:
I think I can speak for everyone in welcoming Mr. Chisholm. We will welcome Mr. Marston back any time. We certainly valued his input here. He was Shelly's dance partner.
Thank you very much for that, Mr. Julian.
We will now get to orders of the day. Pursuant to standing order 108(2), we are starting our study of tax incentives for charitable donations. This is our first meeting on this issue. We have before us here today, first of all, the Canada Revenue Agency. Second, we have the Department of Finance. Third, we have Statistics Canada. We'd like a presentation from each of you. I think we'll start with CRA and then just go down the table.
I believe it's Ms. Hawara who's doing the presentation. If you want, you may introduce your colleague as well. Welcome to the committee. You may begin your presentation.
:
Good afternoon, Mr. Chairperson.
Thank you for the invitation to appear before you today on the study of the current tax incentives for charitable donations. My name is Cathy Hawara, and I am the director general of the charities directorate within the Canada Revenue Agency. With me is Bryan McLean, director of the charities directorate’s policy, planning, and legislation division.
As you know, the study of the charitable tax incentive is primarily a tax policy question, and my colleagues from the Department of Finance will be addressing that aspect today. As the federal regulator of registered charities in Canada, the CRA brings an administrative perspective to the study of this tax incentive. For the benefit of the committee, I would like to provide a brief overview of the existing regulatory framework administered by the CRA and also describe our administrative perspective when assessing new legislative proposals.
[Translation]
Under the Constitution, the provinces have jurisdiction over the establishment, maintenance and management of charities. The CRA's authority to regulate charities exists solely under the Income Tax Act.
To qualify for registration, applicants must be established for charitable purposes and devote their resources to charitable activities.
However, the act does not define the term “charitable”. As a result, the common law meaning is applied to make determinations about what is charitable.
[English]
The common law has established that charities must further purposes that relieve poverty, advance education, advance religion, or are beneficial to the community in a way the law regards as charitable. Charities must also pursue such purposes for the benefit of the public in a manner that does not confer any undue private benefit.
Some of the advantages of registration for a charity include exemption from paying income tax at the federal level, possible exemption from certain provincial and/or municipal taxes, the ability to issue official donation receipts for income tax purposes, and the ability to receive gifts from other registered charities.
In order to ensure that the benefits of charitable registration and the charitable tax incentive are not misused, the CRA administers the requirements for obtaining and maintaining charitable registration. The CRA monitors the activities of charities, taking a measured approach to resolving non-compliance, based on the severity of the offence. The CRA also monitors the accuracy of charitable donation claims made by individual taxpayers.
While tax policy is a matter for the Department of Finance, the CRA is often asked for its views on various legislative proposals. In considering any new measure, the CRA is guided by the following administrative perspectives: the first is cost and burden, which is the cost and level of effort for taxpayers to comply and for the CRA to administer, the second is accountability and transparency, and the third is risk.
[Translation]
From a taxpayer perspective, we would want to understand whether the new measure is likely to increase the existing administrative compliance burden, in this case on registered charities. Administrative cost considerations for the CRA would include the impact on human resource requirements, as well as any resulting changes that might be required to information technology systems.
[English]
Canada's tax system is based on voluntary compliance and self-assessment. Accountability and transparency considerations are focused on how the measure fits within a self-assessment system, but in the case of registered charities there is also a requirement that the majority of operational and financial information be made available to the public.
Finally, we consider the perspective of risk. Increasing the value of a tax measure might also increase the incentive or opportunity for abuse. Similarly, increasing the complexity of the regulatory framework might increase the likelihood of unintentional non-compliance. Assessing legislative proposals from these perspectives helps us identify any issues that, if not addressed, might impede the efficient and effective delivery of the charities program.
Mr. Chairperson, I would be pleased to answer any questions the members of the committee might have.
My name is Sean Keenan. I'm the director of the personal income tax division of the tax policy branch in the Department of Finance. With me today is Mr. Blaine Langdon, who is the acting chief of the charities section of the personal income tax division.
I welcome this opportunity to be here today.
[Translation]
Let me first describe the role of the Tax Policy Branch in the Department of Finance when it comes to the charitable sector.
The branch is responsible for developing tax incentive policies to encourage Canadians to make donations to registered charities. This entails examining current tax incentives in order to make sure that they are as effective as possible. This also includes analyzing and developing options to limit excessive or inappropriate tax benefits, and making sure that regulations for charities are in place in order to safeguard the integrity of the tax system and to protect the donations made by Canadians.
