What Canada’s Charity Sector Could Learn From The UK’s Principles-Based Regulatory Model

In its April 28, 2026 Spring Economic Update, the Government of Canada announced that it would modernize the framework for the charitable sector in 2026-2027 and consult with key stakeholders and relevant agencies on best practices adopted by other G7 countries. As that process unfolds, the UK model offers a useful point of comparison for Canadian charities and policymakers.  

Canadian charities are familiar with the rhythm of technical compliance: draft the agreement, document oversight, retain the records, and prepare for audit scrutiny. The result is a compliance culture shaped heavily by what the Canada Revenue Agency (“CRA”) expects to see on paper.

That model is not universal. Charities regulated by the Charity Commission for England and Wales operate within a more principles-based framework, one that places greater emphasis on trustee judgment, proportionality, and reasonable decision-making than the Canadian regime.

For Canadian charities, the comparison matters because it raises a broader question about the nature of accountability. Must accountability be demonstrated primarily through prescribed processes and records, or can it also be achieved through trustee judgment, proportionate risk management, and strong governance? The UK model does not resolve that question in the abstract, but it does show that a mature, well-regulated charity sector can operate accountably under a materially different model.

Two Regulators, Two Mandates

A useful starting point for comparison is institutional design, which provides important context for how each regulator approaches accountability, risk, and oversight. The Charity Commission for England and Wales is a dedicated, sector-specific regulator with statutory objectives that include promoting public trust, compliance with charity law, and the effective use of charitable resources. Its mandate allows it to assess charity-specific risks through a governance and public-benefit lens.

In contrast, the CRA regulates charities from within Canada’s tax administration system. A regulator whose primary institutional focus is the integrity of the tax system will tend to place significant emphasis on auditability (the extent to which the charity’s documents are structured so they can be reliably examined and verified by the CRA) and proof of compliance, sometimes at the expense of a broader assessment of charitable effectiveness. As a result, the two regimes often approach similar risks through different regulatory philosophies: one rooted primarily in tax compliance and auditability, and the other in governance, stewardship, and the effective use of charitable resources.

Funding Models: Own Activities, Qualifying Disbursements, and the UK’s Principles-Based Alternative

The contrast between the Canadian and UK approaches is especially visible in the funding of non-qualified donees and cross-border charitable activities.

Canada’s Rules-Based Approach

Canadian charities historically worked with foreign charities and grassroots organizations (“non-qualified donees”) primarily through the CRA’s direction and control framework, which required agency, joint venture, or contractor structures, together with detailed written agreements, ongoing monitoring, and disbursement-by-disbursement documentation of control so that a charity could demonstrate the activities were “its own.”

Some sector participants criticized this framework for requiring a degree of supervision and administrative oversight that could divert attention and resources away from charitable effectiveness while sitting uneasily alongside equitable partnership and locally led approaches to international development and philanthropy.

In 2022, the introduction of qualifying disbursements for non-qualified donees alleviated some of the rigidity of the direction and control framework, allowing Canadian charities to fund non-qualified donees using a purpose-based accountability model rather than proving direction and control over every activity. However, the reform did not move Canada from a rules-based framework to a principles-based one.

Qualifying disbursements remain subject to prescriptive documentary and procedural requirements, including written agreements, due diligence, monitoring, and reporting requirements that must be satisfied in an auditable form. While the reforms eased some constraints, the CRA’s guidance interpreting the reforms retains extensive recordkeeping and oversight mandates, reinforcing the perception that the framework remains anchored in rigid procedural compliance.

In contrast, a genuinely accountability-based model would empower directors and trustees to calibrate oversight mechanisms to their charity’s unique context and risk profile, leveraging their fiduciary judgment to fulfill governance responsibilities.

The UK's Principles-Based Approach

The Charity Commission’s approach to the same funding decisions is principles-based. It is not organized around a set of prescribed compliance requirements. Trustees are expected to understand the charitable purpose of a grant, assess the relevant risks, undertake appropriate due diligence, and take proportionate steps to ensure charitable funds are used appropriately.

English and Welsh charities remain responsible for monitoring grants and satisfying themselves that charitable resources are being applied for charitable purposes. The difference is that those measures are generally calibrated to the risks involved rather than prescribed in advance. As a result, oversight can be tailored to the circumstances and risks of a particular grant.

The focus is  less on demonstrating compliance with a prescribed process and more on whether charitable resources were used appropriately, risks were managed responsibly, and trustees acted reasonably in the circumstances. This approach allows accountability to be assessed primarily through stewardship, governance, and outcomes rather than increasingly technical compliance requirements, placing greater reliance on the judgment and fiduciary responsibilities of the directors and trustees ultimately accountable for the charity’s resources and activities.

Does a Principles-Based Model Mean Weaker Oversight?

A common objection to principles-based regulation is that it may increase the risk of abuse of favourable tax status. The UK experience suggests that this concern should not be overstated. A principles-based system can still address misconduct through investigations focused on governance failures, fraud, safeguarding risks, misuse of funds, and other forms of misconduct. The difference is not whether wrongdoing can be addressed, but how the regulator identifies and responds to it.

The Canadian model, by contrast, can place significant weight on technical compliance. In an audit, deficiencies in written agreements, monitoring records, or other prescribed records may create serious regulatory risk even where there is no evidence that charitable funds were misapplied. This can push charities to devote as much attention to maintaining audit-ready records as to demonstrating the charitable impact of their activities.

At a systemic level, the distinction is ultimately one of regulatory design. Both systems pursue accountability, but the UK model places greater confidence in trustee governance and proportionate risk management, while the Canadian framework places greater weight on compliance with prescribed requirements and recordkeeping standards.

As Canada considers the best practices adopted by other G7 countries, the UK model demonstrates that accountability and flexibility need not be competing objectives. A more principles-based framework can preserve meaningful oversight while allowing charities to exercise judgment in a manner proportionate to the risks involved. In doing so, it offers a potential path toward a regulatory framework that is better aligned with the realities and objectives of modern charitable work.

What This Means for Canadian Charities

For Canadian charities, the comparison ultimately raises a broader question about how accountability is best achieved. The real question is not whether accountability matters, but whether it is best demonstrated through increasingly prescriptive compliance requirements or through a principles-based approach grounded in governance, stewardship, and proportionate risk management.

The English experience suggests that such an approach can provide effective safeguards while preserving charitable resources, minimizing administrative burden, and keeping charitable purposes central to the work of the charity and its partners.

Canada’s current modernization exercise therefore presents an opportunity to consider whether the current framework strikes the appropriate balance between accountability, flexibility, and operational reality. It also presents an opportunity to consider whether charitable resources are best directed toward satisfying increasingly prescriptive compliance requirements or advancing charitable purposes. A more principles-based approach has the potential to preserve robust oversight while allowing charities to devote greater attention to charitable impact, effective stewardship of resources, and meaningful collaboration with capable local partners.

Until any reforms occur, however, charities must continue to operate within the current Canadian framework. That means maintaining rigorous due diligence, monitoring, approvals, and recordkeeping practices, particularly when working with non-qualified donees or in higher-risk jurisdictions. Even where the underlying charitable activity is sound, the documentary record may continue to play a significant role in how that activity is assessed in an audit.

Our Charities and Non-Profits Group regularly advises Canadian and international organizations navigating both the qualifying disbursement rules and the own activities framework, including comparative structuring for organizations with cross-border operations. If your organization is assessing its international funding model, we would be pleased to discuss how these issues apply to your circumstances.