Policy and Advocacy

Our community spaces are vital – whether they are sports facilities, schools or community centres, these places sit at the heart of our neighbourhoods. They provide physical space for services and are places that unite us.

We know that across the country, community spaces are being lost, and with the impact of the pandemic, this trend is only likely to worsen. We see places that were once vibrant hubs of community activity ending up in the hands of private developers, being pushed out of gentrifying neighbourhoods, or worse, left derelict.

“Too often, outside corporate interests come in and change a neighbourhood and it doesn’t reflect the needs of the community,” says Ryan Collins-Swartz, Co-Executive Director of Tapestry, “the story is all too familiar – the place of worship with low attendance sold to a developer, storefronts in rural communities left empty, a beloved historic theatre being demolished – the list could go on.”

“The amazing thing is that this problem actually presents a huge opportunity,” shares Ryan. “We have the potential to empower communities, redefine public services and reinvigorate local economies through community ownership.”

What is community ownership?

There are many accepted definitions of what community ownership means, but for us at Tapestry, it means a community organization (a co-operative, charity or non-profit) taking legal possession of an asset. These community assets are diverse and represent a wide range of uses from community solar farms to land trusts. The asset may be held for the benefit of the organization itself (ex. Office and program space) or for the wider community (ex. Affordable housing).

We know that community ownership can be a powerful catalyst for social action. Taking control of an asset means that a community organizations can:

• Protect key services and facilities from being pushed out of neighbourhoods
• Make major alterations to assets to fit their needs
• Reverse economic decline of an area and attract investment
• Instil a renewed sense of pride and confidence in the community
• Increase future participation through membership, volunteering, attendance, etc.
• Build credibility with funders, and leverage future financing to grow
• Encourage, through their success, further innovation within the community

At Tapestry, we have seen the power of community ownership firsthand. The very first project we were involved in began back in 2002, when a group of community members came together with the vision to build a community owned wind project in downtown Toronto. 

It was to be the first urban wind turbine in all of North America. “At the time, this was no small feat,” shares Ryan, “our lawyer often jokes that it would have been easier to build a nuclear power station in the city than that turbine.”

But the community was focused and determined, and the sense of pride and ownership was immense. By bringing together almost 600 members, WindShare became a model not only for sustainable energy but for community ownership across Canada.

In the years since, we have seen amazing historic buildings rescued and repurposed for community needs, expanded and revitalized sport facilities, community arts spaces anchored within gentrifying neighbourhoods, and communities shaping their own needs for education. The common thread? The purchases of these assets were all made possible, in part, by engaging community members as investors.

“Community finance is a natural fit for community ownership,” explains Ryan, “when a community member invests, they feel they are taking a meaningful stake in the future development of the place in which they live and/or work.”

Community investment not only mobilizes financial capital, but also social capital within a community. “Once a community member is an investor, they really feel they are part of the project. We see them wanting to volunteer, participate and talk about the work of the organization they have invested in. They get really excited!” says Ryan. 

What’s more, there is a significant public appetite for making these types of impact investments. 

What are Community Bonds?

All too often, communities have a great idea but they don’t have the money they need to bring their visions to life. Community bonds can help complete the financing puzzle for these projects, alongside other important types of financing such as grants, mortgages, and donations. 

Community bonds are a social finance tool, similar in many ways to a traditional bond. They are an interest bearing loan from an investor, which has a set rate of return and a fixed term. The major difference is that in addition to offering a financial return, they also offer a social or environmental return.

What makes community bonds so unique is that they allow capital to flow back into the local economy, rather than to a bank. Investors get a double benefit – the financial return and a stake in shaping their own community. 

“We believe that communities should control their own destiny. And community bonds are a financial tool that give communities the agency to decide what develops and how their community transforms,” says Ryan. 

Economic Inclusion

Community organizations issuing bonds have the ability to customize the terms of their investment offering so that they fit the needs of their project and their community. “We have seen community bonds priced for as low as $250 to be as inclusive as possible,” says Ryan, “still, in disadvantaged communities, organizations often have to extend their notion of community beyond the physical boundaries of their neighbourhood.” 

Community bonds have been very popular among community foundations who have earmarked funds for impact investing and local businesses looking to make a social impact, and there is a growing community of impact investors across Canada that want to make a return while also doing good. 

The future of Community Investment and Community Ownership 

We need to be learning from past successes and supporting innovative financing in order for this model to flourish.  Local governments can play a huge role in helping communities to regenerate their areas by supporting community ownership.

We are encouraged by the steps that some municipalities have been taking to this end, particularly with covid recovery at the top of the agenda. The City of Kingston, for example, recently launched an initiative to explore how community investment might contribute to initiatives that support vital community needs. 

We invite local governments, community leaders and community organizations to engage with us on community ownership as a model for post-COVID recovery. If you are interested in learning more or have a project in mind, please get in touch at info@tapestrycapital.ca. 

Community bonds are a social finance tool that allow non-profits, charities and co-operatives to raise investment from their community of supporters. Like a regular bond, they are an interest bearing loan that is repaid at maturity. Similarly, they have a fixed term and a set interest rate.

The key difference is that they produce both a financial and social return for investors.