[English]
We have provided you with a presentation that gives an overview of the tax treatment of charitable donations and the regulatory regime for charities in Canada. I'd like to mention a few key points from that presentation.
First, Canada has a two-tiered tax credit structure for individuals making charitable donations. For the first $200 in annual donations there is a federal tax credit at a rate of 15%, while amounts above $200 per year attract a 29% federal tax credit. When combined with incentives offered by the provinces, government support for donations over $200 per year is roughly 46% of the value of the donation. For most taxpayers, once they have donated $200 in a year, the credit provides tax relief at a rate that exceeds the tax they pay on the income used to make the donation.
While government assistance on charitable donations is usually about half of the value of a donation, for donations that also receive an exemption from capital gains tax, the rate of assistance is typically about 60%. Canada's high net income limits and carry-forward provisions also allow donors to receive greater tax assistance for gifts that are large in relation to the donor's income. In terms of overall generosity, Canada's tax incentives for charitable giving have been described as among the most generous in the world.
[Translation]
Based on the statistics provided by Statistics Canada, donations for which official tax receipts were issued totalled $8.3 billion in 2010, a 6.5% increase over 2009. Excluding tax shelter donations, donations have been increasing at a rate of 4.5% since 2003. Donations are obviously a significant source of revenue for Canadian charities, but the extent to which these organizations rely on different revenue sources varies considerably.
For organizations in general, government funding represents more than two-thirds of all the revenue whereas donations represent only 11%. However, the charitable sector includes hospitals, universities, colleges and school boards, which receive significant amounts in government funding. If we exclude those organizations, charities typically collect 60% of their revenue from donations.
[English]
The regulation of charities is an important part of any discussion of tax incentives, as giving to charities is very dependent on donors having confidence that their donations will be used appropriately. As such, in the presentation we mention a few of the key regulatory provisions for charities.
First, under the Income Tax Act, charities must be established for and operate exclusively for charitable purposes. Charities may not have secondary or additional purposes that are not charitable and may not use their resources for the benefit of any private individual or organization.
Second, registered charities must either devote their resources to charitable activities they carry on themselves, or, if they make gifts of their resources, the gifts must be made to other qualified donees.
Third, charities may engage in business activities as long as these are related business activities.
Finally, although not specifically mentioned in the presentation, while charities are able to engage in advocacy and political activities, these activities must be limited, which means they can involve no more than 10% of a charity's resources, ancillary and incidental to its charitable purposes, and they must be non-partisan in nature.
These rules are designed to strike a reasonable balance between permitting charities to contribute their expertise to the public debate and recognizing that charitable resources should be devoted to charitable activity.
I would be happy to walk the committee through any of this material in greater detail or to take any questions the committee may have.
[English]
I'd like to thank you for the opportunity to speak to you.
I'm Sylvie Michaud. I'm the director general of the education, labour, and income statistics branch within Statistics Canada. With me I have Alison Hale, the director of the income statistics division. She'll go through a few of the highlights in the presentation.
I just want to give you a bit of background or a caveat on the information we'll provide. The statistics that we have on charitable donations and that are being presented today are based on tax filer data from the Canada Revenue Agency. The most recent data available are for 2010 and were released in December 2011.
[Translation]
The statistics are based on a preliminary file containing approximately 96% of all tax filers. We receive the file at the end of August and we use it to produce our statistics each year.
[English]
While Canadians contribute in many ways to charitable organizations, we cover just what is reported on the tax file in terms of charitable donations.
To have a more complete picture of charitable donations at all, we have a survey called the “Canadian Survey of Giving, Volunteering and Participating”. That survey will be released in the spring. If you're interested at that time, it provides extra information on charitable donations, such as who's giving and to what kinds of organizations and that kind of information. That's not part of the deck today; however, Alison will go over a few of the highlights from what we released in 2011.
:
I'm going to highlight a few things that are in the presentation that was handed out to everybody.
I want to clarify that this is information from tax filer data. We have information on the person who reported the donation, who is not necessarily the person who made the donation, because families can pool their donations. In addition, individuals may keep their donations up to five years to pool and maximize the tax advantage.
