[Recorded by Electronic Apparatus]
Tuesday, October 29, 1996
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[English]
The Chairman: Order. The finance committee of the House of Commons today is considering doing two round tables on an issue I think is critical to all Canadians. As governments at all levels are withdrawing from funding extremely worthwhile activities, activities which touch most Canadians in one way or another, we have determined that it is important to look at the tax incentives available to private charitable giving. We're looking at this with a view to encouraging the private sector to do more, to do a lot of the things the government did in the past.
In our round table this morning we have a number of leaders from the community that deals with charitable donations. We have, from the Canadian Council of Christian Charities, Mr. Ron Knechtel; from the Anglican Church of Canada, Suzanne Lawson; from the Fédération des communautés francophones et acadiennes, Yvon Samson; Arthur Drache, lawyer; from the Canadian Centre for Philanthropy, Patrick Johnson; from the United Way of Canada, David Armour; from the Vancouver Foundation, Christopher Richardson; from the Canadian Association of Gift Planners, Charlotte Sutherland; and from the Community Foundation of Canada, Monica Patten.
We thank you all for being with us.
I have asked Mr. Drache to give us a very brief overview of what the current tax situation is with charitable donations. Mr. Drache.
Mr. Arthur Drache (Individual Presentation): Thank you, Mr. Chairman. I appreciate the opportunity to be here.
I was asked, as the chairman has said, first to give you a brief overview of where we stand. Most of the members of the committee will be aware some significant proposals were made by Mr. Martin in the budget of March 6. Basically what was proposed in that budget was an increase in the annual donations limit for charities.
In the first instance, what you had was an increase in the general limit for individuals and corporations from 20% of income to 50% of income.
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The Chairman: Excuse me, could you explain what that means?
Mr. Drache: Of course. It means that whereas a person could donate and get tax credits for donations up to 20% of their income in any given year, with carry-forwards for five years thereafter, the limit was increased to 50% of income, obviously allowing a greater percentage of annual income to be donated to charities with tax relief for it.
In addition to the 50%, added to the annual limit was an amount equal to the taxable capital gain where appreciated property was donated to a charity. If I gave a charity 100 shares of stock that had a cost base of $1,000, and at the time I donated them they were worth $2,000, I would have a $1,000 capital gain and a $750 taxable capital gain. The $750 would be subject to tax, but under the proposals that were made, this $750 would be added to my donation limit for a year. In effect it gave me an offset against the capital gain.
This is quite different from making the capital gain exempt, and I'm sure that issue will be raised later today. But it's a major step forward compared with the previous situation in which only 20% of the capital gain would have been eligible for tax relief.
In addition to these changes, another change that was made, which I consider to be particularly significant and which will have tremendous long-term impact, is that in the year of death the limit has been increased from the previous 20% to 100% of income with a one-year carry-back. So whereas you have a 50% limit while you're alive, in the year of death it goes to 100% of income. In most cases this means that if somebody leaves a major gift in their will, which has been the traditional way of making large charitable donations, the full value of that gift will be an offset against income in the year of death and any excess can be carried back.
Because of the workings of our tax system and the deemed realizations on death, many people tend to have very high incomes in the year of death because of deemed realizations. This becomes a great incentive to leave appreciated capital property to charities in the year of death.
These were the major changes contained in the budget. I should point out that as of today, unless I blinked yesterday, these proposals have not been published in the form of a bill. I have not even seen draft legislation. We are in a situation where they are proposals in the budget and they have not even been presented to the House of Commons as a bill. I have had many questions from clients and others about what this means vis-à-vis gifts made in 1996. I have been giving my clients assurances that the legislation will be tabled, will be passed and will be retroactive.
However, I must say that my guess is that the full impact of the changes that are retroactive to January 1, 1996, may not be seen in this current year simply because many advisers are nervous about the fact that the legislation has not been tabled in the House of Commons, must less passed. I make that point in passing because what we have is a statement that it's going to happen, and I feel fairly certain it will, but none of the steps leading to enactment has as yet taken place.
That is where we stand right now. I assume I will be able to come later with some other comments on more general things.
The Chairman: Absolutely. Thank you very much, Mr. Drache.
I'd like to turn now to Patrick Johnston from the Canadian Centre for Philanthropy.
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Mr. Patrick Johnston (Canadian Centre for Philanthropy): Thank you very much,Mr. Chairman, and thank you for the invitation to be here again. This is becoming a regular occurrence, and we appreciate that opportunity.
Very briefly, the Canadian Centre for Philanthropy is itself a registered charity, the mission of which is to advance the role and interests of the charitable sector as a whole. We have a membership that consists of 600 organizations across Canada. They include everything from local food banks to universities and hospitals and everything in between, a pretty eclectic mix of this thing we call the charitable sector.
I would like, certainly on behalf of the centre, to express our appreciation for the initiatives that were included in this year's budget. They clearly will have a positive impact for the charitable sector as a whole. However, I would also like to caution everyone on the committee and in the room that the additional private spending that we think is probably going to be leveraged from those measures in this budget will still pale in comparison with the total amount of funding that has been withdrawn from the whole of the charitable sector. So we certainly were supportive and appreciative of it, but I think it is important for us to keep in mind that as a result of reductions in spending at the federal and the provincial level there has been a lot of money withdrawn and removed from the whole of the charitable sector.
That has resulted not only in terms of reductions in direct federal grants to registered charities, but it has also, and perhaps even more significantly, been the result of reductions in federal transfers to the provinces, because at the end of the day many of the recipients of those transfers to the provinces are individuals or the charitable organizations in your communities that meet those needs.
So I would simply encourage us all to keep in mind the magnitude and perspective of the challenges that the charitable sector is facing - and the assistance, I suppose, by implication, that we need. Obviously, I think you will take from my comments that I am hopeful and certainly urging members of the committee to consider again this year some substantially enhanced tax incentives as incentive to individuals and corporations to provide support for charitable organizations.
As you consider and hopefully come up with recommendations about some of those changes, there are a few things I would also urge you to keep in mind. The first is that the charitable sector, as we understand it and know it and as it is legally defined in Canada, is an incredibly diverse sector. In some ways, it is not so dissimilar to the business sector in that it includes both small organizations, small charities, as the business sector includes small business, and it includes large, as the business sector includes big business. So it's a mix of a number of big and small organizations, and the make-up is such that you actually have a small number of very large charitable organizations - and again, we're including universities and hospitals because they are part of the legal definition of charity - but that mix also includes a much larger number of very small charitable organizations.
