The Future of Donor-Advised Funds in Canada: Governance, Compliance and Strategic Considerations

Key Takeaways:

• Donor-advised funds continue to grow in Canada, bringing increased attention to governance, operations, and the broader professionalization of the sector.
• As DAF programs mature, charities are engaging with a more complex set of legal, compliance, and operational considerations.
• Cross-border giving is emerging as a more prominent area of interest, raising practical and regulatory considerations for Canadian DAF-holding charities.
• Governance, donor agreements, and risk management are becoming more central to how DAF programs are structured and overseen.

Donor-advised funds (“DAFs”) have grown rapidly in Canada. As these programs continue to mature, many charities that offer DAFs are re-evaluating aspects of their governance and operations.

Over the past several years, industry leaders have devoted considerable effort, through advocacy and other initiatives, to helping shape that evolution in a manner that promotes stronger legal compliance while also ensuring that any changes to the regulatory framework support philanthropy and keep charitable giving at the centre of the DAF movement.

This article highlights some of the issues DAFs are likely to grapple with in the coming years, as well as some of the efforts underway across the sector to drive change and professionalization.

Professionalization of Canadian DAFs

Over several months, the DAF Working Group of the Canadian Association of Gift Planners (“CAGP”) developed a new suite of resources for charities, donors, financial professionals, and DAF-holding charities.

In our view, this landmark project reflects the diversity of the DAF landscape in Canada while also helping to shed more light on common DAF structures and practices. It also demonstrates the degree of coordinated effort now being brought to bear across the sector and marks a significant step forward in its continued development and professionalization.

Canadian DAFs are also more publicly visible than ever, and more discussions and panels are taking place on their role, structure, and future. That is a welcome sign and an important part of the broader development of the sector.

Growth or Strategic Focus: Key Considerations for DAF-Holding Charities

Many DAF-holding charities are grappling with whether they should expand into new areas or concentrate more deeply on their existing strengths.

That assessment can involve a range of considerations, including the following:

• Whether a model centred on gifts to qualified donees under the Income Tax Act (Canada) remains sufficient to respond to the innovative approaches donors are increasingly seeking to pursue and to achieve the greatest charitable impact;
• Whether strategic boundary-setting is needed to help manage risk during periods of rapid growth or global uncertainty, such as by limiting grants by geography, program area, or risk profile;
• Whether the costs, staffing, and administrative demands of expanded programming are feasible;
• Whether the existing model is already working effectively and, if so, whether expansion is necessary;
• Whether greater specialization would allow the charity to deliver stronger expertise, donor support, or oversight in particular areas of giving;
• Whether expansion into new areas would require additional governance structures, policies, or compliance controls; and
• Whether donor expectations and market demand are evolving in ways that justify a broader or more differentiated offering.

This is by no means an exhaustive list, but it reflects some of the questions DAFs are increasingly considering.

Cross-Border Giving

We are seeing growing interest in inbound giving to Canada, particularly from U.S. donors, and many DAF-holding charities are taking steps to ensure they understand how to facilitate that giving in a manner that is both compliant and workable from the donor’s perspective.

As cross-border philanthropy becomes a more prominent part of the landscape, this is an area that more DAF-holding charities may wish to consider as part of their broader strategic planning.

Governance and Donor Agreements: Evolving Expectations for Canadian DAFs

Governance remains a central priority for DAF-holding charities. Ensuring that the membership and board of the charity are appropriately structured and operating in a manner that complies with corporate law, tax law, and applicable policy is essential, as is ensuring that key decisions and oversight are properly documented through meeting minutes and other records.

DAF-holding charities are also continually reviewing and refining core governance documents and policies, including investment policies and donor-facing agreements and forms, to ensure they remain clear, current, and effective in protecting both donors and the charity.

Operational and Compliance Risks: Increasing Complexity for DAF-Holding Charities

DAF-holding charities should also pay increasing attention to the more commercial side of their operations.

Key service agreements, advisor agreements, and other operational arrangements should be reviewed not only from a charity law compliance perspective, but also through the lens of privacy law, general liability, technology, and related risk management considerations.

As DAF-holding charities grow and become more operationally complex, different categories of risk need to be identified and assessed, making these issues an increasingly important part of the broader compliance framework and the continued professionalization of DAFs in Canada.

Conclusion

DAFs in Canada are entering a period of greater visibility, complexity, and strategic reflection. As the sector continues to evolve, DAF-holding charities will need to navigate questions of governance, operations, cross-border activity, and program design with increasing care and sophistication.

At the same time, any such evolution should remain grounded in the core objective that has always animated these structures: supporting philanthropy and keeping charitable giving at the centre.