If you want to follow along, slide 2 shows the key findings in 2010. One in five tax filers reported making charitable donations on their tax return--almost six million individuals--for a total of $8.3 billion. The median donation for Canadians was $260. I realize we're from Statistics Canada and we have to describe the statistics a bit, so the median is a number halfway through the distribution, meaning that 50% of the population have numbers lower than that median and 50% have numbers that are higher. For things like income-related tax donations, it's important to look at the median, because the average is often skewed by very high donations that are fairly infrequent.
Slide 4 shows that the total charitable donations in constant dollars since 1990 has almost doubled in the last 20 years. The figures have been adjusted so they're comparable over time. Total donations peaked in 2006-07 at about $9 billion. They decreased in 2008-09, coinciding with the recession, but we did see an increase in total donations in 2010.
Next is slide 5. It's not surprising that the proportion of donors is increasing as donors get older. Looking at this graph, you can see that 5% of tax filers under 25 reported charitable donations, but when you look at older tax filers between 55 and 64, approximately 31% reported donations. As well, as income goes up, so does the percentage of donors: just 4% of individual tax filers with incomes under $20,000 reported donations, versus 57% of filers with incomes of more than $80,000.
Looking at the picture of total donations on slide 7, we see that 80% of total donations are given by donors 45 years of age and older. We've given you a bar chart showing that 3% of donors are under 25 and account for about 1% of all total donations. It's still approximately $68 million. However, the 24% of donors who are 65 and older account for 33% of total donations, or about $2.7 billion.
Moving to slide 8, you can see that half of the total donations are given by donors with incomes over $80,000 a year. Again we're looking at individual information. Donors with incomes of less than $20,000 make up 6% of donors and 3% of total donations. While those donors with incomes of $80,000 or more make up 25% of donors, they make over 50% of all donations.
I also want to highlight the data on donations at the provincial-territorial level. The median donation varies quite a bit by province. I'm looking at slide 9, which is the last presentation in the deck. You'll notice that the median donation for Quebec is markedly lower than for the other provinces and territories. This is a trend that has been observed over time. As mentioned earlier, median donation for Canada in 2010 was $260. Nunavut had the highest median donation at $470, followed by Alberta at $390. Those are median donations by individuals in those provinces and territories. Quebec filers had a median donation of $130.
That was a brief highlight of some of the statistics in the presentation.
That ends our presentation. Thank you very much.
:
Thank you very much, Mr. Chair.
Thanks to all our witnesses. I'm going to quickly go through my questions, and hopefully you can answer them or provide us with information later.
I'd like to start off with you, Ms. Michaud, with regard to the Statistics Canada information. As I see it, if I'm correct, with regard to the income groups in the table on page 6, “Charitable Donors as a Percentage of Taxfilers by Income Group”, what is being shown is basically income quintiles, right? Am I correct that we're looking at 20% chunks of the population?
You're indicating not completely.
I would be interested in knowing whether you have access to the percentage of charitable donations by quintile, by revenue of the population, and then how that's fared historically over the past ten years. I suspect that we would see higher-income earners giving more and lower-income earners, as times get tight, giving less.
Do you have any statistics of that kind that you could share with us?
I would like to thank everybody for coming here today. I'd also like to welcome Mr. Chisholm to the committee. Mr. Marston was a good committee member and we'll certainly miss his input, but I'm sure Mr. Chisholm will try his best to fill his shoes.
My question is on the role of governance. I'd like to use an example process whereby we talk about setting up and establishing a charity and then about what we do in terms of governance modelling to ensure that the charity is actually a proper charity and is functioning as a proper charity. That's where you're going to see my questions go, so, Ms. Hawara, they will probably be directed toward you.
Please explain to us the process of establishing a charity. If I want to establish a new charity to help homeless people in Prince Albert, what process takes place? How do you evaluate whether it should be a registered charity or not?
:
Mr. Chairperson, there is an established process for determining whether an organization can be registered as a charity in Canada. Primarily it has to be established for exclusively charitable purposes and it needs to operate on a not-for-profit basis.
We look to the common law to determine whether the purposes of the organization are charitable. There are four categories for what is charitable at law: the relief of poverty, the advancement of education, the advancement of religion, and other purposes that have been found to be beneficial to the community.
We have a team within the charities directorate that would look carefully at the 4,000 or so applications we receive every year in order to determine, first of all, whether the organization has charitable purposes; second, whether it is proposing to undertake activities that will further those purposes; and third, whether they are conferring a public benefit by virtue of those activities.
Those are the broad strokes of the framework we would use. More detail is provided in some of the materials we have provided to the committee.