So it's important, I think, as you are considering the kinds of incentives that may be beneficial to the sector as a whole, to keep in mind the incredible diversity of the sector. As I mentioned before, to the extent that there are some similarities between the charitable sector and the business sector, it's also the case that as initiatives or measures that may be of particular benefit to small business are not necessarily the same measures that will benefit big business, it's true in the charitable sector that those tax incentives or tax measures that may be of particular benefit to small charities are not necessarily going to be the same as the measures that will be of benefit to larger charitable organizations.
The way that plays out is in a number of cases some of the smaller charitable organizations will be far more dependent on smaller cash donations - the $25, the $50, the $100 donations. For a large number of charitable organizations, encouraging more gifts of that kind is probably the best thing we could do.
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On the other hand, you also have a number of the larger charities, in particular, that would benefit from large gifts. So measures like the measure to exempt capital gains taxation of gifts of appreciated property, for example, would be of benefit to those organizations. For the smaller charities, an initiative we will probably come back and speak to in more detail a little later, called the stretch incentive, would be of greater benefit.
You also have a number of charities, both large and small, that increasingly are looking at the corporate sector as a source of support. I think it's important, however, to keep in mind that there are relatively limited advantages in terms of the deductibility in the corporate sector right now.
One of the options might be to consider changing into a credit the deduction that currently exists for corporations making charitable donations. One of the advantages of that - and we've heard this from the business community - is that a credit would be more advantageous for, in particular, some small to medium-sized businesses that may be right at the margins in terms of their income but wanting to help.
In addition, there are many charitable organizations, large and small, that have told us they would particularly appreciate tax incentives designed to increase and build endowments. Endowments are seen by a number of charitable organizations as a way to try to stabilize over the longer term the reductions in spending that everybody is experiencing. So incentives to facilitate and encourage endowment-building are preferred by a large number of charities, big and small.
I should point out that the Canadian Centre for Philanthropy is one of a number of organizations that's participating in essentially a virtual organization called the voluntary sector round table. A number of my colleagues around the table and their organizations are active members of the round table. We have had over the last several months a subcommittee actively working on developing some detailed proposals for incentives, some of which I have very briefly alluded to today. As we perhaps come back to discuss some of those proposals, there are a number of people around the table who may be able to speak to some of the specifics.
We hope to have the report to the members of the committee within a week or week and a half that will provide more detailed analysis of a number of options.
In wrapping up my introductory comments, I would simply encourage the committee members, as you are once again this year considering the kinds of tax incentives that will be of most advantage to the whole host of charitable organizations across the country that are trying to meet the needs of communities and trying to cope with reductions in government funding at all levels, to keep in mind that a one-size-fits-all prescription will simply not work. We really do need a series of different kinds of initiatives that will be advantageous to the different kinds of organizations within the charitable and voluntary sector.
Thank you very much, Mr. Chairman.
The Chairman: Thank you, Patrick Johnston.
Could we turn now to you, Ron Knechtel?
Mr. Ron Knechtel (Senior Adviser, Canadian Council of Christian Charities): The Canadian Council of Christian Charities is a national organization of Christian charities with approximately 1,150 members. These are registered with Revenue Canada and are supported by approximately 3.5 million donors.
The organization sets and promotes standards for charities in the area of good governance, fund-raising and financial accountability. The council provides services and technical support to its members, relating to compliance with all of the laws that govern charities.
By way of background to our position, charities by definition carry on activities for the general benefit of the community. Governments are elected to care for the needs of the community and to govern our society.
Certain needs can only be cared for by the charity sector. As an example, ministering to the spiritual needs of the community can only be cared for by the charity sector that we might also describe as the religious sector. Certain needs can only be cared for by government - for example, providing protection through our police forces and our armed forces. This of course cannot be carried on by other than a government. In between, there are many services where charities and the government are partners in providing the service. I believe this has been very successful over the years.
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One example might be in the field of education provided by universities. Of course these are not government, they are private charities, but they receive very significant government support as well as significant public support through volunteers at, say, the board level, and also through funding by way of gift and by way of bequest.
That's the background for our proposals. We believe tax relief for gifts to the religious sectors should be maintained. Ideally, we believe this should be a deduction to exclude from income amounts contributed to meet the spiritual needs of the community and should not include any inducement to give such as we find in the current tax system. We don't feel, as I've indicated, that this is an area of government involvement, and therefore this should be left to the religious sector to pursue. We believe incentives in those circumstances to be inappropriate to the extent that they're provided by the tax system or otherwise by government. That, we feel, is fundamental to the system. We should preserve it but not provide inducement for it, in view of the level of contributions to the sector we sometimes describe as the ``religious sector''. Very significant individual contributions go to this sector. Under the present system there is in fact an inducement to make those gifts.
We believe if the government should decide to provide any further tax relief or inducements to promote charitable giving, such measures should target charities involved in fields such as education, health care, the arts, and any other area in which the government has a major financing commitment. We believe this is where the government should be targeting. This is where the charitable sector is feeling the effects of the withdrawal of government support. Therefore to the extent that funding from the public through charitable gifts can be increased for these charities through other inducements, should the government decide on other inducements, the impact of the cutbacks in government will be diminished.
Our position is very focused. If you're going to provide further incentives, they should go to those charities that are feeling the impact of cutbacks in government. The charity sector that deals with the spiritual well-being of the community should not receive inducements at all.
The Chairman: Mr. Knechtel, in the three years of pre-budget hearings we have had you are only the second person who has come before us and said, do not give me more. I'm stunned and very pleased.
Suzanne Lawson.
Ms Suzanne Lawson (Executive Director, Anglican Church of Canada): Thank you,Mr. Chairman. I don't think I'll be the third.
The Chairman: Oh, go ahead.
Ms Lawson: I'd like to let you off the hook, but I don't think it's quite that easy, despite my interest in what Mr. Knechtel has just said to you.
I'm a member of the voluntary sector round table Patrick Johnston just spoke about, but I'm attempting to represent the faith communities of Canada on that round table, so the burden is heavy. However, in taking up that position I've gathered together, in person and by faxes and other technology, opinions about what we want to say today.
The point I'd like to make is that there is an importance to maintaining faith communities as equal partners as participants in the voluntary sector, in the same way as other organizations are part of the voluntary sector. I do that for one major reason. It's very difficult to separate the concepts of worship from service to the community, which picks up exactly some of those prioritiesMr. Knechtel was speaking of, and the commitment to justice for all.
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In fact, statistically we can prove to you again and again that people of faith are people of caring in the community. More people of faith volunteer than people who have no faith. More people of faith donate more than people who do not have religious faith. It's because of that linkage that I think you need to continue to see us as part of the voluntary sector in the same way.
