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Bill S-216, the Effective and Accountable Charities Act

Bill S-216, the Effective and Accountable Charities Act

In February 2021, Senator Ratna Omidvar tabled Bill S-222, the Effective and Accountable Charities Act, proposing amendments to the Income Tax Act (Canada) (the “ITA”) that would bring significant and meaningful reform to the regulatory framework for Canadian charities. In a social media posting published on February 14, 2021, Senator Omidvar indicated the underlying goal of the Effective and Accountable Charities Act was to “enable charities to establish equal partnerships with non-charities, especially empowering the voices of BIPOC organizations, while still ensuring accountability and transparency.”

Bill S-222 passed its third and final reading in the Senate on June 17, 2021, and was sent to the House of Commons for its first reading on June 23, 2021. However, progress on the Bill halted when the House of Commons adjourned for the summer, and then derailed following the snap federal election in the fall of 2021.

Bill S-216, which took up the text of Bill S-222, was introduced by Senator Omidvar on November 22, 2021 in the first session of the newly elected Parliament, and passed its second and third readings in December 2021. Subsequently, Bill S-216 was introduced to the House of Commons and passed its first reading on February 3, 2022.

The amendments proposed by Bill S-216 are a welcome (and long overdue) recognition of the logistical, financial and administrative realities faced by Canadian charities in their day-to-day operations. If passed, these reforms will allow far greater freedom and flexibility for Canadian charities to pursue their objectives in Canada and internationally, and will bring Canada’s charity regime into closer alignment with the laws of other countries, including the United States and the United Kingdom, facilitating cooperation between charities around the world.

Problems with Canada’s Charity Framework

The Canadian regulatory framework for charities, which is grounded in the ITA, has been criticized for its complexity, and for being out of touch with the modern realities of the charitable sector. One of the most significant problems with the existing regime is the “own activities” test, i.e., the requirement that charities devote all of their resources to charitable activities carried on by the organization itself. This requirement, coupled with the Canada Revenue Agency’s (“CRA”) administrative policy that charities must direct and control the use of their resources when working with intermediaries, have hamstrung Canadian charities and limited the way these charities can carry out their work.

Under the current framework, Canadian registered charities can use their resources in one of two ways: (1) in “charitable activities carried on by the organization itself”; or (ii) making gifts to other “qualified donees” (generally, other registered charities). The CRA has interpreted the phrase “charitable activities carried on by the organization itself” to mean that charities must conduct their own activities (ergo, the “own activities” test), as opposed to acting as a conduit or funder of activities carried on by other entities. To that end, CRA has developed an administrative requirement that a Canadian charity must direct and control the use of its resources when working with intermediaries.

The “own activities” test and the “direction and control” policy present obstacles to the proper functioning of Canadian charities, not least of which is the fact that charities are forced to negotiate complex arrangements with project partners and engage in onerous ongoing monitoring, oversight and direction of any activities carried out with third parties.

Dissonance with Canada’s Values and Policy Objectives

In addition to the administrative burden created by the existing regime, the “own activities” test has been criticized for being inconsistent with Canadian values and policy objectives, as well as being paternalistic and colonial-minded.

Domestically, the current rules are at odds with Canada’s commitment to reconciliation with Indigenous communities. Because many indigenous organizations are not registered Canadian charities, proponents of Bill S-216 also argue the “direction and control” requirement needlessly discourages collaboration with and promotes extensive operational control over Indigenous organizations as potential partners. Due to not being registered Canadian charities, such organizations will only receive funding from Canadian charities under arrangements where they act on behalf of and under the direction of the funding charity.

At the international level, the “own activities” test is fundamentally inconsistent with Canada’s own international development policy, which requires non-governmental organizations (NGOs) to “follow partnership principles of local ownership, participation and inclusive decision-making”. This poses significant problems for Canadian charities working with local organizations outside of Canada, or with other non-Canadian charities (e.g. through pooled funding arrangements for a common project, such as disaster relief efforts or development projects). Absent costly, burdensome, complex (and often artificial) arrangements, the Canadian charity could be exposed to the risk of deregistration and other sanctions on the basis that it is not undertaking its “own activities” or exercising the necessary direction and control over the project.

Bill S-216’s Proposed Amendments

Amendments introduced by the Bill would, among other things, expand the definition of “charitable activities” contained in the ITA to also include making resources (including grants, gifts or transfers) available to non-charity partners in furtherance of a charitable purpose, if the charity takes reasonable steps to ensure those resources are used exclusively for a charitable purpose.  The charity would be required to collect information necessary to satisfy a reasonable person that the resources will be used to a charitable purpose, including information on the identity, experience and activities of the organization.

The Bill would also amend the current definition of “charitable organization” to remove the limitation that charitable resources be devoted to charitable activities only “carried on by the organization itself”. Instead, under the proposed amendments, a “charitable organization” would simply be required to devote its resources to charitable activities.

If passed, Bill S-216 will come into force two years after receiving Royal Assent, and its provisions will be subject to a full review by the Minister of National Revenue within five years of its coming into force.

Bill S-216 is currently awaiting its second reading in the House of Commons. Nonetheless, Bill S-216 represents a strong, positive step towards modernization of Canada’s charity regime, and one that Canada’s charitable sector is excited to welcome.


Carscallen LLP offers tax advice to both individual and business clients on a wide range of matters, including corporate and commercial transactions; estate planning; and tax dispute resolution and litigation. Our lawyers can help you or your business navigate the complexities of the Canadian tax system. We advise individuals, businesses and other entities, including non-profit organizations and registered charities, with respect to a broad range of tax matters. We understand the ever-changing tax environment can present many challenges to taxpayers. Our legal team’s experience and expertise enable us to provide tailored and practical solutions to your Canadian tax issues.

*This update is intended for general information only on the subject matter and is not to be taken as legal advice.

Posted: May 6, 2022

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