Does Canada's charitable giving space need a legal overhaul?

Founder and president of public charity urges higher disbursement quotas and tiered system of tax breaks for foundations

Does Canada's charitable giving space need a legal overhaul?

One of the many things that we’ve learned during the pandemic is the crucial role charities can play in helping people in need. But as the crisis and its knock-on effects wear on, private foundations will have to step in more – and that may require a little nudging by the government.

According to John Hallward, a Canadian entrepreneur and founder and president of public charity GIV3, many charitable foundations have not done their fair share, hoarding around $100 billion in their investment accounts rather than using the money to help vulnerable members of society.

“The increasing demands on charitable services are outpacing the sector’s ability to meet that demand,” Hallward said in a piece published on the National Post. “Many of the laws and regulations guiding the non-profit sector are outdated, and in desperate need of modernization.”

Citing the 2021 budget, he said Ottawa has signalled intentions to raise the disbursement quotas grant-making foundations must grant annually for charitable purposes. But rather than action on that front, he said Canada’s charitable space has seen a recommendation by the advisory committee on the charitable sector (ACCS) against raising the quota from its current level of 3.5%.

“Perhaps this is not surprising, since the ACCS, which is made up of political appointees … includes several members representing grant-making foundations,” Hallward said. “We need systemic change, driven by a more diverse and representative cross-section of voices representing a larger swatch of Canadian interests.”

To enable billions of additional dollars to flow into worthy causes without hurting the public purse, he called for the disbursement quota to be raised to between eight and 10%. To avoid disincentivizing high-net-worth donors from setting up family foundations in perpetuity, he said the federal government could create a new “non-issuing” class of private foundations that can ignore the quota, but would not be eligible to issue tax receipts.

He also argued for the creation of a two-tiered classification system of tax credit incentives for charities, under which the most important charitable missions would be enabled to provide higher tax rebates and thus entice more support from donors.

“Currently, a $200 donation to a federal political party earns a higher tax credit than a similar $200 donation to a food bank or homeless shelter,” he said, adding that other causes could be evaluated and prioritized based on taxpayer surveys or feedback from the Treasury board on which social problems impose the greatest social costs on the taxpaying public.

“Ultimately, our elected officials need to make the tough decisions and do what is right,” he said. “We have seen over the last 10 years the problems that accumulated wealth in charitable foundations creates. We do not need to study this any longer.”