:
The Canada Revenue Agency has a limit in its mandate, so we don't actually get involved in the governance of charities per se.
However, there are quite a number of obligations that registered charities must abide by under the Income Tax Act. Probably the most important obligation on that charity is to make sure that its operators file their annual information return within the prescribed timeframes. That return describes the activities they have been undertaking and it provides quite a bit of information in terms of their financial position, their expenditures, their revenues, their assets, and their liabilities. That information return is accompanied by their financial statements. Every year they must provide this information to us.
We monitor the activities of charities. We then make that information available to the public through our website or upon request by the public. That is probably the most important interaction that we have with the charities on an ongoing basis, leaving aside audits and things of that nature.
I'm going to go a little bit along the lines Mr. Brison was going with Ms. Hawara.
You mentioned the reasoning behind it. The common law that establishes relieving poverty, advancing education, advancing religion, or being beneficial to the community is very interesting. I guess I want to track that for a minute.
Before I do that, I just want some clarification from Mr. Keenan. You said that 10% of charitable organizations can be political. Did I catch something along those lines? Then you mentioned that they have to be non-partisan, as well. This is from your opening remarks.
:
I think that's important, because we are often critical of those making higher wages, yet we see there's a net benefit there.
Your other total says that $8 billion is collected or is paid out in donations. That's correct, as well, too, at a high point. I think the high-water mark was $8 billion. That's $8 billion the government doesn't have to spend on social programs. I think that stands to reason. That is very interesting, because I see the wisdom of the government when they have applied the rules, the common law, which says that religious giving and those attending churches and those with higher education....
What about statistics in that respect? Do you have statistics for those who attend churches and those with higher education? Do you have statistics that prove that those groups are more charitable?
:
Okay. I'd like to have that, Chair, if we could get that information. I think it's very relevant; we need to have it.
I think there's another tie-in with organizations, as was mentioned before. There are organizations like CARE, the Mennonite relief agency, and CRWRC. They do a good job at identifying needs, especially in third world countries, but we also often match dollar for dollar with organizations like CIDA as well. Is that something you're seeing grow? In the past we've seen the catastrophe in Haiti, an earthquake in Pakistan, and I believe there was another. Has that grown as well?
Maybe I'm talking to the wrong people at this point--
:
Very well. I am going to continue the dialogue with you.
At the moment, we are seeing a number of charities lose their charitable registration—and, as a result, their funding—because they are involved in political activities.
Some are quite concerned about the government’s potential interference in this, because the charities sometimes criticize what the government does. Although they comply with all the rules, including the 10% rule, they lose their funding.
We have asked some charities to speak out publicly, but they are afraid of potential government reprisal.
Does the government give you any instructions on which charities you have to investigate or on the political activities of some organizations?
:
Thank you, Mr. Chair. I want to thank everybody for being here today.
Ms. Michaud, thank you so much. You took me back to quantitative methods with your talk of median. You just didn't talk about standard deviation, though; that's what I was waiting for.
I want to follow up on a few things. I see on page 4 of the graph that in 2010 the dollars are constant, but the levels of charitable donations have increased quite markedly. What would you attribute that to? Is it a result of government policy over a few decades, or is it just that Canadians are feeling more generous, or is it beyond the scope of your...?
:
Your timing is absolutely perfect, Mr. Chair.
Following from Mr. Adler's comment and the fact that I came out of the labour movement, I will point out that trade unions survive on fees paid by their membership. They're not raising money by earned income, so it is a whole different thing.
Before I go too far, I want to just thank the chair for my time on this committee and for the fair and balanced way that you've conducted yourself, sir. Across this place, where we have significant differences, we went through the pre-budget hearings, I think, in a very good fashion, and showed that we're prepared to work together and disagree together.
Now I'll go back to work.
It struck me when the $200 level for a tax credit was mentioned in the CRA presentation, and then above that the proportion was higher--29%, if I remember correctly.
I was on the United Way board for 27 years. I was never the treasurer, but most of our donations to the United Way from ordinary people in the campaign were under the $200 limit. It just struck me that, sure, it's wonderful if somebody can give you $50,000, for instance, but why would the tax treatment for the two different levels be different? The value of what the person gives you at the lower level should be equal to the value of what somebody gives you at the higher level, should it not?
:
My point was that the person who's giving you the $100 sometimes has to work harder to give that $100 to the charity than someone who has an income of $100,000-plus a year does, and so that gives it less value. It seems to me we could be encouraging them to do a little bit more by treating them equally together, but that's just my own humble view of it.