When we say that we provide for the worship opportunities, for the religious needs, for the spiritual health of Canadians, I also need to give you some examples of how we provide a multiplicity of community programs that come out of that faith. I'm thinking in particular of the faith community's commitment to food banks - indeed, in many cases their beginning of food banks. I'm thinking of the many communities around this country where the hospice movement exists to care for individuals because people of faith have said this needs to happen in our communities.
I come from the community of Toronto, the centre of the city, where the ``Out of the Cold'' program is growing daily because of faith communities and faith centres' commitment to the homeless and the impoverished. So we speak, I think, in terms of support to those proposals that will come to you from the voluntary sector round table, because our work is in the community, as well as our work in supporting religious needs.
I think that's the major piece to say to you, except to say that if there's anything you wish to propose that would have an impact on faith communities - in other words, a removal of anything, or an exclusion - I would ask for serious consultation before that comes. I think you would do well to consider there could be impacts well beyond what any of us would know, and we would need to discuss that.
But I leave you with that concern - that people of faith are people of caring.
The Chairman: Thank you, Suzanne Lawson.
[Translation]
Yvon Samson, please.
Mr. Yvon Samson (Executive Director, Fédération des communautés francophones et acadiennes): I represent the Fédération des communautés francophones et acadiennes du Canada which is made up of 15 organizations and speaks for the one million francophones living outside Quebec. We are probably one of the first francophone organizations from outside Quebec to testify before this committee. This was never one of our priorities, but with the changes in the funding levels coming from government, the communities want to find new tools to help them forge ahead and ensure their development.
Historically, francophone organizations have been able to enjoy their rights with regard to revenues from charitable giving. This situation has changed and the organizations that wish to engage in this sort of activity find themselves in a dead-end.
The francophone community can no longer avails itself of the provisions in the fourth category entitled ``charitable giving'' for activities beneficial to the community even though those activities are quite relevant to this category and often serve to advance the cause of education either through the training we offer our volunteers and our communities either through pre-school programs established in our communities or through community education which is one of our major activities.
The organizations working to improve the conditions of the francophone community in Canada manage theatres, community centres, community school centres and regularly organized activities where exchanges and meetings contribute to the flowering of their population in Canada and encourage men and women to contribute to the general advancement of our Canadian society as a whole.
The problem lies in the definition of community. The minister of National Revenue, probably referring to the legislation administered by the Department of Finance justifies refusing the requests made by Canadian francophone organizations applying for the status of charitable organizations by alleging that their activities concern only part of the Canadian population, in this case Canada's francophone population.
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We believe that Canada's francophone community must be recognized as a legitimate entity under that provision of the Act. Must we raise the matter of those principles that presided over the founding of this country and continue to give it the breath of life, that is the union of two founding peoples and the respect of the great principle of linguistic duality?
We are living in an era of financial rationalization and reduced national expenditures and, for francophone organizations as for others, this involves budget cut-backs.
Already, some years ago, the federal government advised us of its progressive withdrawal from funding while encouraging us to find other sources. Many of our organizations who had not yet examined the matter have since seen to getting a charitable organization number with the ultimate goal of ensuring their own funding through their economic partners and the population of their own community. However, they have to deal with a resounding no each time.
At a time when we have to manage downsizing and try to diminish the impact of the federal government's withdrawing our subsidies, we are refused the possibility to find our own sources of funding and reward our donors for their support.
The FCFA is requesting that this committee see to broadening the definition of the expressions ``charitable'' and ``beneficial'' in the Act on charitable organizations with a view to having this Act recognize that the activities of Canadian francophone organizations are relevant to obtaining the status of charitable' organization, recognizing the situation that francophones have to deal with in Canada, in other words the higher rate of poverty, unemployment, under education and illiteracy and encouraging their fight against assimilation by giving them access to those tools for self funding made available by the federal government which, itself, promotes linguistic duality as being one of the values which are fundamental to Canadian entity both abroad as well as inside this country and, finally, not using the Act to exclude francophone organizations whose mandate includes an essential condition of representing minorities in view of the hard facts our francophone communities have to deal with.
The Chairman: Thank your, Mr. Samson.
Monica Patten, please go ahead.
[English]
Ms Monica Patten (Executive Director, Community Foundation of Canada): Thank you for the invitation to be here this morning and tell you a little about the community foundation movement in Canada.
Community Foundation of Canada is the membership organization for Canada's 75 community foundations. A community foundation is a registered charity that pools individual contributions of all sizes into a community endowment fund and distributes the earnings from that fund for charitable causes throughout the community. These include raising literacy levels, breakfast programs for hungry schoolchildren - those children who come from disadvantaged homes, for example - cleaning up the environment, and building skills and hope among troubled young people and all young people, as a matter of fact. Those are just a few examples of the kinds of organizations and activities and grants that a community foundation would support.
The community foundation movement in Canada is growing very rapidly. At the end of 1993 there were about 55 community foundations, and we had collectively some $540 million under investment. In only three short years, by the end of this year, there will be 75 - perhaps 76 - community foundations. We clearly will have in excess of $700 million under investment and we expect that our grant-making will be in the area of $40 to $45 million. So you can see that this is a very rapidly growing movement.
Of course some will wonder about the proliferation of community foundations and of charities in general, in this era of cutback and of restraint. We would say that a community foundation is a particularly effective and efficient way for a community to begin the process or build on the process, if you will, of becoming more self-reliant.
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I agree heartily with Patrick and others who have already made reference to the fact that of course community foundations and other partners in the charitable sector cannot fill all of the needs, no matter what advantages there will be. That will be impossible. But we do think that community foundations are one way in which some communities can begin to identify their own issues and begin to address their own needs in new kinds of ways.
The financial gifts that people make to the community foundation are gifts for the present, through the current grant-giving activities of community foundations, but they are really also gifts for the future. This is about investing in the future. As I said, the gifts are pooled as investments. They are commingled for investment purposes. The capital is not touched, so it grows for the future.
The grant-giving is very broad. Community foundations reach every sector in the community, as I described in those few illustrations. Community foundations have excellent track records of working with other partners in the community, other fund-raisers and grant-makers and charitable organizations, for the good of the whole community. I want to stress that the community foundation has a particular interest in the whole community.
In spite of the very rapid growth, as I've already said, there is a growth in need that exceeds the needs that we meet through community foundation grants and through other kinds of grants. That means community foundations are looking for ways in which they can build their endowments even more successfully.
Community Foundations of Canada has been very active in the voluntary sector round-table initiative Patrick has described and Suzanne has referred to. We are very supportive of the notion that there is great diversity within the charitable sector and that a number of measures need to be considered to enhance charitable giving. But there are a couple that are particularly significant for community foundations, and I'd like to refer to those two, in particular, and not go into a lot of detail. We plan to put more detail together later on in another submission.
