Set Charities Free to Raise More Business Income

By C.D. Howe Institute —— Bio and Archives March 8, 2012

Comments | Print This | Subscribe | Email Us

Canadian law should permit charities to raise some funds for their missions through business income from both related and unrelated businesses, according to a report released today by the C.D. Howe Institute. In "At the Crossroads: New Ideas for Charity Finance in Canada," authors Adam Aptowitzer and Benjamin Dachis find that, in the face of financing challenges, charities need the flexibility to finance their non-profit activities through businesses governed by separate, arm's-length Boards.

Current Canada Revenue Agency (CRA) guidelines, they note, limit public foundations and charitable organizations to operating businesses directly related to the charity's purpose - such as hospitals that run parking lots. Private foundations may not operate businesses of any type. While the CRA's policy on related business provides effective guidance for organizations that run ancillary businesses, the regulations are of little help for organizations that aim to achieve charitable ends by raising revenue through businesses unrelated to their charitable purpose. Canadian governments should:

• Coordinate federal administration of the Income Tax Act with varying provincial agendas for social enterprise;
• Allow for-profit businesses to deduct up to 100 percent of their taxable income, when donated to a charity, up to the small business income limit; and,
• Allow private foundations to own 100 percent of the shares of an arm's-length corporation and provide seed capital to social enterprises.

In the face of changes in giving patterns and financing sources for the sector, charities need such flexibility to carry out their important missions, they conclude. For the study click here.