You talked about your audits, the 1%, and the compliance. I'm just curious. In those audits, what is the compliance rate? The second part of that is the reporting that has to be done. Every place you go, you hear people talk about red tape and the problems of accessing government in one form or another or about compliance.
Has there been a look at streamlining it, improving it, taking some of the burden off of these non-profits, which very often have volunteers doing much of the work?
:
Mr. Chairperson, the first part of the question was with respect to overall levels of compliance with registered charities. We've been conducting a random audit program over the last few years to be able to address that very question. While I don't have percentages, our overall conclusion from these random audits we've conducted is that levels of compliance within the sector are quite good. We have small pockets of charities that unfortunately engage in very egregious and serious non-compliance, but those are small numbers.
By and large, what we find is a lot of willingness to comply with the rules, but the rules are sometimes a bit complex. As the member noted, there are a lot of volunteer-run organizations, and what we often find is unintentional non-compliance. They just don't know that they're running afoul of the rules. That unintentional non-compliance ranges as well from not very serious things to more serious things, so that's why our range of tools is such that we can choose the most appropriate sanction or approach in the circumstances.
I think that leads nicely into the second part of the question, which is on the burden. We are very aware that within registered charities we're talking about very diverse groups. At one end of the spectrum are large, highly sophisticated organizations that include hospitals, universities, and large foundations, but at the other end of the spectrum, more than half of registered charities are actually quite small, are run by volunteers, and might be located in very rural parts of the country. In 2007, we launched an initiative especially focused on small and rural charities to better understand their needs and to understand whether we needed to reduce the burden, which we did.
I'd like to thank all the presenters. That was a great start to our study in terms of the overview and getting a bit of a baseline as we head into a very important area.
First of all, I think that the spring survey is going to be a critical piece of what our picture is. I wonder if you could tell me a little bit more.
You look at people and what they put on their tax returns. Well, I know numerous 20-year-olds and 30-year-olds who will give $50 here and $70 there, and of course that's never reflected, because they haven't kept the receipt or hadn't intended to.
First of all, does the survey give us a picture of those kinds of activities? Do you manage to project dollars and compare that picture to what your Statistics Canada income tax returns say? Does it explore provincial variation at all, and have you gotten in the past any understanding of it? I mean, when I looked at Nunavut, that was a very significant variation. There were significant changes across the provinces. Are some provinces or territories doing something that perhaps could help us in this study in terms of charitable giving?
I think that's a number of questions to start with, but I'd appreciate....
:
You're absolutely right. The CSGVP provides a more complete picture of total charitable donations because it does include people who would give $20 to the United Way at a barbecue or a fundraiser. That may not lead to a tax receipt and it may not be reported in the tax system. What we usually see with the CSGVP are higher amounts of charitable donations than we would see in regard to the tax filers.
I don't have the results for 2010 yet. The results have changed between the different years--2004 and 2007--in terms of how much difference there is between what is reported on the tax file and what is reported on the survey. I can give you some numbers, but we do validations. We do comparisons between what we get on the tax file and what we get on the surveys. We try to see what's happening.
For example, you're talking about provincial and territorial differences. We have observed similar patterns across a number of the sources we have within Statistics Canada. As I said, we're hoping to have results in the spring of 2012. We're hoping for March; I want to be careful about the date, but we're hoping to have these results by March.
:
I think that perhaps I'd like to go to Revenue Canada.
I think my colleague Mr. Adler was going back into his statistical days. I was going back into my memory of being responsible for a small rural health centre in the 1980s and what was to me a significant nightmare, because we had many, many responsibilities. Of course, we were a registered charity and that was very important for us in terms of donations, specifically donations for equipment.
I have two questions. I remember that at the time it was a little daunting. How have things changed overall to make it easier? I remember the other frustration we had. It was a disbursal quota every year. You might be trying to save over five or ten years for a very important piece of equipment, but you had to disburse I think 17% every year. Perhaps you can tell me how that system has changed to make it easier for that small rural charity and for that one person who is responsible for a lot more than just the charity.
:
Thank you, Mr. Chair. I have three questions for the CRA.