The first one that I want to mention to you relates to improved flexibility for endowment building through allowing endowed gifts to be claimed against 100% of income. Endowed gifts are the bread and butter of community foundations. They are what help us to build for the future. But at the moment the capacity for community foundations to reach donors is somewhat limited because of the tax bias that favours those institutions that already have crown status.
We don't know the exact number of potential gifts that the community foundation has lost because we are not yet able to offer that tax status. We know that several have been lost. Christopher Richardson from Vancouver may speak about that, and I've had other community foundations tell me about it. We do know that we have lost some and we do know that the issue is really around access and leadership. Again, that relates to the fact that the community foundation is for the whole community. We want to be able to attract those gifts to our endowment funds that will serve the entire community.
We also recognize that in putting this proposal forward, while the playing field may become significantly more level than it is now, if you will, it won't be entirely level. Annual gifts to charities would not necessarily be recognized by this measure. But I would like to say that Community Foundations of Canada - and there are few in this country with particular expertise - is able to help organizations build their own endowment funds. Some organizations and some operating charities in this country are moving towards building their own endowment funds, and we have the expertise to help them do that.
So on the one hand we want to encourage the annual giving and donations of all sizes for operating for annual expenses, and at the same time we want to encourage those organizations that have the capacity and the desire to do so to in fact build their own endowment funds for the future. I think Patrick has already made reference to the importance of doing that. We would be in a position to offer assistance to those organizations that would like to build their own future through their own endowment funds.
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The second proposal that is of particular interest to community foundations relates to an extended carry-back for claims for bequests. Several community foundations - and I offer the Winnipeg Foundation, with assets of about $100 million, as a particular example - build their endowments very extensively through bequests and through other forms of deferred giving. I think the Winnipeg Foundation would say about 75% of its assets have come, and continue to come, through bequests.
A carry-back to three years after the year of death would increase the net value of bequests. We understand more research needs to be done to encourage incremental giving in general and to understand fully the impact a measure like this would have. Nevertheless we do believe an extended carry-back would clearly be beneficial for organizations and charitable groups such as ours.
We believe very much that community foundations have the confidence of donors and of grantees and of the communities in which we find ourselves. We offer a way for Canadians to become involved in the future of their children and their grandchildren as well as in the present. We believe very much that enhanced tax incentives such as the two I have described, and others, would significantly contribute to the potential for us to have an even greater investment for the future.
The Chairman: Thank you, Monica Patten.
Charlotte Sutherland, please.
Ms Charlotte Sutherland (President, Canadian Association of Gift Planners): The Canadian Association of Gift Planners is pleased to address the Standing Committee on Finance. CAGP is an organization of over 600 members, from Vancouver Island to St. John's, Newfoundland. The membership includes individuals whose primary purpose is to encourage individual philanthropy and charitable giving and it includes a very diverse group of organizations, from very small to the largest charities.
CAGP is proud of its role over the past two years in creating strong, open communication between the organizations and individuals we serve and the federal government. In particular, the tax changes for charitable contributions announced by the finance minister in the March 1996 budget are an example of success in the new-found relationship between charities and the federal government. For the first time in Canadian history, we believe, charitable organizations from across Canada came together in concert with well-articulated proposals for changes in tax policy. Many of the proposed changes targeted one aspect of charitable giving and tax policy: how to create a tax incentive that will transfer private wealth into a public good.
Last year the CAGP submitted a proposal entitled ``Capital Gains Exemption for Gifts of Appreciated Property'' for consideration. I believe a copy of that proposal has been distributed. The proposal did not appear in the budget, so CAGP believes the proposal needs to be reintroduced to the Standing Committee on Finance for consideration in the next budget. CAGP takes this position based on in-depth consultation with our members over the past seven months and on discussion with finance department officials.
The discussions with finance department officials have taken place under the charitable incentive review task force. While CAGP applauds the efforts of the task force and the report compiled as a result of the discussion, CAGP believes strongly in making the recommendation to exempt gifts of appreciated property from capital gains tax.
I would like to take a couple of moments to address some of the concerns that have been suggested. We feel these may alleviate some doubts about whether the federal government should support these recommendations.
The first concern would be that a capital gains exemption for gifts of appreciated property will create a tax break for the wealthy. In response, I would like to say that capital gains exemption for gifts of appreciated property will directly affect those individuals who have assets that have substantially increased in value over time, and who have charitable intent.
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Those of us working as gift planners work with a wide variety of donors every day. Some donors are wealthy and prominent individuals, but many of the donors we work with hold substantial wealth because they have saved and invested conservatively over the years, to the point of accumulating substantial assets that have appreciated in value. These individuals are in many cases retired teachers, nurses or others who have attained their wealth through modest means. These individuals, despite their balance sheet, do not consider themselves wealthy.
It is these donors who often wish to make major contributions to organizations that they believe in and want to support, but they cannot afford to make a large gift from their income. If these donors could make a gift of appreciated property, receive a tax receipt for the fair market value and not be subject to capital gains tax, they would be encouraged to make larger gifts to charity.
By making a gift of appreciated property, the donor will decrease his or her total net worth, but may increase his or her net income. The charity receives the contribution today and can put the gift to work. The donor can enjoy seeing the benefits of the gift brought to the organization and can receive the tax benefits of the gift during his or her lifetime. An exemption of capital gains on gifts of appreciated property will allow, with the federal government's participation, ordinary Canadians to do extraordinary things for their community.
I would like to note here that regardless of where the gift comes from, whether it comes from a wealthy individual or someone of more modest means, the real beneficiaries are those people served by the organizations we represent. Those people are for the most part ordinary Canadians, or in fact disadvantaged Canadians, and are represented in all areas of the country.
The second concern is that a capital gains exemption for gifts of appreciated property will create a situation where wealthy areas of the country will benefit from gifts to charitable organizations at the expense of the federal government, whereas less advantaged regions will not see these benefits. CAGP believes that this concern simply overstates the case. While there may be significant gifts made in some of the larger metropolitan areas, large gifts are also received in smaller communities. Coming from what many people would consider a disadvantaged area of the country, I know that in many cases donors who have their roots in one part of the country but live in another region make gifts to organizations in their home town that have made a lasting impact on their lives.
A third concern is that some charities are wealthier than others and therefore have an unfair advantage over smaller charities in attracting large gifts, particularly gifts of appreciated property. In response to that, I would say that gift planners who advise individuals and gift planners who are employed by charities have the opportunity to see how individuals make their gift choices. In many cases large and small charities are the recipients of gifts made in the same will. In fact, many wills that we see are a mixed bag in terms of the type and size of charities named as beneficiaries. From my own particular organization, Dalhousie University, I know that it's very seldom that we are the only charity named in a will. I know that we have been the beneficiaries of trusts from which other organizations have also benefited.
