[Translation]
I would like to begin by thanking committee members for participating in the study of Bill , which would bring about more transparency with regard to the salaries paid by charities.
[English]
Mr. Chairman, when I introduced Bill last fall, I genuinely believed it was a mere accessory to motherhood and apple pie. I doubted anyone would actually argue with the idea that Canadian charities should have the same type of salary disclosure that American charities already have, that all Canadian public corporations like Rogers and Bell have, and that most provincial governments already have. The fierce resistance made me wonder if I had innocently stumbled onto something.
I met with countless charities and with even more donors and started asking why transparency could be so frightening to so many. The small measure of transparency my bill seeks is the disclosure of the names, titles, and salaries of just the five highest-paid employees. Charities would still report ranges of the top ten, as they do now, but the top five would be fully disclosed.
A second prong of my bill adds to the minister's long list of rarely or never-used powers to actually regulate charities. It would allow the minister the discretionary ability to deregister a charity if it pays an executive more than a quarter-million dollars in a year. While lately the media are full of reports of abuses by charities, I should say at the outset that there are many excellent charities in this country.
One is the St. Peter's Parish Dominican Relief Fund. It delivers hundreds of thousands of dollars in aid every year to Haitians living in the bateyes, in the Dominican Republic. Father Michael Corcione, Dr. Dario Del Rizzo, and a team of volunteers set up medical clinics, provide medical care, medicine, and clothing, and handle fundraising, logistics, and program delivery without spending a single dime in administration or fundraising costs.
At the other end of the scale is World Vision. It collects over $350 million in donations annually, spends less than 20% on fundraising and administration, and pays its CEO $188,000. The largest issuer of tax receipts in Canada appears to pay far less than the discretionary cap suggested by this bill. Tiny charities and massive charities can both put the cause first and keep salaries in check.
In the middle are charities as small as 2% of the size of World Vision that pay much more to executives and spend twice or three times as much on administration and fundraising. Transparency itself will not cure self-interest and the temptation to take home more charity in pay and perks; however, it will provide some measure of restraint and donor awareness. Better-run charities may benefit from donations redirected from those that burn more than half of every dollar on fundraising companies and administrative salaries, where the president hires himself as a consultant, where nepotism pays six-figure salaries to spouses and children, where the executives pocket donated prizes, or where the charity helps facilitate a $2.5 billion tax fraud by issuing inflated tax receipts through gifting tax shelters.
To see why salary disclosure is so important to donors and so threatening to executives, let's look at the current state of disclosure. You will have read in The Toronto Star that the Oshawa Hospital Foundation paid its CEO $200,000, five-figure benefits, $10,000 a month in consulting fees, and more. All of this would have been a surprise to anyone looking at the return posted on the CRA website, which says the charity did not indicate that it incurred expenses for compensation of employees during the fiscal year. The Toronto Star total adds up to about $350,000. The CRA publishes “zero” for 2009 and previous years.
You can get classified Pentagon documents on WikiLeaks easier than you can find compensation information about charities.
I would argue that early compensation disclosure would have prevented the Oshawa situation from turning into a crisis, as there never would have been a need for an investigative reporter to dig out the truth.
Mr. Chair, with the current state of disclosure, 88% of donors don't bother to look at the CRA site and the confusing and misleading information posted there. They don't have the time to figure out the shell games. They rely on the only real regulators of charities, the media: the Toronto Star, The Globe and Mail, and CBC, to name a few.
The CRA was kind enough to provide data on donors, donations, fundraisers, and management/administration costs. I've circulated some tables for your perusal. You will see that since 2000, donors have remained flat, so high-priced fundraising talent is not attracting more donors. Charitable receipts are growing barely faster than the rate of inflation, barely more than 1% a year on average, but fundraising costs defy gravity. For every percentage point increase in donations, fundraising costs rose three and a half percentage points. Even after accounting for inflation, fundraising costs rose more than 50%, three and a half times as fast as donations.