Based on the current structure of provincial and federal funding, my understanding is that, if I make a donation of $1,000 in Quebec, I have to get a tax receipt for a combined total of $494, meaning 20% for the first $200 in Quebec, 24% for the other $800, also in Quebec, 15% for the first $200 at the federal level, and $29 for each $100 of the remaining $800 at the federal level, for a total of $494.
:
I will rely on my numbers then.
The projected increase in the resolution on the stretch tax credit was $574. If I understand correctly, this charitable donations tax credit is the most generous in the world. So, when the financing, advertising and administrative costs of fundraising organizations go over 50.6% or 42.6%, it would be better for the federal and provincial governments to give the money directly to charities than to deal with donations. Therein lies the problem. Have I captured it well?
If the financing, advertising and administrative costs of the organizations are too high, the government would be better off giving money directly to hospitals rather than dealing with charitable donations. It would cost the government less.
:
Very well. Thank you. I would like you to send me your figures.
I live in Laval. And there is an island between Laval and Montreal called île Lapierre. It used to be called île d'Argent. Since the island was a charitable donation, an ecological gift, $14 million were paid in tax credits. And your own officials confirmed that this dump—it is actually a dump—had no ecological value and its real market value was $400,000.
I would like to know—and you could send me the information later—the name of the officials who authorized the amount of $14 million to be paid for the island. I for one would have done many other things in Laval. I would have protected the islands that have true ecological value, but we no longer have the resources because of this expense.
Could you tell me why you have overlooked the ecological reports from your own officials about the $14 million paid for the island, an island with nothing but garbage six feet under?
:
Thank you, Mr. Chair, and thank you, witnesses, for appearing today.
I'm interested in proactive disclosure of charities, and the non-profit sector in particular. There was a recent story--I think on CBC, of all places--related to clothing charities that receive money, and some of the wages paid to executives, employees, and leaders of those organizations. I'm also interested in dealing with proactive disclosure of some of these groups relating to the websites.
You mentioned that some of this information is available on your website, but I suppose that would be only basic financial statements such as profit and loss, etc. Is that the case?
:
I think I'll answer that question in two ways.
First I'm going to address the issue of backlog. The one thing I would say is that it can be a quicker process to go through the Tax Court of Canada, but there are concerns right now about the current workload of the Tax Court. The department has actually put forward some proposals to try to mitigate some of the backlog. A lot of that has to do with the tax shelter gifting arrangements that have been prevalent over the last 10 years and a lot of the appeals that are going through in that conncection.
In terms of moving jurisdiction from the Federal Court of Appeal down to the Tax Court, certainly that's a proposal we've seen before. It was put forward—I think, probably not the first time—to the joint regulatory table. The government looked at that proposal, and there were a number of different concerns with it. The Federal Court of Appeal has more expertise when it comes to common law issues. When you're dealing with registration and deregistration of a charity, that's primarily based on the common law. When we put in place the intermediate sanctions for registered charities—the imposition of a penalty, the imposition of a suspension—we actually did make those types of appeals go directly to Tax Court, seeing as they are issues it would address more frequently.
:
“Tax shelter” has a particular meaning in the Income Tax Act. In a nutshell, it is any donation arrangement where, through accommodation of tax credits or tax deductions, individuals will receive a benefit more than the cost they've actually paid to acquire the property. It's been a big problem since about the early 2000s. They started out as art-flip arrangements. That's what they were known as. Somebody buys a piece of property for a low price and then donates it to a charity.
Over the years, they've become more sophisticated. We introduced some rules back in 2003. There were additional rules that were introduced, which are part of a technical bill that hasn't passed, but those are what you're seeing there.
There was, as you see from that chart, a high level of those types of donations in and around 2006, but through the proposed changes and CRA audit work have managed to bring that number down quite considerably.
:
At the Canada Revenue Agency, we are very concerned about abuse of tax shelter gifting arrangements. We have been very public about that issue, issuing tax alerts and making it very clear that we are going to audit every single tax shelter. We will reassess the donors where appropriate.
With respect to the charities, each and every one of them is audited, and we have revoked the registered status of approximately 45 charities in the last few years, I think since 2003, for participating in abusive tax shelter arrangements. Because the confidentiality provisions of the Income Tax Act actually do allow us to release some information about charities, including when they're revoked, we have been issuing news releases every time we revoke a charity for having participated in one of these schemes.
We are very concerned at the Canada Revenue Agency, and we're doing everything we can at the moment to address it.
:
I'm going to take an extra round as the chair.
I wanted to follow up on Mr. Mai's first round of questions, which I thought raised an important issue.