Community foundations play an important role in providing technical resources for gift planning to smaller organizations. The community foundation will often find itself facilitating a major gift between a small organization and one of their donors.
More important, however, is the recognition in the charitable sector that large and small charities must work together to encourage philanthropy in their community. Many professional organizations, including CAGP, provide training and skill development for members of the sector, from staff to volunteer boards to members of the financial services community, in order to improve access to the financial resources required to meet the needs within a community. For this very reason, CAGP has restricted our membership fees to $125 a year to ensure that we are accessible to small organizations with limited means as well as those larger organizations.
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Large charities often underwrite the costs for seminars and workshops so all types of organizations can participate. The more knowledge a community has about gift planning, the more all charities benefit.
I hope this presentation will clarify for the Standing Committee on Finance why we believe an exemption of capital gains tax on gifts of appreciated property is the key to unlocking the transfer of wealth from private hands to the public good.
Thank you.
The Chairman: Thank you, Charlotte Sutherland.
I failed to introduce in our opening round Mr. Scott Wilson from Price Waterhouse. Welcome. I apologize, Mr. Wilson.
Mr. Scott Wilson (Price Waterhouse): Thank you.
My name is Scott Wilson. I'm with Price Waterhouse. Price Waterhouse is a national firm of chartered accountants and business advisers. However, I am here as a result of work I've been doing with the Department of Canadian Heritage and with the voluntary sector round table.
I am going to address just one issue, and that is a specific proposal to provide an enhanced tax incentive for charitable giving, which I call the stretch target proposal. My comments will very briefly touch on the background to this proposal, the specifics of what the proposal is and the advantages of this enhanced incentive.
Last week I sent over to the committee two documents for circulation in advance of the meeting today. One is a report entitled ``Encouraging Charitable Giving: The Stretch Target Proposal'', dated September 1996, and then there's an accompanying document, ``The Stretch Target Proposal: Executive Summary''. This is available in French and in English. I'll give a little bit of background on the proposal.
You'll note on the report that it was prepared for the Department of Canadian Heritage. With some foresight, back in late 1994 and early 1995 the Department of Canadian Heritage had been looking at tax and economic issues associated with charitable giving and volunteerism. I got involved at that time and did a report that ended up with a couple of recommendations, one dealing with easing up on the 20% limitation with respect to gifts - which has now been dealt with in the last federal budget, so it's not an issue - and the second proposal was this stretch target proposal.
I'll give some other background, which I'm sure most of you are well familiar with.
This committee in its December 1994 report recognized the increased role of charities. Then again in a report dated January 1996 this committee addressed the problems faced by Canadian charities. One of the recommendations was that the government consider enhancing charitable tax credit for donations to charities currently funded by governments.
The federal government responded in the March 1996 budget with the following quote from the budget plan:
- In the coming year, the Department of Finance will examine ways of further encouraging
charitable giving and charitable activities, particularly in areas where, due to the fiscal situation
of governments, individuals and communities are being asked to do more.
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This task force met numerous times, including meeting with Department of Finance officials in May, June and July this year. The stretch target proposal was one proposal that was made to Department of Finance officials, and while there are no formal comments from them, they were receptive to the idea.
The voluntary sector round table committee prepared an interim report that included the stretch target proposal. This was distributed widely and feedback was requested from the charitable organizations that received the interim report. Feedback has now been received. It was positive and the stretch target proposal will be one of a number of recommendations in the final report of the voluntary sector round table.
Just to conclude on the background, the stretch target proposal has been considered by -
The Chairman: Maybe I could ask you to tell people briefly what the stretch target proposal is.
Mr. Wilson: I'm coming right to that. I just wanted to conclude on the background. It is a proposal that has been considered by many.
The Chairman: We're delighted to learn that Finance will support it completely.
Mr. Wilson: To understand the stretch target proposal, you have to understand the current rule, which is simply that the charitable donation tax credit is equal to 17% on the first $200 of donations, and 29% on gifts over $200. The stretch target proposal is simply to provide a higher tax credit for donations that exceed a personalized stretch target.
So what are the details? There are really only three. One is that the personalized stretch target for each individual equals the highest level of giving that the individual has made in any prior year. So if in any one year an individual has given $1,000 and that's the most the individual has ever given in any prior year, then that is the individual's stretch target. Then for any subsequent year, for any donations made up to that stretch target, the normal rules for calculating the federal charitable donation tax credit are used. So it would be 17% on the first $200 and 29% on the amount over $200. And for any donations that exceed the stretch target, there will be a 40% tax credit.
There are really five advantages to this proposal. One is that it is equitable for all taxpayers and for all charities. It's available to all taxpayers. Each individual taxpayer will have a stretch target, and to the extent that the individual makes donations in excess of that target, each will have access to the higher incentive. The positive impact of this will potentially be felt by all charities.
The second advantage could be said to be its simplicity. It will be easy for taxpayers to understand, it will be easy for Revenue Canada to administer, and the changes required in the tax legislation will be relatively simple.
Third, it is fiscally prudent. There will be no cost to the government in terms of reduced tax revenues unless the goal of encouraging increased charitable giving is achieved. If there aren't increased givings to the charitable sector, it won't have cost anything.
The fourth reason is that existing behaviour will not be rewarded. No one will be entitled to the enhanced 40% charitable donation tax credit unless their donations exceed the highest level of donations the individual has made in any prior year. An individual would not be able to access the higher rate simply by discontinuing donations in one year, since the stretch target can never decline. It's defined as being the highest amount that has ever been given in the past.
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And lastly, the fifth reason is that the stretch target represents a meaningful target. It is an attainable target for each individual in that it is personalized. You could have defined a target that is a certain percentage of income, but not everybody with the same level of income has the same disposable income. You might have an individual who has many dependants, a large mortgage and virtually no disposable income, whereas another individual might have the same level of income but no dependants and no debt. Therefore he is able to give more. It's a meaningful stretch target for each taxpayer.
In summary, I believe the stretch target proposal is a practical option for providing an effective incentive for increased charitable giving. The report that was circulated in advance goes into more detail, including some numerical examples of different situations. One example is of typical incremental giving, another example is a large one-time cash donation, and another numerical example deals with a large donation of appreciated property.
The report also covers off possible enhancements to the basic proposal by considering issues such as donations made by a spouse and a single basic rate rather than the 17% and 29%. It also addresses possible concerns such as the level of the credit, the administration required and the impact on donor behaviour.
I'll leave it at that.
