a state of change Not for profit newsletter February 2014 Introduction In this issue Each year brings new challenges to non-profit organizations,
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1 a state of change Not for profit newsletter February 2014 In this issue Solution economy provides new opportunities for non-profit organizations Political Activities Self-assessment Tool Introduction Each year brings new challenges to non-profit organizations, and this year is no different. In this issue, we explore how public and private bodies are converging to form the Solution Economy, and the implications to non-profit organizations as a result of this new concept. We also provide some guidance on the recently released Political Activities Self-assessment Tool by the Canada Revenue Agency ( CRA ). This tool assists charities in determining if the resources they have devoted to political activities will raise concerns with the CRA.
2 Solution economy provides new opportunities for non-profit organizations For centuries, unmet social needs have elicited action, and non-profits have long been at the forefront of these efforts. Non-profits have leveraged the motivation of their people, collaborative partnerships, and committed volunteers to make a meaningful impact. The Solution Revolution, by William D. Eggers and Paul Macmillan, describes new approaches to address or even eradicate chronic social problems through innovative markets, economic ecosystems and collaborative cross-sectoral networks to form the Social Economy. These new approaches purposefully blur silo thinking and encourage innovative models of teaming, create environments that harness market forces, and leverage new technologies (like social, mobile, cloud, and analytics) that change the game further. What might the `Solution Revolution imply for non-profits? Change and thrive or fall by the wayside The non-profit sector has fresh competition as well as new allies. A group of innovators is shaking things up, addressing the same kinds of social problems that non-profits have tackled for decades. Many of the 165,000 charitable and non-profit organizations in Canada will not only survive but flourish if they adapt and change. Others will fall by the wayside if they are unable to shift gears or if they cling to old ways of doing things. What s a non-profit to do? In this new solution economy, non-profits are no longer just competing with one another for government funding or charitable giving. Non-profits are struggling to remain relevant while competing with every other organization, citizen and corporation in the world that wants to make a difference. With so little money to go around, how will non-profits grow or even survive? By partnering with organizations and individuals who could be from a different country, probably from a different sector, and may have a different outlook or motive even profit. Non-profits are struggling to remain relevant while competing with every other organization, citizen and corporation in the world that wants to make a difference. Welcome to the solution economy It s what some are calling the solution economy: a new economy for social problem solving. One where philanthropists, businesses, social enterprises, citizens, and governments are reshaping how problems get solved. Bold thinking, disruptive technologies and emerging, collaborative business models are creating markets for solutions to our biggest social problems. 2 a state of change
3 What if we tried looking at an old problem through a new lens? What if we brought that market-based dynamic to some of Canada s toughest problems? What if we applied solution economy principles to getting millions of unemployed Canadians back to work? That s what Bill Young of Social Capital Partners did by offering incentives to companies willing to hire people on social assistance and anxious to find work. It proved successful. Now Young, who received an Order of Canada for his pioneering social enterprise and philanthropy work, has got his mind set on reforming the entire unemployment system. If only Young or his counterparts could apply that same thinking to another set of seemingly intractable problems. Consider these figures: 1 First Nations youth in Canada are more likely to be incarcerated than to graduate from high school. In the Prairie provinces, 50% of those in correctional facilities are Aboriginals. Aboriginal persons are three times more likely than non-aboriginals to be victims of violent crime and run an even higher risk of becoming victims of sexual assault, robbery and partner abuse. In urban areas, Aboriginal people are twice as likely as non-aboriginals to live in poverty. Governments and non-profits have tried for decades to address these sorts of problems. Arguably, with limited success. Working with the Aboriginal leaders and communities themselves, what if government and non-profits that serve these communities actively sought out new partners multinationals, social entrepreneurs, app developers, individuals including those with experience addressing similar issues elsewhere? Could they be as effective as Social Capital Partners has been? Non-profits can play a big role Canada s non-profit sector the 2 nd largest in the world (Netherlands is 1 st ) plays a critical role in the solution economy. 