Ms. Hawara, I want you to really be strong on this point on the concern of organizations or individuals that CRA may be acting under political influence in terms of any of its auditing activities.
I remember being in opposition and having a lot of Conservative friends come in and say that they knew that the Liberal government audited them because they were Conservatives. I would insist to them that no, CRA is very independent; that does not happen, and there's no political influence directing CRA in terms of personal income tax issues, business income tax issues, or charities.
I want to clarify that point, because it has been an issue raised in some media circles. I want you to clarify. Is there any political direction given to you whatsoever in terms of who you audit or do not audit at CRA?
:
I appreciate that clarification very much.
I want to follow up on a second issue. Mr. Jean raised some points we raised with you last time you were at committee. They are with respect to a private member's bill on salaries of officials and transparency and accountability. At that time, many of the charities recognized the need to be more transparent and accountable.
One of the things raised was, I know, beyond what you have on your website. It is a very good website, and there's a lot of financial information there, but have you looked at publicly listing on the website any donation amounts above a certain amount, as they do with donations to political candidates or parties, as well as publicly listing all the activities the charity is involved in? You'd have the money coming in to a charity and the money going out. It would be fully transparent. People could analyze it. Citizens could analyze it, supporters of those charities could analyze it, and parliamentarians could analyze it. Is there any thought being given to implementing that type of a system?
I want to go back to this whole issue of tax expenditure just for a moment, in terms of the figure of $34 million. If taxpayer A has shares worth $5 million, donates them, and as such doesn't pay any capital gains tax on that transaction, you might attribute, depending on the inclusion rate, a tax expenditure of $1 million to that transaction.
However, if taxpayer A doesn't make any donation and holds onto his shares, he doesn't pay any capital gains tax either. Therefore, your tax expenditure figure is contingent on the assumption that taxpayer A would have sold his shares in any case, when in fact the argument in favour of reducing--and in this case, eliminating--capital gains tax on gifts of publicly listed securities is contingent on the idea that this public policy decision actually catalyzed an activity that would not have occurred otherwise.
If we assume that taxpayer A would not have executed any transaction or donation, there's no tax expenditure. I think it's very important when you apply what is, in some ways, a government construct of a tax expenditure to this situation that we consider, depending on how we look at it, that there's no tax expenditure if in fact there had been no contribution, and if the reduction in and elimination of the capital gains tax on publicly listed securities had no impact on taxpayer A's decision. Do you understand the logic?
:
Sure, that's the point. When you use the tax expenditure verbiage--and I know it's widely used within government, and I respect that--it does imply a cost that in some ways is subjective, depending on one's assumptions, and the motivation.
Speaking of subjectivity and the whole issue of political advocacy and how you judge that, I'll give some examples. One is a wildlife federation that hypothetically advocates against a gun registry, which is hypothetical these days. We register lobbyists now in Canada, but we don't register long guns. As another example, let us consider an environmental NGO that may express views contrary to government policy on the environment, or an international NGO that may campaign vigorously against government cuts to international development in certain countries. How do you compare those to, for instance, a church that may oppose or campaign against a government social policy?
This is very subjective, and I find it difficult. I'd really appreciate some of your insight in terms of how you define what is appropriate. How do you quantify or analyze granularly, in an objective way, something that seems inherently subjective in terms of what are appropriate levels of advocacy, and what type of advocacy crosses the line? That's one I'm really concerned about.
:
I'll take that question, Mr. Chairperson.
We do have guidelines available that lay out our interpretation of what's allowable under the Income Tax Act.
Registered charities are allowed to participate in political activities. By political activities, we mean when there is a call to political action, so it could be urging the public to contact their MPs or an explicit communication by a charity that a particular piece of legislation or a decision should be changed. Those are political activities, in our view.
Charities are entitled to undertake those types of activities so long as it's non-partisan--which is essentially support for or opposition to a political party or a candidate to public office--so long as the activities are connected to the organization's purposes, and so long as those activities remain a small part of what the charity does, and that's where the 10% limit comes in. Looking at all of their resources, we would determine whether they are beyond that threshold.
Mr. Jean will get into the stretch tax credit for me; I wanted to get into the monetary penalties. One of the slides, I think the Finance slide, talked about a monetary penalty.
Ms. Hawara, I think you talked about some of the repercussions. What is the range of monetary penalties for any kind of breach?
