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Is it time to update how we define “charity”?

publication date: Feb 19, 2015
 | 
author/source: Bill Kennedy
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Bill KennedyWho gets to decide which Canadian organizations are charitable?  In its role as the granter of charitable status, the Canada Revenue Agency (CRA) does.  In the absence of any specific legislation defining what a charity is and what they are allowed to do, the CRA has had to develop its own guidelines, based on an 1891 House of Lords decision:

  • Relief of poverty,
  • Advancement of education,
  • Advancement of religion, or
  • Certain other purposes beneficial to the community in a way the law regards as charitable

This definition has been criticized many times.  Imagine Canada did an exhaustive analysis in 2001, but it did not recommend an alternative model.  The nature of charity has changed since 1891.  We need a new definition. 

Political activities

The definition is silent on the controversial subject of how involved a charity can be in the public discussion of the societal issues it is attempting to address.  How far can it go in advocating for changes in public policy?  The argument can easily be made that publicly supported organizations should not engage in partisan politics.  They should not seek the election or re-election of a specific person or party, but if a change in public policy will give a group of needy people a leg up or correct an injustice, why should charities be prevented from advocating for that change?

Prevention vs. relief

Finally, we need a model that emphasizes the need for innovation in the charitable sector.  The current definition actually works to stifle progress.   For example, in 2014, Oxfam was prevented from adding the prevention of poverty to its charitable purpose by the CRA. 

“The Canada Revenue Agency has told a well-known charity that it can no longer try to prevent poverty around the world if it wants to keep its charitable status for tax purposes. It can only alleviate poverty — because preventing poverty might benefit people who are not already poor.”  Source:  CBC Article

The charitable sector needs a research based model of charity that reflects the current situation and the need for innovation.  Such a model needs to come from a broad consensus in the charitable sector, enshrined in legislation. Here is one possibility, based on three principles.

Three principles of charity

  1. That charities are nonprofit organizations,
  2. That charities work directly to address the needs of people (and sometimes animals) in need, and
  3. That charities work to reduce the needs they address.

Nonprofit

The first principle is obvious but it provides the basis for allowing charities to ask the public for assistance.  Nobody should profit from the operations of a charity.  By extension, the salaries and expenses paid by charities should be reasonable, so as not to enrich anyone indirectly.

Needs based

Q:  How is a homeless shelter like a national ballet company, other than they are both charities? 

A:  They both address human needs, physical in the former case and self-actualization in the latter.



The diagram gives examples of charities in the context of Maslow’s hierarchy of needs, a popular definition of human needs first published in 1943.  Research based and widely accepted, this hierarchy forms a sturdy base for the definition of charity.  All of the activities must to be tied to the needs of individuals. The arts may not in and of themselves charitable, only when they are used to help an individual in need, for example an art program that helps youth at risk form a sense of personal identity. 

Innovation

If charities are to improve in their ability to address human needs, they need to be encouraged to develop innovative programs.  Often charities start as a short-term solution to an immediate problem.  Take food banks for example (my emphasis):

Food Banks Canada was originally formed in 1989 as The Canadian Association of Food Banks (CAFB) to assist with what was initially believed to be a short-term demand for food banks. However, as the need for food banks and food assistance programs continued and grew, our organization continued to serve as a national voice for food banks across the country.

Charities need to be able to advocate and educate on behalf of the people whose needs they serve.  They need to be able to research and experiment with better techniques and resources.  Ideally, they need to put themselves out of business by working to prevent the needs they are currently working to address.

Conclusion

This is just a start to a conversation.  Add your research, analysis and experience to it.  Forward it to someone else, discuss it with colleagues or leave a comment below, but do something.  It will take a concerted effort by the whole charitable sector to move this issue forward.

Bill Kennedy, CPA, CA of Energized Accounting is a professional accountant working primarily with charities, providing accounting services and financial / fundraising software.



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