Management and administration costs marched skyward as well, rising even faster than fundraising costs, so secrecy has certainly been a booming success for fundraisers and executives in terms of pay. It is not much of a success for frugal charities that have to spend more and more to maintain their revenue against competition that can spend 50¢ of every dollar on fundraising and administration, without sanction or salary disclosure.
Let's look at the situation from the perspective of people who need the money to reach the cause, people hoping for a cure or a helping hand. Putting a personal face on it, if you will permit me, let's take a look at the MS Society. I know that donors and sufferers are disappointed to find out that the MS Society is spending more on fundraising than research. Fundraising, management, and administration together exceed research by 75%, and exceed the total spent on all charitable programs by 20%, according to the CRA listing. Despite this, the MS Society is one of the better performers among medical charities and may just be a victim of the inflationary reality created by the fundraising industry, which you will hear from later.
Charities have become a filter that too often shrinks donations by half and leaves federal and provincial taxpayers paying for the bulk of actual programs through credits and deductions. The question my bill asks is whether secrecy is working. Are unlimited and undisclosed salaries for executives bringing down the costs or driving them up? Should Canadians continue to have to look to U.S. registrations to find out how much Canadian charities are paying themselves?
You will hear from charity executives themselves. You will hear from their lawyers and private fundraisers who rely on them. What do Canadians think? What do donors think?
I asked Pollara to ask 2,000 Canadians, and here is what they found. Only 12% said they had looked at the CRA website, so there needs to be another way to bring light to blind generosity.
When asked, do you agree or disagree that the five highest-paid executives from all Canadian charitable organizations should be required to disclose their salaries, 83% agreed and 11% disagreed.
When asked, are you aware that some charity executives earn more than $250,000 a year, 68% said no. Do they think there should be a limit? Sixty-eight per cent said yes; 22% said no.
What limit do they think is appropriate? Of those who supported a cap, 82% said it should be $100,000 or less. The median answer was $75,000. Only 3% of donors thought the cap should be higher than $250,000. So that is the best sense as to what donors are saying at large and might be saying to you. But alas, you will hear that the minister might deregister a hospital or someone might pay more than the limit for a brain surgeon. You might hear any number of other red herrings from people who know well that the minister already has the grounds to deregister countless charities on the basis of disproportionate private gain, and hasn't done so. He's hardly going to deregister a hospital, university, or orchestra for paying doctors, professors, or conductors.
Nonetheless, I have agreed to delete the part surrounding the cap, because I don't want that tangential debate to be the shield that keeps exorbitant salaries secret.
I have received assurance from the parliamentary secretary that the government will explore the murky issue of contract fundraisers and fundraising companies. Perhaps we will finally see full disclosure of all fundraising salaries earned from donations that never make it to the cause.
Moreover, I don't want anyone to be able to hide a $1 million salary behind a secretary's privacy concerns, as if they're worried about the privacy of low-paid workers. So I have offered another amendment to create a disclosure floor of $100,000.
In conclusion, we now have a bill with a single, unambiguous purpose of delivering transparency for high-paid executives. I believe that Bill can be a small first step to reforming the charities sector into a transparent and efficient funding vehicle for good causes. I know you will need to do more.
The salaries of fundraisers and the profits of fundraising companies need to be disclosed. Fundraising costs and CEO salaries need to be disclosed right on the tax receipt or other means, as Blaine Calkins suggested in the House of Commons. Tax receipts ought to be reduced by the amount that fundraising and admin costs exceed 25%. Donor reaction would bring fundraising costs down in a frantic hurry—to the benefit of every cause, cure, or vital need.
Finally, the minister should have the same powers as the securities regulator to ban executives who hide costs, funnel funds to related companies, or participate in scams like gifting tax shelters that robbed Canadian taxpayers of over $2 billion by inflating receipts. With these measures in place, the donor dollar would no longer go through more pockets than a dry cleaner, and perhaps charities would deliver a lot more charity.
Thank you.
I want to thank our guest and the mover of the motion this afternoon.
