ONN's Submission to the Standing Committee on Finance and Economic Affairs Regarding Bill 212, The Good Government Act, 2009 (November 19, 2009)
The Charitable Gifts Act and the Charities Accounting Act were reviewed and found in need of amending by the Ontario Law Reform Commission in 1976 and again in 1996, but no action was taken. Many in the legal community and the sector had all but given up hoping for changes.
In the spring of 2009 (33 years later), the Ontario Nonprofit Network (ONN) took up the cause and called for changes to these two acts. This time the Ministry of Citizenship and Immigration and the Public Trustee heard us and took action. Bill 212, The Good Government Act, a government omnibus bill, has received second reading. It repeals the Charitable Gifts Act and amends the Charities Accounting Act. These changes have important implications for Ontario charities and we hope herald a new interest in modernizing the legislative and regulatory infrastructure for Ontario’s nonprofits and charities.
The world is a very different place from 1996 and vastly different from 1976. Over the years there has been a sea change in how public benefit organizations operate, the nature of these organizations, and the expectations of the public regarding their role and operation. These changes include changing patterns of charitable donations, changes in how government funds services and activities, and an increase in business activities to support the work of charities.
Increasingly many charities find themselves having to cobble together charitable donations, government funding and earned income to pursue their mission. However, as charities seek to earn income they have encountered formidable difficulties.
REPEAL OF CHARITABLE GIFTS ACT
Ontario has finally leveled the playing field with the rest of Canada by allowing Ontario charities to own for-profit businesses. The Charitable Gifts Act restricted charities to owning 10% of a for-profit company, the only province in Canada to do so.
Repealing the Charitable Gifts Act is a great first step. Next we strongly propose a tax structure for these companies similar to the one they have in the United Kingdom. In the UK they apply a destination test and, as long as the profits are utilized for the organization’s charitable purposes, the profit is not subject to tax. This kind of new tax structure is required to support the shift among charities from dependent supplicant to independent provider of services for the public good.
Example: Business Ownership
Charity A operates a wooden pallet business. Several of the charity’s clients work in the business but not in sufficient numbers to qualify as a community development project under Canada Revenue Agency (CRA) regulations. The pallet business, however, is a moneymaker and each year generates funds for the charity that they use to fund their day program for people with more complex disabilities.
CRA will only let Charity A operate a business that is a community development project (primarily (70%) training disadvantaged people) or is a business run 90% by volunteers (a high threshold in this day and age). Moreover, for a charity to operate a business within its charitable structure it must be a “related business” like a hospital parking lot or laundry.
This charity serves people with disabilities that have no need for pallets so the pallet operation is not a “related business”. Nor does it operate with 90% volunteer labour. In fact it is a significant employer for the town and while it employs a number of people with disabilities they are in the minority. Consequently it does not qualify as a charitable activity under CRA regulations.
Indeed, CRA recommends the charity operate such enterprises as a business in a tax-paying corporation. In the rest of Canada this would be possible and now, finally in Ontario it is too.
In the UK, this business would be able to flow all its profits back to operate the day program (its charitable purpose) without having to pay taxes first. We think this would be a good tax measure to have in Canada. It has been very successful in the UK in increasing self-reliance among charities.
AMENDMENTS TO THE CHARITIES ACCOUNTING ACT
Several of the new amendments to the Charities Accounting Act provide clear authority for the public Trustee to gain access to the kind of information necessary to ensure those in charge of charities and their related businesses act in the best interest of the Charity. Misuse of charities and the privileges granted to charities hurts all charities. We support accountable oversight to ensure the interests of the public and the charities themselves are protected.
The change we asked for in the Charities Accounting Act is the right for all charities to hold land for charitable purposes. Hospitals, universities and religious institutions already had that right but for some reason other charities were compelled to dispose of land they were not directly occupying after seven years.
Now, with the amendments in Bill 212, all charities can hold land as long as the charity uses it to forward their charitable purposes. Translated, this means charities can hold land and use the income for their charitable work, even if they are not occupying the premises directly.
Example: Ownership of Property
Charity B has a group home that is zoned and renovated to comply with all the regulations for community group homes. Moreover, it is equipped with lifts, hoists and ramps. Charity B has been making some changes to its programs and it does not need the home for its own purposes right now. So, it rents the home to Charity C who is delighted to have a home so well equipped and ready to go. Charity B receives rent from the home that covers upkeep and defrays some of its costs in its other programs.
Charity C has no capital to purchase the home and if it is sold there is every likelihood that it will be returned to a single family home or be redeveloped for non-charitable purposes. Should Charity B later require a similar home it will cost the Charity much more than the sale price to purchase and renovate another home. In addition, Charity C will have to find alternate space or close their home. Selling the group home is the worst possible decision from every perspective.
If Charity B was a religious institution or a university or public hospital, it would have been able to retain such properties for the public good but it was just a local community agency and, for reasons we did not understand, did not have the same rights. Now, with Bill 212, a local community agency can also hold property.
THANK YOU
On behalf of the nonprofit and charitable sector, the Ontario Nonprofit Network would like to thank the Government of Ontario for making these long awaited changes to this legislation governing our sector.
In particular, we would like to thank members of the standing committee for Finance and Economic Affairs for your work on this Bill.
Thank you also to the Members of the House for including the concerns of Charities in Bill 212.
And finally, we also want to thank the staff of the Ministry of Citizenship and Immigration and the staff of the Public Trustee of the Ministry of the Attorney General for hearing us and making amendments to the Charitable Gifts Act and the Charities Accounting Act a legislative priority.
The Ontario Nonprofit Network looks forward to working closely with you in future to ensure organizations providing public benefit to the people of Ontario are the best they can be.
