, ensuring a
   balanced and inclusive approach to AML/ATF measures.

C. TRANSPARENCY AND DATA RELATED WORKING GROUP

The Transparency and Data Related Working Group
(“TDWG”) has focused on addressing data and technology
challenges within the charitable and non-profit sector, in light of
recent legislative changes.

Despite progress, the sector still faces issues with data
comprehensiveness, timeliness, accessibility, as well as challenges
for both the public and the sector to interpret and use this data
effectively. There is also a need for more real-time data access
and less administrative burdens on charities when reporting.

The TDWG’s recommendations emerge from research,
consultations, and collaboration with government bodies. Notably,
the recommendations stem from changes introduced in Budget 2022
related to disbursement quotas (DQ) and grants to non-qualified
donees. Their goal is to make the regulatory environment more
transparent and easier to navigate, ultimately facilitating
charitable work.

The TDWG made the following recommendations:

1. Disbursement Quota (DQ):
   

   1. Create a transparent tracking tool: Directing the CRA to
      develop a public tool to track each charity’s DQ amount and
      their actual disbursements using data from Form T3010, increasing
      transparency in compliance.

   
   

   2. Improved public reporting: Introduce DQ reporting features to
      the CRA’s website, and giving web page’s “Quick
      View” section for public awareness, and add an aggregated
      annual report on sector compliance.




2. Granting to Non-Qualified Donees:
   

   1. Create a transparent tracking tool: Developing a publicly
      accessible tracking tool showing the percentage of funds granted to
      non-qualified or other qualified donees by each charity, leveraging
      reported data to increase transparency and accountability.

   
   

   2. Use of artificial intelligence for data analysis: Encouraging
      the CRA to use artificial intelligence to analyze data from Form
      T1441 on grants to non-qualified donees for improved data analysis,
      in collaboration with reputable partners.




3. Filing with the CRA:
   

   1. Improve data quality: Enhancing training for charities on
      completing Form T3010 to ensure data accuracy and quality.

   
   

   2. Electronic filing: Continuing to push for electronic filing to
      reduce errors and improve efficiency, as well as simplifying the
      process for changing authorized representatives to make online
      account management more accessible for charities.

D. RELATIONSHIP BETWEEN THE CRA AND THE CHARITABLE SECTOR
WORKING GROUP

The relationship between Canadian charities and the CRA’s
Charities Directorate involves both regulatory oversight and
support to ensure compliance with tax laws. This relationship is
complex and has been marked by challenges and improvements over the
years. The primary concern are complex administrative tasks faced
by charitable organizations in Canada, particularly in
registration, audit, and reporting processes. The sector
experiences difficulties with the CRA’s digital platforms and
perceives the registration process as cumbersome, leading to a need
for costly legal services.

The Relationship between the CRA and the Charitable Sector
Working Group (“CRACSWG”) reviewed past ACCS reports,
conducted focus groups, and engaged in discussions to gather
feedback from the sector. Based on this feedback, the CRACSWG
identified key issues and made several recommendations to improve
the relationship between the CRA and charities.

The CRACSWG provides the following recommendations:

1. Streamline Online Processes:
   

   1. Improve the online platform for easier data entry and improving
      functionality in the T3010 form completion process.

   
   

   2. Address challenges related to My Business Account (MyBA) and
      ensure easy access and functionality by the appropriate
      organizational leadership.




2. Revise Registration Procedures:
   

   1. Simplify charitable registration process to make it more
      accessible (particularly for small, grassroots organizations),
      through a comprehensive review and potential simplification of
      current procedures to reduce the need for legal
      representation.




3. Improve Educational Support:
   

   1. Re-establish education programs similar to the Charities
      Partnership and Outreach Program to provide compliance-related
      education and training.

   
   

   2. Offer clear guidance on allowable administrative expenses and
      management reporting and provide training through webinars and
      practical case studies to improve understanding and compliance
      accuracy.




4. Improve Engagement and Support:
   

   1. Use digital tools (such as chatbots and interactive websites)
      to improve user experience and accessibility.

   
   

   2. Develop outreach campaigns to assure charities that engagement
      with the CRA will not necessarily lead to increased scrutiny.