I'm going to share some of my time with Mr. Chong.
I really only have one question and I need to be upfront about things. The parliamentary secretary was pushing to be here today, but he's not in this province actually. I know you've been working with him, and we appreciate your willingness to look at some changes, and you have provided some changes here today in terms of amendments you are recommending to this committee, which we really appreciate, as you're focusing in on the accountability aspects.
I was a fundraiser myself for the Easter Seals Society way back when. Now they call them development officers, and my wife is one for Easter Seals. I wish she could make $100,000 and put her name there. She works hard at it. She's only part-time, but she works very hard for Easter Seals, as do many individuals across the country working for charities.
On some of your reports here, I think if you asked folks on the street, is a hospital a charity, is a university a charity, that may not come to mind. We think of Easter Seals groups, Heart and Stroke, and those types of organizations as charities. It's a bit of a different perspective on what you would consider a charity.
Based on your discussion with the parliamentary secretary, what are you hoping this government does with your bill and with the issue in general going forward?
:
Thank you, Mr. Chair. Thank you, Madam Guarnieri.
I just have a comment and then a proposal that I would put to the committee when it goes to clause-by-clause.
First of all, I support the intent of this bill. I support your proposed amendments. I think it would shed much-needed transparency and light on the compensation issue regarding many charities in Canada.
My concern is with related corporations. In recent years, these for-profit share capital corporations have emerged that are very tightly and closely related to federally registered charities. These are for-profit enterprises that are not subject to any public reporting requirements, as they're often CCPCs, Canadian-controlled private corporations.
What they are doing is using the goodwill, the good name, of federally registered charities in order to promote their for-profit enterprises. Their give-back to the charity is that they somehow apportion a portion of their profits—give a portion, a percentage of their profits—back to this charity. It's not clear how much of those profits they're giving back in terms of their overall revenue base and what the compensation is of the senior executives who work for these for-profit corporations.
So I would propose to you that Bill , in clause 1, be amended, by adding after line 18, the following: the name, job title, and annual compensation of the five executives or employees with the highest compensation, provided it exceeds $100,000 annually, of any corporations related to the registered or previously registered charity. What that would do is shed transparency on very closely related share capital corporations whose executives might be profiting from the goodwill of a close association with a federally registered charity.
:
Thank you, Mr. Chairman.
Since we are talking about the importance of our institutions, I would like to thank my colleague, who belongs to another political party. She had the insight to see that there was a problem in an area she knows, obviously, extremely well, and she put forth a series of proposals.
I completely support the draft amendments presented today by Ms. Guarnieri. I think this is going to address some serious concerns.
I would like to summarize the situation. A university is engaged in a fundraiser of $700 million. The university could very well be paying someone over $250,000, which is the limit proposed here. However, a donor to this university will receive the only information that matters. If someone wants to make a donation to a certain university and sees that the five top earners make over $700,000, $800,000 or $900,000 per year, this person may find those amounts to be completely outrageous. Therefore, the donor would have access to the information he or she needs to make an informed decision. As for everyone else, it is not up to us to decide what is a reasonable salary.
I find this is an extremely good thing.
As Mr. Chong did previously, I will ask whether we could amend or improve this bill. I will ask our caucus to support your bill with the amendment you have just proposed.
My question is on the amendment to the very last part, which adds a few words on the compensation of the five managers or employees. Does the definition of employee include people who might have been hired as contract workers?
Welcome, Ms. Guarnieri. I am quite impressed by your proposal.
When I was a mayor, I consulted professional fundraising firms as part of a major project that I wanted to undertake in my municipality. At the time, those firms were offering their services in exchange for 15% of all donations collected.
I will follow up with what Mr. Mulcair just said. If we can ensure full transparency with regard to donations and donors, as well as on the amounts that are paid out from the donations... You just gave an example of an organization that paid out 75% of its donations to people who—
[English]
raising money than the people who received it.