The Chairman: Thank you, Mr. Wilson.
Christopher Richardson, please.
Mr. Christopher Richardson (Director, Gift Planning, Vancouver Foundation): Good morning. I have distributed a copy of the paper. I will just touch on portions of it, but I will follow that format.
I'd like to discuss further with this committee a proposal that we brought forward during your Vancouver visit last December 1. This is an idea that was brought forward to the charitable incentives review task force, which you've heard about. The task force believes that this incentive makes sense and can make a real difference to the charitable sector throughout Canada, because it will encourage donors to give more to causes that they already support and will provide permanent or perpetual endowments, which will ensure that they assist in the financial viability of these charitable organizations today and in the future.
Very briefly, it simply uses an existing proposal that appeared in the budget two years ago, which is to give crown-like treatment for all gifts - and I'm using that term in that you can give up to 100% of your net income - to charitable organizations, public foundations, and municipalities. We're starting to pick and choose from the various entities that have the benefits for any gift that is part of a permanent endowment. And I will speak further about that. These are concepts the department and the government have already recognized. There is already a concept of benefiting ten-year endowments. And ten-year endowments is a start, but permanent endowments, I would suggest, make sense.
I think I would be remiss if I did not thank this committee for its report last January. That's important because there was a drought, let us say, of significant tax proposals brought forward by this government or any other over the last number of years, at least for a generation. I compliment you, Mr. Chairman, your committee and your staff for coming forward with some bold initiatives. I certainly thank Paul Martin for his budget proposals of March, and I thank the staff at the finance department and the sector for coming together with the charitable incentives review task force.
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Rather than shooting in the dark and having comments or proposals shot down and having everybody wondering why nothing went forward, I think it was meaningful to step in and have those discussions where we could really roll up our sleeves and chat and find out what is really appropriate, especially by starting back at first principles. We asked what things we were going to look at when examining an incentive, rather than just saying we liked that or we didn't like that.
On page 4, I mention the basic principles. In the middle of page 4 I comment that the desire or goal is to change donor behaviour. The purpose here is not to reward existing behaviour. There's no point in that. I think we should be assisting the charitable sector to assist the country as a whole by building and preserving the capacity to promote growth in trade and in jobs, and endowments do exactly that.
I mentioned that the endowment proposal I'm speaking to now on behalf of the Vancouver Foundation is just one proposal, and it may be a variety of proposals that we bring forward, but I will speak to that. In fact there are some administrative ideas that have been pursued, and we're very pleased that those are being pursued outside of this committee. They are ideas in terms of just making it easier for donors to give away their money. It's always sad when donors say it's really tough to give away their money. We would like to help them out and I'm sure the government would like to assist us.
Endowments are important. Endowments provide the capacity to service and pay for those core needs of charities. The idea is simple. It changes behaviour. It's applicable to all charities. Although I represent the largest foundation in Canada, the Vancouver Foundation, this proposal is not limited to us. It's limited by the 73,000 charities that are out there. I believe that it's easily understood. It provides an efficient method of encouraging further giving. I sit down with donors every day, and in many cases people are encouraged by continuing their existing support of current activities, but when they think about the concept of providing an endowment that will be there forever, they like it.
Self-compliance is already a system that the government is looking at in terms of compliance matters. It's not breaking any new ground. Existing legislation recognizes 10-year endowments and I'm just saying we should go to permanent endowments. Your 1995 is a recent example; it does recognize with your ecologically sensitive land proposals.... If it looks like a duck and walks like a duck, treat it like a duck. Let's make an endowment something that is well understood.
On page 6, I mention the ``dark side''. There are questions with any proposal - what about this and what about that. On the surface, an endowment isn't for everybody. We recognize that. Those people for whom it makes sense should be encouraged to create endowments.
This comment is not in the paper. Very briefly, there is a concern that some Canadians don't pay tax. They have a large income and they don't pay tax. It isn't as if you're anointed and suddenly someone says it's your turn not to pay tax. It's probably because you have large losses. It may not be a position that you'd want to be in, but I suggest that there is nothing wrong with someone who says he'd like to move a portion of his wealth to the public good. In fact, I think that is not contrary to public policy if a few more Canadians are on that magical number each year that have an income and pay no tax.
As Monica Patten has said, the Community Foundations of Canada has a program to assist charities to hold the funds or endowments within community foundations, but also to hold them themselves. In terms of the strategic fund-raising ideas, many charities have endowments with others as community foundations and also on their own books.
In conclusion, I believe that encouraging permanent endowments is good policy and good for charity, and it will be good for Canada.
Thank you, Mr. Chairman.
The Chairman: Thank you, Mr. Richardson.
David Armour, please.
Mr. David Armour (President, United Way of Canada): Thank you, Jim. It's great to be back to have a chance to speak with the group like we did last year.
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I guess having a name that starts with ``A'', I usually get to be first. Today I get the great opportunity of doing something I never get to do - make some wrapping-up comments and support a lot of what has been said so far.
You've had a lot of information. You have a very challenging task and a very challenging balance to strike in your pre-budget deliberations, and I'm pleased to be here to assist you in a bit of that.
I don't need to tell you much about United Ways. I think all of you know that United Ways and Centraides across the country are organizations that assess the community's needs and capacities to run a single community-wide campaign to raise funds to address those and distribute the funds in each community.
You probably don't know that the 121 local United Ways across Canada this year will be raising over $250 million - that's a quarter of a billion dollars. We'll be funding 4,000 charitable organizations across Canada, if you total it all up, through allocated funds, and an additional 10,000 organizations through donor-directed giving. That's in total six million donors. That's six million people from across Canada, trying in their own way to make a difference in the lives of their community, to make a difference in the funding of health and social services.
So I speak to you today not as an organization that's a recipient of federal government funds but as a co-funder of health and social services with all levels of government. We, like you as elected members of Parliament, seek to address community needs and community capacities, to address social justice, to address equality of opportunity, and to build caring communities within the economic realities of our times. It's that balance that we're about and it's that balance that you have before you in your pre-budget deliberations - of building caring communities within the economic realities that we have.
I think the reduction in government funding, starting at the federal level and moving down through all of the levels, is dramatic, and cannot be replaced with voluntary sector funding. It cannot be replaced with charitable funding. I don't think today is about finding a way to replace government dollars, but I think today can be about how we can work as a charitable sector with the federal government to build the capacity of the sector to do as much as it can in changing times.