2 Tweet this Non-profits bring a lot to the table. They are well positioned to inject cautionary considerations into how these markets and economic ecosystems are developed, to ensure that sensitivities are well understood, and how to avoid unintended consequences. They need to build on their strengths. They have the passion and commitment of motivated staff and volunteers. They have staff on the front lines with unparalleled local knowledge. They engage directly with those in need. They often have low-cost structures. They have the hard-earned trust and credibility of their partners and within the communities they serve. But to survive in the new economy, they need to address their weaknesses. They often rely on a select few people to drive their organizations. Many are slow to embrace new technologies, often because of a lack of funding. They are sometimes resistant to change. The good news is that non-profits that are willing to change, to look to new economic models and work with new partners, will likely not only help solve many of Canada s most daunting challenges, but thrive in the new solution economy. What do you think the role for non-profits is in this new environment? What other considerations need to be part of the dialogue? How might your organization change so that it maintains its critical role as a contributor to social good? 1. Social Challenges: The Well-being of Aboriginal People, Canadian Council on Social Development, 2. Canada s nonprofit and voluntary sector 2 nd largest in world, Press release, Imagine Canada 3 a state of change
4 Political activities self-assessment tool The Canadian Income Tax Act ( the Act ) requires charitable organizations to devote all of their resources to charitable purposes and activities. In essence a charity is only permitted to carry on its own charitable activities or gift amounts to other qualified donees. Recent legislation deems an amount expended in a taxation year on political activities to be neither an amount expended on charitable activities nor a gift to a qualified donee. A charity can carry out a small amount of political activity as long as it stays within the limits of the Income Tax Act. These limits are: a substantially all of a charity s resources must be devoted to its charitable activities, b the political activities support its charitable activities, and c the political activities are completely non-partisan and do not directly or indirectly support, or oppose, any political party or candidate for public office. 4 a state of change
5 The Canada Revenue Agency ( CRA ) recently released Political Activities Self-assessment Tool to help charities determine if the resources they have devoted to political activities will raise concerns with CRA ( slf-ssmnt-tl-eng.html?rss). Sections 1 and 2 of the self-assessment tool in essence help to determine if the activities are, in fact, political activities or not. If the activities are not considered to be political activities, then the new provisions would not apply. Section 1 outlines a number of activities that would be considered political activities even if the resources utilized are ancillary and incidental to a charity s charitable purposes. If none of the activities that are outlined are carried on by the charity, then the charity is not carrying on a political activity unless it makes representations to elected representatives or public officials. Section 4 deals with whether the charity has sufficient record-keeping to be able track the use of its resources in political activities. Any deficiencies in its record-keeping should be rectified to comply with CRA guidelines set out in Guide RC4409, Keeping Records. Section 5, outlines the requirement to report the political activities on the Registered Charity Information return Form T3010. This is a helpful resource. CRA s website has other information available to help charities assess whether they are carrying on political activities and, if so, whether these activities would be permitted. This includes Policy Statement CPS-022, Political Activities as well as a recorded Webinar that can be accessed on CRA s website. If a charity makes representations to elected representatives or public officials, then section 2 provides guidance to determine if the representations are considered to be charitable or not. Section 3 outlines the criteria that must be met in order for the political activities to fall within the limits of the Income Tax Act if a charity is considered to be carrying on political activities based on sections 1 and 2. If the political activities are connected to the charity s purposes, are subordinate to the charity s charitable purposes and activities and are non-partisan, then provided the resources devoted to charitable activities are no more than 10% of its resources (financial, capital, staff, volunteers, etc.), the charity s political activities will likely fall within the limits established by the Act. 5 a state of change
6 Key contacts Doreen Hume Sam Persaud Michel Rioux Cindy Veinot Editors Trisha Patel Manager, Public Sector Editorial contributions Dennis Alexander Michael Pentland Partner, Consulting This document is intended to provide general information only. Accordingly, the information in this document is not intended to constitute accounting, tax, legal, investment, consulting or other professional advice or services. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional advisor. Deloitte LLP makes no express or implied representations or warranties regarding this document or the information contained therein. Deloitte & Touche accepts no responsibility for any errors this document may contain, whether caused by negligence or otherwise, or for any losses, however caused, sustained by any person that relies on it. Your use of this document is at your own risk. Deloitte, one of Canada s leading professional services firms, provides audit, tax, consulting, and financial advisory services. Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Deloitte LLP and affiliated entities. Designed and produced by the Deloitte Design Studio, Canada T
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