[Translation]
That is quite shocking. I myself would never have agreed to that. I do not know if they signed that contract in good faith. That said, there are always two sides to every story.
I think that what Mr. Mulcair had to say was rather interesting. If we had accepted the firm's offer, we would have had to pay it nearly $200,000. In the end, we did not accept its offer and decided to do things on a voluntary basis, and things still turned out quite well.
Should such firms also be included in the list? If that had been the case, no one would have been compensated as a result.
I understand that amendments to the bill have been tabled. I haven't had a chance to incorporate those into my speaking notes, so I hope you take that into account.
Thank you for the introduction, and thank you for this opportunity to provide you with comments on private member's Bill , which deals with compensation in registered charities.
My objective today is to provide some context about the current legislative and regulatory framework for compliance in the charitable sector, as provided in the Income Tax Act.
There are currently 85,000 registered charities in Canada, ranging from small entities run by volunteers to large charities such as hospitals and universities. To give you an idea of the diversity of charities, in terms of the size of these 85,000, about half report total annual receipts or revenues of under $100,000. Over half the registered charities in Canada report having no paid employees.
[Translation]
The Income Tax Act contains substantial incentives encouraging people to donate to registered charities.
Individual donors receive a 15% tax credit for annual donations of up to $200, and a 29% credit for donations over and above $200.
If you also take into account provincial and federal support measures, Canadians receive approximately 46% in tax credits, on average, for donations in excess of $200.
Organizations benefit from a tax deduction on donations received.
[English]
Over the past decade, the Government of Canada has significantly increased incentives for donating to charities. The capital gains tax associated with donations of publicly listed securities to public charities was first reduced in 1997 and was eliminated altogether in 2006. This exemption was extended to donations of listed securities to private foundations in 2007. The incentives for making donations of ecologically sensitive land to conservation charities were also significantly improved. Finally, larger gifts to charities were also made more effective by increasing the annual donation limits, as a percentage of income, from 20% of net income to 75% of net income.
In addition to their ability to issue tax receipts for donations, registered charities are also exempt from tax on their income.
In light of the generous tax support provided to encourage Canadians to donate to charities, the Income Tax Act contains a number of restrictions on how charities can operate. These provisions build on the common law and provincial statutes in place to regulate charities.
The Income Tax Act requires that registered charities be established for charitable purposes and that they devote their resources to charitable activities. While the meaning of charitable activities and charitable purposes is largely determined by jurisprudence, the Income Tax Act includes specific requirements for registration as a charity and grounds for revocation.
On compensation, the current framework for charities includes compliance tools that can be used in cases of excess compensation.
From a policy perspective, it is important to recognize that the charitable sector is in competition with the private sector for highly skilled executives. In this regard, it's appropriate for charities to pay their executives salaries that are comparable to their private sector counterparts--that is, fair market value.
[Translation]
The CRA's assessment of what constitutes reasonable compensation must be based on a comprehensive review of the specific circumstances under which compensation is paid.
For example, it might be reasonable to provide an executive with enhanced compensation in order to manage millions of dollars in resource expenditures as well as hundreds of employees. However, it might be ill-advised to pay the same salary to the president and sole employee of a small charity.
[English]
In cases of excessive compensation, the Income Tax Act provides the Canada Revenue Agency with the authority to impose an intermediate sanction; that is, a penalty for undue benefits, if a charity pays an unreasonable amount to any person.
If the CRA determines there is an undue benefit provided to a person, a penalty equal to 105% of the amount of undue benefit can be imposed on a charity. A 110% penalty and the suspension of tax receipting privileges can be applied in the case of repeat infractions. Penalties are normally transferred to an eligible charity, thereby keeping the funds within the charitable sector.
Excessive compensation could be grounds for revocation in some cases because the funds spent on excessive compensation are funds that are not devoted to a charitable purpose, as required by law.
I would also like to mention that the rules in the Income Tax Act for undue benefit apply to many sorts of transactions, not just to excessive salaries. This helps ensure that charities do not pay more than what would be considered reasonable remuneration for goods and services.