Just when you thought you were up on all the jargon that each sector brings to your table, we bring a new one this year and it's called the voluntary sector round table. You've heard about it a number of times. United Way of Canada helped form the organization with a whole group of other organizations. Quite simply, as you have heard, it's a virtual organization that arose from our thinking that we in the charitable sector need to meet and work together to talk with you and, as you've heard, have a subcommittee do some work with the finance department to bring to you recommendations that will work, to bring to you not just hopes and aspirations, but recommendations that are possible.
What you're seeing from the voluntary sector round table, and what you'll be seeing in the presentation that the group brings, are recommendations that can work and are workable. Quite simply, we all agree that one of the greatest impacts the federal government can have on building the capacity of the sector is to provide broad and balanced charitable tax incentives.
I would think that one of your questions as a committee, when considering charitable tax incentives, quite simply would be where can we achieve the greatest return with what is essentially forgone tax revenue?
Let me suggest that while we expect that you would define the greatest return as the greatest financial return, you might also as a committee define the greatest return as that which maximizes the number of donors, that which maximizes individuals' levels of giving, that which supports services that are at risk in times of government cuts, and that which encourages large gifts as well, and encourages endowments. Rather than it being simply numerical, we'd suggest the concept of greatest return in a very diverse country like Canada. There might be a few factors you'd consider.
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We've spoken with a lot of organizations about this in the voluntary sector round table - you've heard us grapple with the issue - and we support their report totally. We've found a range of views across the sector.
When you talk to organizations that raise funds from individuals, their highest priority is to increase individual giving, which means those who give small amounts. That's because they really carry the breadth of the charitable sector.
When you speak with organizations that raise funds from corporations, they say their top priority is to enhance corporate giving by way of corporate credit.
When we speak with organizations that raise large gifts from individuals of high net worth, they talk about their highest priority, which is, as you have heard and will hear, a fuller exemption of gifts of appreciated properties from capital gains tax.
When you speak with organizations that do tremendous work in the community with endowments, you hear that their highest priority is to encourage the formation and building of endowments to support the long-term efforts of a community.
We in the voluntary sector round table strongly believe that it's a balance of these four approaches. In fact, as you've heard so far, it's not one or the other, but really encouraging giving by individuals.
You've heard about the stretch credit. It's really simple. It's basically encouraging people to give more than they've ever given before, and on that extra bit they've given, give them a higher tax incentive.
As for encouraging corporate donations, you'll see that the proposal is to replace the current deductions for corporate donations with a credit equal to the basic federal rate, less the provincial abatement.
To encourage endowment building, there are a number of recommendations for that, including gifts identified as a permanent endowment by the donor and claimable against 100% of income.
The fourth one is encouraging large gifts by individuals. You've heard about gifts of appreciated property fully or partly exempt from capital gains tax.
This is really the balance that we would suggest this committee consider. As I said, we brought you the general overview; you'll be getting the specifics shortly in a very detailed proposal put together by the voluntary sector round table.
It really will not leave out any of the diversity of Canada or the donors. It will encourage donors of all levels and all capacities to support the whole voluntary and charitable sector. In doing this, you'll help the whole sector to enhance our capacity to build caring communities in changing times.
The Chairman: Thank you, David Armour.
Lastly, Arthur Drache.
Mr. Drache: Thank you. Perhaps as the only technician here, with the exception of Scott, I'd like to talk about some very specific technical proposals.
First, I would like to say that I am strongly supportive of the concept of the stretch credit. The changes proposed in the last budget were very much welcomed by the charities community, but you must recognize those are aimed at big donors, and big donors only. There was nothing contained in that budget that would help the small donors and those charities that depend upon the small donors. It's the other side of the equation.
In my view, the adoption of the stretch credit would start restoring some of the balance that has been talked about. That is, it would give some incentive to people of modest means who also support their charities, not with gifts of hundreds of thousands of dollars, but of a couple of hundred dollars. It would give them encouragement. I want to associate myself very much with that particular proposal.
I'd like to talk about a couple of technical matters, some of which stem from the proposals that have been made. One of them comes from recent positive economic changes in this country. The ability to add the amount of your taxable capital gain to the annual donation limit was a major incentive to the donation of appreciated property.
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There is still a significant problem, and that is that where the property in question is depreciable - real estate, buildings and so on - there is the concept of recapture; that is, the amount claimed as depreciation in previous years is added back to income and is fully taxable.
If an individual were to donate a depreciated building to a charity, he or she would effectively cover off the potential capital gains tax under the March proposals, but could be faced with a significant tax bite if that building had been subject to depreciation.
I know this issue has been raised with the Department of Finance and I understand they are sympathetic to the idea, which is simply to add to the annual donation limit the amount of the recapture on depreciated property that has been donated to charity. It is a relatively small technical change, but one that would allow buildings and other property of that type to be transferred.
Secondly, you may have realized that the effect of one of the changes - especially the 100% donation at death - opens the strong possibility that people who die with money in RRSPs or registered retirement income funds suddenly have a much greater capacity than in the past to transfer those moneys to a charity. Earlier they were subject to a 20% of income limit, so if you had $100,000 in your RRSP and died and you wanted it to go to a charity, even though $100,000 would come into your estate from the RRSP, if you donated $100,000 you could only get a deduction credit of up to $20,000.
The 100% limitation - which I referred to in my opening comments - in the year of death now allows people to transfer all of their unused RRSP or RRIF money to a charity with no negative tax consequences, which is a big plus, obviously. The technical problem is that when you pull money out of an RRSP, a bunch of tax is withheld at source. While this tax is ultimately recovered, a relatively simple change could be made so that there would be no withholding of tax on an RRSP where that RRSP is going to a charity. This is a technical change that has to do with cashflow, but it would make things a lot easier for the charities in question, for the estates in question, and has a zero cost as far as the government is concerned. This is purely a technical matter, but it would make things quite a bit easier.
The third point that I want to raise comes from the rather astounding drop in the bank rate and interest rates generally in this country. Foundations, like other charities in this country, have a disbursement quota. Normally, the disbursement quota is the amount of money that must be spent on charitable activity in any given year. Most of you will be familiar with the first part of the disbursement quota, which is that 80% of re-ceded income must go to charitable purposes. In the case of foundations there's a second part, and that is that an amount equal to 4.5% of the capital of the foundation must go to charitable work as well.
The 4.5% figure is embedded in the Income Tax Act itself, so it's statutory. When it was introduced a very conservative investment could produce 9% or 10%, so you were saying that trustees of charities, who should be conservative, could easily generate the amount that was necessary to pay out annually.
Today, the requirement to pay out 4.5% of your endowment - i.e., to get an after-expenses return of 4.5% - while at the same time fulfilling the mandate to be prudent and cautious in your investment, because after all, this is charitable money.... They suddenly created a situation in which many of the foundations would be hard pressed to generate that type of income. If you look at Canada savings bonds paying 3% in the first year, and that charity must generate 4.5% after expenses, you can understand the problem. The technical problem we have is that because this rate is embedded in the act itself, it cannot change. Revenue can't just say things have changed, we'll lower the rate. There is no way to change it without amending the Income Tax Act.