   
   

   3. Create a mentorship program to assist organizations with the
      charitable registration process.




5. Facilitate Access and Communication:
   

   1. Establish flexible communication options, including after-hours
      support and targeted communication strategies for small and
      volunteer-run organizations.

   
   

   2. Increase CRA participation at sector events to build trust and
      give direct support through workshops and information
      sessions.




6. Foster Partnerships and Community Engagement:
   

   1. Partner with legal education and information providers,
      including umbrella groups and non-profit networks, to offer free or
      low-cost services to charities.

   
   

   2. Connect with community groups and health organizations to
      understand and address sector-specific needs and challenges.

E. CONCLUSION

Consistent with its mandate, the ACCS’s Report #4 has
identified emerging issues relating to charities and made
recommendations aimed at ensuring support for the important work
that charities do. Collectively, the recommendations in Report #4
aim to make Canadian charities’ interactions with the CRA
smoother, reduce their administrative burdens, and foster a more
supportive regulatory environment.

Footnotes

* Theresa L.M. Man, BSc, MMus, LLB, LLM,
is a partner at Carters Professional Corporation practicing in the
area of charity and not-for-profit law. Jacqueline M. Demczur,
B.A., LL.B., is a partner practicing charity and not-for-profit
law. Terrance S. Carter, B.A., LL.B., TEP, Trade-Mark Agent, is the
managing partner of Carters, and counsel to Fasken on charitable
matters. It should be noted that Terrance S. Carter, managing
partner at Carters and editor of this Bulletin, was formerly one of
the members of the Advisory Committee on the Charitable Sector. Any
opinions expressed in this Bulletin are those of the authors. The
authors would like to thank Cameron A. Axford, BA (Hons.), JD,
associate, for his assistance in preparing this Bulletin.

1. Canada Revenue Agency, Advisory
Committee on the Charitable Sector, Report #4 of the Advisory
Committee on the Charitable Sector — October 2024 (October 9,
2024) online (
https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/corporate-reports-information/advisory-committee-charitable-sector/report-advisory-committee-charitable-sector-july-2024.html)
[Report #4].

2. For an overview of the ACCS first and
second reports in this series, see Theresa LM Man and Jacqueline M
Demczur, Charity & NFP Law Bulletin No. 489, “Advisory
Committee on the Charitable Sector Releases its First Report”
(24 March 2021), online (pdf): Carters (
https://www.carters.ca/pub/bulletin/charity/2021/chylb489.pdf)
[Bulletin No. 489], and Theresa LM Man and Jacqueline M Demczur,
Charity & NFP Law Bulletin No. 495, “Advisory committee on
the Charitable Sector Releases Report #2” (27 May 2021),
online (pdf): Carters (
https://www.carters.ca/pub/bulletin/charity/2021/chylb495.pdf)
[Bulletin No. 495], and Theresa LM Man and Jacqueline M Demczur,
Charity & NFP Law Bulletin No. 500, Advisory committee on the
Charitable Sector Releases Report #3″ (25 August 2021), online
(pdf): Carters (e (pdf): Carters
(https://www.carters.ca/pub/bulletin/charity/2021/chylb495.pdf)
[Bulletin No. 495], and Theresa LM Man and Jacqueline M Demczur,
Charity & NFP Law Bulletin No. 500, Advisory committee on the
Charitable Sector Releases Report #3″ (25 August 2021), online
(pdf): Carters (
https://www.carters.ca/pub/bulletin/charity/2021/chylb500.pdf)
[Bulletin No. 500].

3. For further details and commentary on
the background of the ACCS, see also Bulletin No. 489, Bulletin No.
495, and Bulletin No. 500, ibid.

4. Canada, Special Senate Committee on
the Charitable Sector, Catalyst for Change: A Roadmap to a Stronger
Charitable Sector, (Final Report), (Ottawa: Senate of Canada, June
2019), online (pdf): (
https://sencanada.ca/content/sen/committee/421/CSSB/Reports/CSSB_Report_Final_e.pdf).

5. Department of Finance Canada, Updated
Assessment of Inherent Risks of Money Laundering and Terrorist
Financing in Canada (March 2023) online: (
https://www.canada.ca/en/department-finance/programs/financial-sector-policy/updated-assessment-inherent-risks-money-laundering-terrorist-financing-canada.html).

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