Open the taps on charitable dollars
MANY FOUNDATIONS HAVE BEEN HOARDING GREAT WEALTH. — JOHN HALLWARD
Canada’s non-profit sector faces significant, systemic problems, including the accumulation of great wealth sitting passively in foundation investment accounts. Ultimately, it is the most vulnerable members of our society who are hurt by this system, yet for years, politicians have steadfastly refused to do anything about it.
Canada’s charitable sector faces a number of major problems. The increasing demands on charitable services are outpacing the sector’s ability to meet that demand. Our social problems — such as gender bias, racism and environmental degradation — have lingered for several generations and our current solutions are failing to adequately address them. Many of the laws and regulations guiding the non-profit sector are outdated and in desperate need of modernization.
To make matters worse, many foundations have been hoarding great wealth — an estimated $100 billion is currently sitting on the sidelines in foundation investment accounts. These foundations have not been charitable enough and are not deploying money in a timely manner.
These issues are well known to our government leaders. Numerous government committees have tabled reports calling on the federal government to strengthen the charitable sector over the past decade. In the 2021 Budget, Ottawa indicated its intention to raise the disbursement quota (DQ), the required amount that grant-making foundations must grant annually for charitable purposes. However, to date, nothing has changed.
Furthermore, the advisory committee on the charitable sector (ACCS), which reports to the minister of revenue, recently submitted its recommendation to the government that the DQ should not be increased from its current 3.5 per cent. Perhaps this is not surprising, since the ACCS, which is made up of political appointees, does not represent the interests of those who rely on the charitable sector, and includes several members representing grant-making foundations.
This defence of the status quo puts the interests of a few thousand wealthy foundations ahead of the needs of tens of thousands of struggling charities, millions of suffering Canadians and tens of millions of taxpayers who wish to see the charitable donations they subsidize used in a timely fashion.
Holding back money now to solve problems decades in the future is very short-sighted. Now is the time for a generational pivot. We need systemic change, driven by a more diverse and representative cross-section of voices representing a larger swatch
of Canadian interests. There are some fairly straightforward policy changes that would allow billions of additional dollars to flow to the causes that need it most.
First, the DQ should be increased to between eight and 10 per cent. This would make billions of additional dollars available for charitable purposes almost immediately. And it would do so at no cost to the public purse since the money is already in foundation investment accounts.
Some who defend the interests of foundations claim a higher DQ may disincentivize future high net-worth donors from setting up new foundations. For those looking to set up family foundations in perpetuity, the federal government should create a new class of “non-issuing” private foundations. Going forward, this new class of foundations could ignore the DQ, but would not be eligible to issue tax receipts.
Finally, to help ensure charitable dollars flow to the most important social needs, the federal government should create a two-tiered classification for charities, with different charitable tax-credit incentives. Not all of the 75,000-plus Canadian charities are of equal value to our communities, so why should all tax incentives be equal? Under such a system, the most important charitable missions would be able to provide higher tax rebates, to incentivize greater donor support.
This is not a new or radical idea. We already have a two-tiered charity classification system in Canada. 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. It is time these political parties added some other valuable charitable missions to their special classification.
To help decide which causes are most important, policy-makers should consider polling taxpayers to better understand what they value most for their communities. The government could also ask the Treasury Board to estimate which social problems cost the most to taxpayers. Ultimately, our elected officials need to make the tough decisions and do what is right. This is how democracy works.
We have seen over the past 10 years the problems that accumulated wealth in charitable foundations creates. We do not need to study this any longer. The delay is costing lives, propagating inequities and prolonging suffering. We need new regulations to ensure that money flows to the people and causes that need it most. We must at least try to be better. We can always make adjustments as the impact is assessed. Millions of struggling Canadians are depending on us.