Community bonds are most often used to raise capital financing for the purchase or renovation of a fixed asset, such as real estate or major equipment. At Tapestry, we’ve worked on community bond raises for everything from solar energy projects, to co-working spaces, to schools, and we are learning about new and exciting projects every week. 

As community bonds become more commonplace, their demand has increased significantly. In 2020, Tapestry supported issuers in raising $18.3 million in investment. 

One of the questions which we are frequently asked is, “Can community bonds be held in tax-advantaged accounts?” 

To answer that question, we spoke to Erica Glueck, our Senior Manager of Investments at Tapestry. 

What are tax-advantaged accounts?

Tax Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs) are two types of tax-advantaged accounts that were created by the Canadian Government as a means to support Canadians in saving for their retirement. 

“You can think of TFSAs and RRSPs as a basket”, says Erica. “You can pick what to put in that basket from an array of financial products – guaranteed investment certificates (GICs), cash, stocks and bonds.”

So if bonds are allowed in tax-advantages accounts, are community bonds as well?

Erica Glueck, Senior Manager of Investments at Tapestry Community Capital

“The short answer is, ‘it depends’”, says Erica. “The organization that is issuing the bonds will have to meet certain conditions in order to make this a possibility for their investors.” 

First, the organization must be raising bonds that are secured against a traditional mortgage loan or a capital asset. “So if the organization is purchasing a building, or renovating a building they already own, this is a first great step,” she explains. 

The second step is finding willing financial institutions to be custodians for these bonds in a registered plan. 

Community bonds are what we call exempt market securities – or in plain English – they cannot be bought and sold on the public market.

The exemptions that allow for non-profits, charities and co-ops to raise investment in this way also make clear that they cannot have ‘dealers’ who are being paid to sell bonds on behalf of the issuing organization.

“This can sometimes be a challenge,” says Erica, “because there is no incentive for a brokerage or financial institution to support investors in getting their bonds held in a tax-advantaged account.”

But fear not, there are several great financial institutions who are already custodians for community bonds. Questrade, Caldwell Securities and Concentra are a few that we are aware of. 

In order to get these financial institutions on board, the issuing organization will need an Opinion Letter from a tax lawyer or an accountant. 

Erica explains, “The Canada Revenue Agency (CRA) decides what can be deemed a qualified investment for these accounts. Bond debt that is secured against a mortgaged property is one way they can meet the necessary criteria. The safest way though, is to have a chartered accountant or lawyer interpret the Income Tax Act as it pertains to your project and investment opportunity.”

It’s important to know that ultimately the decision is at the discretion of financial institutions, and that this is something that Tapestry and the Issuer can’t control.

What are the benefits of having community bonds eligible for tax-advantaged accounts?

Lots of Canadians max out their contributions to their RRSPs and TFSA’s not only to save for retirement, but to reduce the taxes that they need to pay on those funds. This means that a lot of wealth within Canada is in these accounts.

An individual might not have a lot of cash available, but may have a significant amount saved in one of these accounts. 

“Because there are restrictions on withdrawals from these types of accounts,” says Erica, “most of the money remains locked in place there – making it difficult, for say Bob Smith, to withdraw $2,000 to invest in a community bond.”

“If Bob can suddenly hold that bond in his TFSA or RRSP,” she explains, “there is no need to withdraw that capital.” Enabling community bonds to be held in these accounts unlocks more potential investment. 

“It’s a good way to leverage someone’s savings plan, rather than making them go through the extra effort of drumming up additional savings to invest in an organization they believe in.”

How important is it that community bonds are TFSA and RRSP eligible?

“It’s definitely worthwhile to explore,” says Erica, “but I don’t think it’s a make-or-break situation if the Issuer’s bonds are not a qualified investment.”

Of Tapestry’s clients, only around 10 percent of investments are held in these accounts. “Especially if clients have a lower minimum entry point – say $500 or $1,000 – the need for this vehicle is definitely less.”

“Community bonds are great because they can be priced to be so widely accessible, democratizing the impact investment arena,” she says emphatically.

“We are seeing a growing number of younger investors with community bonds, and many investors are at a point in their lives where they aren’t taking advantage of these tax-advantaged accounts yet, but are in a financial situation where they can invest $1,000 in an organization they believe in.”

What types of organizations should consider making their bonds RRSP and TFSA eligible?

“We always recommend to clients that they consider this option if they feel their community would have significant funds saved in tax-advantaged accounts”, says Erica. “The best way to assess this is through simply speaking to your potential investors before you launch your bond campaign.”

“It can be a bit of a process to establish, but if investors are really keen on having this option, it can pay off in the long run,” Erica advises. 

It is important to note that there are some additional costs with going this route, so issuers should be prepared for this. For example, it’s necessary to obtain a new opinion letter for every year that the bond is held.

Any last thoughts on the subject?

“I’d just say that financial markets need to start paying attention to these investors.”

“More and more, we are seeing that people are not just interested in making a financial return, but want to know that their money is doing something good. Just because financial institutions aren’t as familiar with these investment products, it doesn’t mean they are necessarily bad or risky investments to be making.”

“The more people want to buy and hold these investments in registered accounts, the more the industry will need to pay attention to investor needs and streamline the process to make it possible.”