Newspaper article The Canadian Press

Tax, Charities Rules under Scrutiny as Liberals Craft Social Finance Strategy

Newspaper article The Canadian Press

Tax, Charities Rules under Scrutiny as Liberals Craft Social Finance Strategy

Article excerpt

Tax changes probed in social finance review


OTTAWA - A group of experts is considering whether a niche should be carved out of the tax system to unlock billions in private cash for a range of programs that could help the homeless get off the street or boost the incomes of Indigenous Peoples.

The heads of the advisory group say the issue is one of many being studied as part of work on a federal strategy on social finance, an area that looks to link the charitable and private sectors to deliver services that have a social or environmental benefit.

What makes the approach attractive to governments is that it shifts the financial risk from taxpayers to investors in the delivery of social programs.

The federal government currently identifies 69 companies as social enterprises, such as a 35-year-old Halifax bakery that employs marginalized people, and an online sock store that donates a pair for each one ordered.

But there are many more that meet the criteria and multitudes of others that want to get involved.

Rejigging the tax system was the most ambitious of five ideas presented in a briefing note late last year to the top civil servant at Employment and Social Development Canada. The ideas ranged from creating tax credits for charities running for-profit businesses with a social mandate to letting them earn as much as they want tax-free so long as the profits are reinvested in the operation.

The Canadian Press obtained a copy of the briefing note under the Access to Information Act, among dozens of pages that outline the hurdles the social finance strategy is trying to overcome.

Non-profits and charities have increasingly turned to the world of social finance as a way to tap new sources of funding as traditional sources like donations dry up.

Various estimates suggest so-called impact investors in Canada are sitting on between $2 billion and $5 billion with the potential to grow to $30 billion within a decade.

In some instances, governments pay private backers a premium for their investment if certain benchmarks are met, such as a marked improvement in essential job skills for participants. In other cases, the profits from a social enterprise go to investors, are reinvested in the business, or a combination of both.

The Liberals made their first move on the social finance strategy in 2016 through tax changes to allow charities and amateur athletic associations to be involved in a limited way in a for-profit business without losing their charitable status. …

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