Linking profits with good works
TheStar.com – comment/editorial – Linking profits with good works
February 26, 2008
Canada has a thriving charitable and non-profit sector that contributes 8 per cent to the country’s gross domestic product, pays no taxes, and issues tax receipts to encourage donations. And it has a thriving business sector that is dedicated to the bottom line.
It also has an emerging “social enterprise” sector that is trying to combine the goal of charities to help people and the management principles of the private sector to turn a small profit.
But as former prime minister Paul Martin discovered as he tried to find ways to support aboriginal entrepreneurs, the odds are stacked against this third way. Under our existing tax laws, in order for these businesses to expand, they have to rely on donations. If they make a profit, they don’t qualify for charitable status. As well, there’s little incentive for financiers to invest in them.
Martin cites the example of Eva’s Phoenix Print Shop in Toronto, which offers shelter and on-the-job training for homeless young people. Eva’s turns a small profit. Now it wants to expand, but there is a limited pool of social capital available to it.
“What we need to do is develop the right mix of risk and reward so that social enterprise becomes attractive to mainstream capital,” wrote Martin in the Star last week.
Other countries have reformed their tax laws to encourage such social entrepreneurs. In the United Kingdom, new legislation has created Community Interest Companies, organizations that run a business with the purpose of benefiting the community. In return they get certain tax breaks, and further incentives are being considered to encourage investors. In less than two years, more than 1,200 such companies have been created.
And in the United States, unlike Canada, foundations can now invest in social enterprises without affecting their charitable status, provided the main goal is a social return, not a financial one.
Canada has a long history of social entrepreneurship, ranging from credit unions and co-operatives to a whole host of new, innovative programs with goals ranging from fighting poverty and urban decay to funding for the arts and climate change.
But they need help to survive, thrive and continue to grow. It is time Ottawa took a serious look at our tax laws with a view to finding new mechanisms to encourage investments in these worthwhile social enterprises. As Martin says, they could be a useful mechanism in trying to narrow the growing gap between the rich and poor in Canada.