After nearly two months without any movement, debate on the second reading of Bill S-222, the Effective and Accountable Charities Act (“Bill S-222”) resumed in the Senate on May 6, 2021. Following additional debate on May 25, 2021, Bill S-222 passed Second Reading at the Senate and was referred to the Standing Senate Committee on National Finance.

Bill S-222 was introduced in the Senate for First Reading on February 8, 2021, and began debate on Second Reading on March 16, 2021, as discussed in Charity & NFP Law Bulletin No. 488. As outlined in greater detail in Charity & NFP Law Bulletin No. 486, Bill S-222 proposes significant changes to several provisions in the ITA governing charities to permit charities to provide their resources to a person who is not a qualified donee, provided that they take reasonable steps to ensure those resources are used exclusively for a charitable purpose. This is proposed to be achieved by removing the fictitious and problematic “own activities” test, by amending the ITA to require charities to carry on “charitable activities” rather than to carry on charitable activities by themselves, and by providing for a “resource accountability” test requiring charities to take reasonable steps to ensure the use of their resources are exclusively for a charitable purpose.

At the May 6, 2021 debate, the Honourable Senator Terry Mercer expressed his support of Bill S-222, stating that “[t]he introduction of this bill clearly demonstrates the outdated, complex and costly rules and regulations that prevent great works of charity on behalf of Canadians, not only in Canada but around the world,” and further indicating that the direction and control mechanism of the own activities test has now become untenable for many small charities to comply with and limits the work that many charities aim to accomplish. Senator Mercer added that, “[i]f a charity can take ‘reasonable steps’ to ensure that their resources are being put to good use, and as long as the charitable purpose of the charity is in turn being followed, this legislative change would allow charities to expand their reach and help them do what they do so well: accomplish the greater good across Canada and around the world.”

The Honourable Senator Mary Coyle also expressed support for Bill S-222 at the May 6, 2021 debate, noting the Bill as being “an important bill affecting Canada’s charitable sector.” Quoting from the open letter signed by 37 charity lawyers across Canada, Senator Coyle indicated that the current rules are inefficient, make it difficult to carry out legitimate charitable work, and impede collaborative partnerships between Canadian charities and their international allies. She also highlighted critical issues regarding the relationship between the charitable sector and the Indigenous community in Canada, indicating that the current ITA regime is based on and perpetuates a paternalistic view of Indigenous Canadians and “not only ties their hands as they look at creative ways of community advancement through philanthropy, but it also causes harm.” She added that the regime requires organizations abroad to surrender control to partnering Canadian charities if they wish to receive funding which, similar to Indigenous partnerships, creates a paternalistic and colonial approach to charitable work abroad. Finally, she noted Bill S-222 as a welcome change that would, among other benefits, “result in less poverty, better health and education, greater economic opportunities, less economic disparity, stronger democracies, improved gender equity, less violence and a healthier planet for all.”

At the May 25, 2021 debate, the Honourable Senator Donald Plett also expressed his support of Bill S-222, citing the Bill as “long overdue.” Like Senators Mercer and Coyle, Senator Plett also indicated that direction and control was “extremely problematic for charitable organizations” and “has been a significant hindrance to the efforts of charities to carry out their work.” The Senator further pointed out seven difficulties and challenges faced by the charitable sector, quoting from Direction and Control: Current Regime and Alternatives, a paper prepared for the Pemsel Case Foundation by Terrance Carter and Theresa Man, which calls for “a thorough revamp of the income tax regime governing registered charities” in the long-term and proposes more minor legislative amendments in the interim. “By amending the Income Tax Act, we will ensure that a better framework is provided, which will be similar to the regulatory requirements in other countries and provides an opportunity for greater efficiency, effectiveness and coherence in our charitable sector, while maintaining accountability and protecting public safety,” Senator Plett added. Following Senator Plett’s discussion on Bill S-222, the Bill was referred to the Standing Senate Committee on National Finance.

Bill S-222 is expected to receive broad support from the charitable sector, as evidenced by the open letter referenced above, which explains the need for reform and to eliminate the “own activities” requirement. It is hoped that Bill S-222 will provide Canadian registered charities with much-needed reform to the ITA concerning how they can work with organizations that are not qualified donees.