Impact investing and regulation of charities

Please chip in to support more articles like this. Support in its summer fundraiser today for as little as $5 per month!

Headquarters of Canada Revenue Agency. Photo: Michel Rathwell/Flickr

Organizations that are registered charities under Canada's Income Tax Act are regulated by the Canada Revenue Agency (CRA). Charities, whether registered under the Income Tax Act or not, are also subject to regulation by provincial and territorial governments in the regions where they operate. Not all provinces and territories regulate charities operating within their borders, though Ontario is one that does.

A form of impact investment fairly well known in the charity sector is a "program-related investment" (PRI). The CRA, in its guidance on community economic development, describes a PRI as not being an investment in the conventional financial sense. Rather, the CRA considers a PRI to be an expenditure of funds by a charity that is intended to directly further the charity's object(s), and which may involve, though not necessarily, the return of the capital or part of the capital that was "invested." Because it may involve a financial return, a PRI is not a grant or gift; because it is made for the principal reason of furthering the charity's object(s), a PRI is not considered an investment in the traditional sense. Accordingly, CRA's position is that a PRI must be made to another registered charity or, if the recipient is not a registered charity, the PRI must be used for a program over which the charity making the "investment" maintains ongoing direction and control, so that the program is its own activity -- an obviously limiting view.

Charities operating in Ontario obtained a measure of certainty about making impact investments towards the end of 2017 with the enactment of amendments to the Charities Accounting Act (Ontario). The amendments do the following:

  • the concept of "social investment" is introduced and means the use by a charity of its property to further its charitable purposes and achieve a financial return;
  • a charity will be considered to achieve a "financial return" with respect to its investment if the result of the investment is better for the charity in financial terms than expending all of the funds (thus, a partial return of the capital invested would constitute a financial return);
  • charities are given the power to make "social investments" (in other words, impact investments), although that power may be restricted or excluded by the terms of a charity's articles of incorporation or letters patent (or other creating document);
  • a charity, and its directors, will not be liable for a financial loss that the charity suffers from a social investment if, in making such an investment, the directors acted honestly and in good faith in accordance with the duties, restrictions and limitations that apply under the Charities Accounting Act and the terms of the charity's investment powers and articles of incorporation (letters patent);
  • the standard investment criteria that charities in Ontario have to consider when making investments, which are set out in the Trustee Act (Ontario), don't apply when making a social investment;
  • however, before making a social investment, directors of a charity must consider whether advice (which could include legal or financial) regarding the social investment should be sought and, if so, to obtain and consider the advice (though, they don't have to follow the advice), and this duty may not be restricted or excluded from the investment powers or the articles of incorporation (letters patent) of the charity (in other words, this duty to decide whether advice is required and, if so, obtain and consider it, is mandatory).

These amendments to the Charities Accounting Act are welcome, though they will not entirely relieve directors of registered charities from the uncertainty about how the CRA would treat a social investment in a non‑qualified donee. Will the CRA consider a "social investment" as defined in the Charities Accounting Act to be a PRI, and therefore a "charitable expenditure" rather than an investment? Guidance from the CRA would be welcome, provided that the guidance starts from the premise that impact investing is a legitimate form of investment activity, and not simply another means by which charities spend their funds for their charitable purposes.

Defining what charities can do

Charities are able to make impact investments, as an exercise of their power to invest. General rules of law from court decisions establish this. In Ontario, moreover, recent amendments to legislation give directors of Ontario charities some measure of certainty and clarity.

It's necessary, however, for directors of charities to understand the documents that govern their organizations, including the scope and restrictions, if any, of the investment power that their organizations have. This will involve analysis, perhaps seeking advice, but in the end should provide directors of charities with the certainty to enable their organizations to mobilize their resources to achieve the twin goals of impact investing ‑‑ earning money for their future charitable work and promoting positive social change.

This is part two of a two-part series on the law surrounding impact investing by charities. Read part one, on the legal challenges to impact investing by charities, here.

Edward Hyland is partner at Iler Campbell LLP, Toronto, Ontario. Iler Campbell LLP is a full service law firm serving co-opertives, not-for-profits, charities and socially-minded small businesses and individuals in Ontario.

Pro Bono provides legal information designed to educate and entertain readers. But legal information is not the same as legal advice -- the application of law to an individual's specific circumstances. While efforts are made to ensure the legal information provided through these columns is useful, we strongly recommend you consult a lawyer for assistance with your particular situation to obtain accurate advice.

Submit requests for future Pro Bono topics to [email protected]. Read past Pro Bono columns here.

Photo: Michel Rathwell/Flickr

Like this article? rabble is reader-supported journalism.

Related Items

Thank you for reading this story…

More people are reading than ever and unlike many news organizations, we have never put up a paywall – at rabble we’ve always believed in making our reporting and analysis free to all, while striving to make it sustainable as well. Media isn’t free to produce. rabble’s total budget is likely less than what big corporate media spend on photocopying (we kid you not!) and we do not have any major foundation, sponsor or angel investor. Our main supporters are people and organizations -- like you. This is why we need your help. You are what keep us sustainable. has staked its existence on you. We live or die on community support -- your support! We get hundreds of thousands of visitors and we believe in them. We believe in you. We believe people will put in what they can for the greater good. We call that sustainable.

So what is the easy answer for us? Depend on a community of visitors who care passionately about media that amplifies the voices of people struggling for change and justice. It really is that simple. When the people who visit rabble care enough to contribute a bit then it works for everyone.

And so we’re asking you if you could make a donation, right now, to help us carry forward on our mission. Make a donation today.


We welcome your comments! embraces a pro-human rights, pro-feminist, anti-racist, queer-positive, anti-imperialist and pro-labour stance, and encourages discussions which develop progressive thought. Our full comment policy can be found here. Learn more about Disqus on and your privacy here. Please keep in mind:


  • Tell the truth and avoid rumours.
  • Add context and background.
  • Report typos and logical fallacies.
  • Be respectful.
  • Respect copyright - link to articles.
  • Stay focused. Bring in-depth commentary to our discussion forum, babble.


  • Use oppressive/offensive language.
  • Libel or defame.
  • Bully or troll.
  • Post spam.
  • Engage trolls. Flag suspect activity instead.