[Translation]
The Income Tax Act requires that registered charities file annual information returns that are made publicly available. That requirement allows Canadians to access a broad range of financial information on charitable organizations, including information on compensation. The requirement to produce such returns contributes to greater transparency in the sector.
Charities are required to report the total compensation for their 10 highest paid positions by salary range. That information is available to the public on the CRA's website and helps foster transparency with regard to how resources are used by charitable organizations. Those reports help the CRA to detect potential abuse and set audit priorities.
[English]
The Department of Finance will continue its ongoing efforts to ensure that appropriate legislative and regulatory frameworks are in place to promote accountability in the charitable sector.
I would be happy to respond to any of your questions.
Thank you.
:
Thank you, Mr. Chairperson.
Good afternoon. Thank you for the invitation to appear this afternoon on Bill .
I am Cathy Hawara, the director general of the charities directorate within CRA. With me is Bryan McLean, the director of policy, planning and legislation division.
[Translation]
I would like to explain the existing legal and regulatory framework administered by the CRA in our role as the federal regulator of registered charities in Canada.
The CRA administers the Income Tax Act, which confers significant tax advantages on registered charities, and prescribes the requirements for obtaining and maintaining charitable registration.
[English]
CRA has the authority to revoke a charity's registration if it fails to comply with the registration requirements of the Income Tax Act. An example would be if the charity uses its resources for non-charitable purposes, including providing undue personal benefits to any member. An undue benefit would include a situation where a charity pays or otherwise compensates a person beyond reasonable remuneration for services rendered, irrespective of the level of compensation.
[Translation]
For example, paying an individual $50,000 for services rendered would constitute an undue benefit if, in reality, there were no services provided or if compensation did not correspond with fair market value.
[English]
Every year charities must provide information to the CRA by filing what is called an information return. The return includes information about compensation. It is made public on the CRA website and is taken into account as part of our audit program. The CRA's current audit practices include reviewing situations where staff compensation exceeds fair market value for the services rendered. In that regard, we would consider the degree of benefit conferred and whether an advantage was conveyed inadvertently or whether the situation was structured specifically to yield excessive benefits.
The current legislative framework allows the CRA to take a measured approach to resolving non-compliance based on the severity of the offence. For example, if the infraction is not found to be intentional, serious, or egregious, the CRA may choose corrective measures that provide the charity an opportunity to remedy its non-compliance. If, however, our review reveals serious or repeated offences, we may impose intermediate sanctions in the form of monetary penalties and/or a suspension of receipting privileges, or proceed directly to revocation.
[Translation]
With respect to disclosure requirements, the Income Tax Act provides a framework for public accountability in the charitable sector. To this end, the CRA posts on its website the registered charity information returns completed annually by each registered charity. This provides Canadians with access to detailed information about charities' annual operations, including expenditures and programming.
[English]
To enhance the clarity and relevance of public information on charities, in 2009 we updated the salary range categories in the annual information return. The upper end of the range was increased to accommodate larger charities, such as hospitals and universities, and provide the public with more meaningful information. Charities are now required to identify the salary range for their 10 highest-paid positions, and the salary categories have been expanded, with the last threshold being $350,000 and above.
In 2008, which is the last complete year that we have data on, 86% of charities reported compensating all of their employees combined less than $250,000. While our 2009 data is not yet complete, early indicators suggest that individual compensation above $250,000 principally occurs in health care charities and, to a lesser extent, in universities and educational charities. To date, fewer than 1% of the charities have reported compensating individuals in excess of $250,000.
[Translation]
In closing, the current legislative and regulatory frameworks allow the CRA to monitor salaries based on the information that is currently reported and made public, so that we may investigate further where warranted. The legislative framework also provides a range of compliance options to allow us to take a measured approach to remedying situations involving undue benefit, based on the specific facts in each situation, up to and including revocation of registration.
Mr. Chair, we would be pleased to answer any questions the members of the committee may have.