As well, I believe it was you, Ms. Hawara, who talked about the salary ranges. I'd like those tabled. I would also like to know how many people fit in each of the ranges, if that's possible.
Thank you. We're back to your answer, Mr. Keenan.
:
An annulment is available as a tool in two specific circumstances. If, in looking at a file, the charities directorate comes to the conclusion that it actually made an error in registering the organization in the first place, we'll essentially annul our decision. That's as opposed to a revocation. In a revocation, we don't annul the decisions; they were registered and they are now revoked.
The practical distinction between the two is that when a charity is revoked, it must divest all of its assets within a one-year period. They can do that either by disbursing their assets on their charitable programs or by gifting to eligible donees, which is another subcategory of qualified donees--I apologize to the committee--whereas in the case of an annulment, because we say we made a mistake, the charity is allowed to keep its assets.
There is another instance in which annulment is available, and that is if there has been a change in the law that now means that a charity is offside. We don't hold that against the charity.
:
In analyzing any proposal for a tax policy change, we would look at the cost and the implications. Especially with the charitable donations incentive, one of the major considerations is whether you're going to be subsidizing existing donations or actually providing an incentive for new donations.
Recently there was an article in The Globe and Mail about the stretch tax credit, which essentially said it would encourage more donations but would also provide an incentive for people to act strategically to increase the tax credit they receive without necessarily increasing overall donation levels.
For instance, spouses could alternate between who claimed the credit. One spouse could give $500 one year, and then the other spouse could give the next year, so there are opportunities there for strategic giving. I think the example in The Globe and Mail said to give a little bit less in year one and a little bit more in year two. Whether that's going to lead to additional donations in the sector would have to be a consideration that we would have to take into account.
:
I did have a chance to look at the website that you referred me to relating to practice of disclosure. I have a couple of questions, and maybe suggestions.
Why not include the total number of employees in each bracket of the amount made? It seems fairly easy to do, because it's already being done, for the most part. You have the total number of employees, and then you have the top 10 in each sector. A particular organization that I give to has only 21 employees. I can imagine that even if they had thousands, it would still be fairly simple to put them into each bracket, to be blunt. That would certainly give you a good idea of what kind of organization it is, such as whether it's hands-on or executive or administrative, and it would help Canadians, I think, donate to those particular organizations that fit their needs.
Also, with respect to schedule 5, non-cash gifts, is that a per-year schedule of gifts? For instance, this organization that I looked at was $39 million. Is that per year or is it overall in the life of the organization? It wasn't specified on the website. I'd just refer you to that.
I also looked for third party expenditures and contractors. In one particular case that I looked at, professional and consulting fees amounted to half a million dollars. It was a small charity. I would suggest a breakdown of those types of organizations and contractors would be very helpful. I think it gives opportunities to organizations to enrich certain types of people in the organizations themselves through professional fees. As an ex-lawyer, I can assure you that people look at all sorts of ways to defraud others of money, and I think it would be greatly encouraged to do exactly that.
:
You'd probably want to take a look at some of the things coming out of the United Kingdom. They have a fairly large charity-related project they refer to as The Big Society. They're looking at social enterprise over there, and they're looking at social impact bonds. There's a lot of stuff going on over there.
Right now, Australia is another country you could look at in terms of some of the measures they're taking. In their last budget there was a commitment to look at non-profit organizations. They're also going to be looking at the establishment, I believe, of a charities commission down there.
Then there is the United States as well. They have a lot going on in terms of social enterprise and different types of community corporations and different business corporations. As well, they're looking at their tax system more generally, but they're also, as I understand, looking at donation incentives with the aim of seeing what they can scale back rather than making them more generous. It would be interesting to follow that as well.
:
Thank you very much, Ms. McLeod.
On behalf of the committee, I want to thank all of our witnesses. Today's discussion was very interesting. Thank you so much for your responses.
If you have anything further to share, either a response to a question today or anything you wish the committee to consider, please submit it to the clerk, and we will ensure that all members get it.
Colleagues, just before you go, I want to propose a motion to cover primarily witness expenses for this study. I move that the proposed operational budget in the amount of $37,700 for the study on tax incentives for charitable donations be adopted by the finance committee.
D'accord? Okay?
(Motion agreed to)
Thank you all, colleagues.
Finally, I would like to thank Mr. Marston for his excellent work and for his kind words here today.
Some hon. members: Hear, hear!
The Chair: Thank you.
The meeting is adjourned.