In recent years, philanthropic foundations and other charities have been increasingly relied upon as a vital part of our nation's social fabric.There are over 85,000 registered charities nation-wide contributing billions of dollars to our GDP each year. Charities provide program funding and assistance in multiple areas including education, homelessness, health, education, and the environment.COVID-19 has exacerbated the challenges for vulnerable populations across the country. At the same time, the pandemic has surfaced unique opportunities for grantmakers to support grassroots and community groups that are often at the forefront of a crisis and have the lived experience and best expertise to address it.If this sector is to succeed in filling in the gaps in our national social fabric, Ottawa needs to do more to unlock its potential, notably by modernizing the Income Tax Act.In February, Bill S-216, the Effective and Accountable Charities Act, passed first reading in the House of Commons having had been unanimously approved by the Senate.The intent of Bill S-216 is to level the playing field for all not-for-profits and to provide more opportunities for organizations carrying out charitable activities to access the funds charities, grantmakers and philanthropic foundations provide.At issue: language in the Income Tax Act related to “direction and control” and “own activities.”The “direction and control” provision constrains how charities can work with third parties who are not registered charities or “qualified donees,” despite their being essential partners in delivering charitable programs and services.Under the Canada Revenue Agency (CRA) guidelines, all charities must retain direction and control of the charitable resources and the activities of the non-charities they provide funds to. The activities of the non-charity must align with the charity's mandate and objectives and contribute to the achievement of that mandate.The charity is responsible overall for the project in terms of governance, fund disruption and human resource responsibilities, while the non-qualified donee – a terrible bureaucratic notion for referring to our partners - is forced to sign over authority and the intellectual property of the project to the charity from which it is receiving the charitable donation.As Sen. Ratna Omidvar, who introduced S-216 in the Senate, said in the upper chamber in December 2021, the language “direction and control” is very sensitive for many organizations, particularly within Indigenous communities.“Any intellectual property that is the result of such an agreement is owned solely by the charity and not the Indigenous organizations,” Omidvar said.“Every line item in a budget must be approved and re-approved if there is a minor change. The non-charity may be required to provide receipts, photographs, be subject to on-site inspections, provide minutes of meetings, written records of decisions and so on. Every legal document pertaining to the project must be signed by the charity, including leases, contracts, et cetera.“At times, the sponsoring charity may require the staff to be changed. That, colleagues, is not a partnership; it is tantamount to a takeover,” she added.In addition to the issue of lack of equity in partnerships, the regulations also create excessive bureaucracy which consumes significant time and resources for both funders and implementing partners. For small or grassroots organizations already underfunded, the resource-intensive demands of these relationships present massive barriers.In other words, Indigenous communities, grassroots organizations, Black and other equity-seeking populations who are not registered charities and are non-qualified donees have less access to charitable funds because the “direction and control” provision prevents an equal partnership with the charity.What Sen. Omidvar has proposed in Bill S-216 is to replace “own activities” with resource accountability while expanding the definition of charitable activities. The bill would require information on the non-qualified donee, including their identity and experience, and it would impose restrictions or conditions to ensure the charitable funds are being used for their stated charitable intent.Currently the Act technically forces charities to spend their charitable dollars on activities they undertake themselves, as opposed to giving them to others who may have more experience and expertise in certain areas where funds are needed. The bill would remove this limitation for charitable organizations.To ensure the credibility of charities and their activities, the government included additional tools in Budget 2021 to further ensure the accountability and lawfulness of charities, with respect to terrorism and false statements to maintain charitable status.The budget also signalled the government's intent to increase the disbursement quota (DQ)—the minimum amount that charitable organizations must spend each year. Currently the DQ is 3.5 per cent of a foundation's assets.An increase to the DQ needs to balance immediate charitable needs with long-term sustainability. An immediate boost in charitable donations with a significant increase in DQ would provide a cash infusion in the short term. But without other regulatory reforms and notably Bill S-216, the unequal distribution of funds would very likely worsen.The proposed legislation now before the House would allow many groups, including initiatives from Indigenous communities to sponsor groups for refugees from Afghanistan and Ukraine, to better access resources as genuine partners.For years many in the charitable sector have urged the federal government to modernize the Income Tax Act to reflect the current charitable sector.Government policy should help charities to disburse funds to organizations and communities in need without exerting control over those communities.The passage of Bill S-216 is the most effective way to help under-served communities access funds from this sector, and it would help to level the playing field for those who need these funds the most and are highly impactful in addressing needs.Jean-Marc Mangin is the President and CEO of Philanthropic Foundations Canada, a national network of family, independent and corporate grantmakers.