Thank you so much for inviting me to speak with you today.
My name is Cathy Taylor. I'm the executive director of the Ontario Nonprofit Network, based in Toronto. We're a network of 55,000 non-profits and charities in the province of Ontario, which are in everything from faith communities, sports and recreation, theatre groups, arts and culture, social services, health, and across the spectrum of the non-profit sector.
My remarks today will be from the lens of the not-for-profit sector, not from the investment perspective.
You may know that across Canada we have what we call the core non-profit sector—that excludes municipalities, universities, school boards, and hospitals. We're really big business. We generate $35.6 billion, or 2.6% of Canada's GDP, and are one of the fastest growing sectors of the economy, with an annual growth rate of 7%. In fact, since 2008 we were one of the only industries in Canada that was growing at that rate.
Contrary to common perception, 61.5% of the core non-profit sector's revenue comes from earned income and the sale of goods and services, not from government and not from other charitable activities; of that, 15% is through membership fees. Transfers from all three levels of government comprise only 19.7% of the revenue of non-profits and charities. I think that's an important distinction when we talk about social finance and social enterprise.
The public benefits sector in Canada—we often speak of non-profits as providing a public benefit—is not waiting for a handout from government or from philanthropy. In fact, it's just the opposite: the non-profit sector comprises independent organizations that make a significant economic contribution while pursuing their social missions. In a recent survey in Ontario, 88% of social enterprises were operating as non-profit organizations, and an additional 4% were for-profit corporations wholly owned by their non-profit. So when we talk about social enterprise and social finance, we're primarily talking about the corporate structure of the non-profit sector.
Social enterprises heavily reinvest back into their communities because they employ people, often with vulnerabilities and disabilities, and they create public services within their communities. The focus of the non-profit and charitable sector is this commitment to building strong, resilient, and inclusive communities that provide a social good, as opposed to increasing private wealth.
Social enterprise is a powerful force that can be used in local communities. We feel very strongly that the federal government has a role in creating an enabling environment for social finance and social enterprise, which have the potential to address growing inequality in communities and to play a major role in building community assets and resilience. We certainly applaud you for taking this opportunity to discuss this.
We'd like to make the following recommendations for you to consider today.
First would be to focus your work and effort on creating that enabling environment for social finance, and specifically social enterprise that builds on the trust the public has for the non-profit sector, which is one of the highest trust levels of any sector in Canada. To that end we believe that all social enterprises, regardless of their corporate form or source of revenue, should have a public purpose and a mission, should be operated for the public good not personal gain, should reinvest their excess revenue in their public mission, and retain their assets in the public domain for the public good.
Part of that enabling framework that we think the federal government has a role and responsibility to play is determining what that definition of social enterprise is. And there's an opportunity to align with our provincial governments.
Second, we would encourage you to wait and see, around the concept of a dual purpose or hybrid corporate legislation at this time. There's so much else that will provide more return for the time invested. We have new corporate legislation for the non-profit sector at the federal level. Many provincial governments are adopting new legislation for their non-profit sector at the provincial level. Quite frankly, the last thing we need right now is another piece of legislation to try to figure out what that dual purpose or hybrid piece looks like.
We know that B.C. and Nova Scotia have developed dual purpose legislation. We have only a few examples of organizations that have used it, and we need to see how it's working and not be the first to put another piece of legislation in place. We already have fairly flexible business corporate legislation; we need to see how it will evolve.
Third, we urge you to reform and reinterpret the Income Tax Act as it relates to non-profit corporations, especially those providing a public benefit, to allow them to be sustainable and grow their revenue. Current interpretation of the Income Tax Act prevents non-profit organizations from generating revenue—not creating profit, but generating revenue that they can put back into their mission as part of their organization—as well as maintaining cash reserves.
As you know, any business needs to have cash reserves if it is operating an organization. It is impossible to operate an organization with this kind of limitation, and even more impossible to operate a social enterprise with the goal of being accessible and inclusive without these tools in place. Revenue that is reinvested in the mission of the organization is not profit. Non-profit and charitable regulation is out of step with what is happening on the ground and desperately needs modernization.
Fourth, don't exclude non-profit organizations from business support programs, and treat social enterprises operating as non-profit and charitable organizations as small and medium-sized enterprises in the programs you have already available. They need access to the same funding and business supports as are available to the private sector. There are many government programs that offer supports and capital to small and medium-sized businesses. Free those up to also be accessible by non-profit organizations that are operating a social enterprise. This is a fairly straightforward thing that can happen in a very short period of time and that doesn't involve any new resources.
Currently, non-profits are often actively excluded and ineligible for research and development funding or start-up funding in business planning supports that are available to small and medium-sized enterprises. Often, what we're hearing on the ground is that they start as for-profit corporations to get those start-up resources, and then they transition to a non-profit once they are established.
Fifth, social enterprises need debt financing that is creative and responsive to their needs. Some of the earlier speakers spoke of certain tools out there, such as “slow money”, wherein a grace period between loan interest and repayment is expected, or long-term low interest rates for things such as social housing and capital projects and unsecured operating funding for social enterprises, such as lines of credit for cash flows.
I don't think we're necessarily always talking about complex social finance tools that need to be in place. On some level, the majority of the non-profit and charitable sector are small to medium-sized organizations, and they require some of the basic financial tools that are not currently available to our sector. Lenders are typically not familiar with the non-profit or social enterprise model and shy away, even though it's a much less risky investment for them. Government can play a role with respect to freeing up those institutions to provide these types of supports.
Social enterprises often take considerable time to become profitable, as they are filling a void that has typically not been filled by private business because there hasn't been a profit margin. For the sector to be able to provide that service with the expectation that there should suddenly be a profit margin isn't the right expectation. Help us figure out how we can provide the service at cost, which is what our role is.
The final recommendation is to develop a social procurement action plan for the government that encourages companies obtaining government contracts to engage social enterprises as part of their work. Leverage the purchasing power that government has to strengthen communities. Scotland, we know, is a leader in this regard, and there are many other examples of how this has been done around the world.
Thank you very much for receiving our ideas on strengthening social finance and social enterprise. We have a blueprint for supporting social enterprise in Ontario, which we're happy to share, and we're looking forward to your questions.
