Tax Law Governing Charities Perpetuates Systemic Racism and Needs to be Reformed

Systemic racism can be hard to ferret out.

It is usually deeply embedded in systems and processes, and is shrouded in institutional history. It lurks in hidden and unexpected corners and can be difficult to detect if we don’t take a focused and intentional view for rooting it out.

Removing implanted inequities is not flashy work nor filled with accolades — it’s in the rigour of noticing gaps in data, inefficiencies of systems, and in the absence or the abundance of behaviour that indicates patterns of concern. Some of these weeds, much like dandelions are obvious and can be rooted out.

It may surprise Canadians however to find that these yellow weeds can be easily found in the application of provisions in the Income Tax Act (ITA) regarding charities. The ITA, which was enacted in the 1950s, requires charities to devote their resources exclusively to charitable activities “carried on by the organization itself.”

Due to this wording, the Canada Revenue Agency, requires charities that work with non-charities, such as not-for-profits, co-ops, social enterprises, civil society groups or citizen movements in furtherance of their charitable purpose, to exercise “direction and control” over any joint work that is funded by charitable dollars.

This has implications for both Canadian charities that operate in the international space as well as those that operate in the domestic space.

How does this play out? Let’s take the case of Indigenous organizations.

In some cases, Indigenous organizations (if not band councils or forms of government) are not registered charities. The only way they can receive charitable dollars is to consent to a very complicated and expensive agency agreement between a registered charity (funded charity) and the Indigenous organization under which the funding charity must exercise operational control over the activities of the non-charity which they are funding.

Any intellectual property from this agreement must be solely owned by the charity and not the Indigenous organization.

All public statements, including press releases, would need approval from the funding charity.

Canadian charities, forced to comply with the law and the rules, will go along for the sake of doing good charitable work.

Upon first glance, this may seem wise — ensuring operational control and managing narratives, owning the intellectual property — however, in the case of Indigenous organizations, many of whom work with non-Indigenous charitable hosts, they find themselves surrounded by accountability mechanisms that enact continued behaviours of systemic discrimination requiring them to give up intellectual property and direction over their operations.

It is also not a surprise that many donors shy away from funding Indigenous causes because of the real and perceived complexity, administrative burden and, in some cases, needing to find a registered charitable host to manage the funds and maintain direction and control. More and more donors and grantmakers recognize the implicit statement these requirements suggest — Indigenous organizations cannot manage their own affairs, they must give funds to other people and have someone looking over their shoulders to move their innovative and necessary work forward.

When the systemic and intergenerational harm of racist policies continue to stay rooted in place, we see how the health, social and economic inequities faced by Indigenous peoples get entrenched. For those organizations and communities who are innovating solutions to child welfare, education, health – the added burden of increased scrutiny, paternalism and undue direction doesn’t help make for efficient use of charitable dollars.

Systemic racism entrenched in our public systems can be hard to reconcile, but in this case the solution is simple.

The ITA needs to be amended. We can follow the example of other countries, moving away from the language in the act of “own activities” and replacing it with “resource accountability.”

This approach would require the charity to take reasonable steps to ensure the project furthers its purposes without requiring onerous and unnecessary supervision or control, as done in the United States. With resource accountability, charities and non-charities can be empowered into relationships of equal measure here in Canada and overseas, without sacrificing accountability and transparency.

We hope that parliamentarians and Canadians will support this change. It will get rid of old laws that perpetuate systemic racism and will create more effective partnerships, freeing up resources for important causes and equity-seeking communities. After all — it’s in the innovation, solutions and the labour of equity-seeking communities where much of our freedoms, human rights and sense of connection were seeded.

It’s time to root out the dandelions and turn them into medicine that serves us all — a more diverse, equitable and efficient charitable sector.