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If you were to drop the rate to 2%, which might be the appropriate rate today, and interest rates go up to 10% three years from now, then you have an inappropriate rate. So the solution, I submit, is to take the rate out of the formula for dispersement quota and make it a moving rate or a rate prescribed by regulation, as so many rates under the income tax are. So I would suggest that.
I would like to talk about one other point, although perhaps not so much a technical one. I have had the experience of reading Walter Stewart's book on charities, as well as the report issued by John Bryden on charities. There is scarcely an item in either of those publications I agree with.
Having said that, the two authors and I do agree on one point, and that is the need for a federal charities commission. Both analyses are extremely weak. They don't take into account the fact that charities are essentially a provincial jurisdiction. However, quite a bit of work has been done on the concept of a charities commission within the federal context. Without trying to encroach upon the provinces' rights under the Constitution, I believe there is room for a federal charities commission.
I think the timing of this is particularly appropriate in that the Minister of Finance has put forward the proposition that the Department of National Revenue should cease to be a department and should become a commission, the tax collection commission.
It seems to me that within the context of the discussions relating to departmentalizing the Department of National Revenue, the time would be ideal for looking at a spin-off of the charities activities of the Department of National Revenue into still another body, which would be the charities commission. The timing is quite appropriate. I think this is something the committee might want to suggest merits further study.
The only other point I want to make is with regard to the comments made by Ron Knechtel. I speak now only as a technician, but my concern, aside and apart from the policy issues, is that once you start having different sets of rules for different categories of charities, you then get into definitional problems that not only complicate the Income Tax Act outrageously, but which then produce a whole set of planning responses from the private and charitable sectors. So while I think it was a generous offer to the taxpayers of Canada, it may create more problems than it is worth.
Thank you, Mr. Chairman.
The Chairman: Thank you, Mr. Drache.
[Translation]
Mr. Marchand. Welcome to our committee.
Mr. Marchand (Québec-Est): Ladies and gentlemen, welcome to the Standing Committee on Finance. I myself am taking part in this committee for the first time. I must admit that financial issues are a real puzzle to me. I even have a hard time filling out my own tax return.
When I think of charitable institutions, I might not include the FCFA, which to my mind is not a charity, far from it. Charitable organizations in Canada are doing a great deal of very important, very basic work, and include many volunteers who have their heart in the right place.
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In this country, the Liberal government has been putting pressure on the less fortunate and the unemployed for a while now. It may have even increased poverty in Canada. I would imagine that so many of you are here today simply because you need more money, even though Mr. Knechtel said earlier that he didn't need more money. It seems to me that this is a given. You are here because you need more money. The needs have increased.
However, as I was listening to you, I heard two messages. One of these messages is from experts such as Mr. Wilson, from Price Waterhouse, as well as from Mr. Drache, who are suggesting options that would favour someone, I don't know who, in the tax system. I would like to ask the charitable organizations whether their need for money is increasing, and whether it is increasing significantly. Do we have to change the tax system or the system for charitable contributions? Do Canadian charities need more money?
The Chairman: Who would like to respond to that question? Mr. Patrick Johnston.
[English]
Mr. Johnston: Thank you, Mr. Chair.
Let me come at your question in a couple of different ways. Much of the discussion that you have heard around the table this morning and some of the ideas that have been put on the table and that you will see in greater detail in our submission are in fact a collective response on the part of a broad range of organizations that represent most of the registered charities across the country, in Europe and various communities. So even though Scott Wilson is working with Price Waterhouse in terms of his day-to-day job, he has also been very active in supporting the work of the voluntary sector round table as a volunteer, if you will.
What this is actually suggesting is an important partnership between the voluntary charitable sector and the private sector. In fact, it goes beyond that because we've also had constructive discussions with finance officials. We're talking about a model, perhaps, that could be emulated in a number of other areas.
With respect to the issue of whether or not there is an increased need, I don't think there is any question about that. If you look at the total amount of giving to charitable organizations over the last four to six years in particular, you find the phenomenon of the amount of money from individuals staying the same, relatively speaking, but the total number of donors has actually declined slightly. What that means is that fewer people are actually providing charitable donations, but those who are are digging deeper and deeper into their pockets. So the total amount of revenue provided to charitable organizations has been flatlined from individuals - and the same is true of corporations, by the way.
In addition, however, there have been massive reductions in government expenditures that work their way through to registered charitable organizations. Let's keep in mind, for example, that when one looks at training programs, one of the largest suppliers of training in the country is the YM-YWCAs. When there are massive reductions in the amount of money provided for training, as an example, that filters down and does have an impact on the Y's - and I could go on and on to cite other examples. So I don't think there's any question about there being a need.
Thirdly, and perhaps as importantly, to some extent the additional funding is a part of the financial support to the charitable sector. But we're also talking about an increased recognition of the importance of the charitable and voluntary sectors in Canada today and in the future. More and more, the work that we need to have done in our communities, the needs that we all want to have met in our communities, are going to be done by charitable and voluntary organizations.
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We cannot, will not and should not replace government. It will be a partnership with governments as well in terms of meeting more needs, but there are clearly increased expectations and increased demands being placed on charitable organizations to meet the whole host of human needs.
The Chairman: David Armour.
Mr. Armour: Just to briefly add to that, that's a very important question and it's the key question.
Since the war, Canada has basically worked out a very delicate dance in terms of what the charitable sector will do, what different layers of government will do, how we will build community services and build caring communities, and what roles we will each have. The biggest player, the federal government, is making massive changes in its role, and that moves down to all the other layers. And now we're seeing the provincial governments making massive changes - and the changes we're talking about are cuts. Essentially, where the charitable sector had been the mortar between the bricks of mandated programs - mandated either at the provincial or federal level - the bricks are now flying out of the wall and there are all kinds of gaps.
We're not even talking about keeping agencies alive here. We're talking about what's happening at the community level, about communities deciding what services are most important. Anything that can be done to assist the capacity of the charitable sector to do that in this time of massive change would really be very welcome.
[Translation]
The Chairman: Thank you, Mr. Marchand. Mr. Duhamel, please go ahead.
[English]
Mr. Duhamel (St. Boniface): Thank you all for your presentations. I found them to be extremely informative. I'm not well versed in this area. I try to do my share, but I suspect I could probably improve there. I found them useful, and I'm hoping that a number of the proposals can in fact be incorporated into the budget.
There were two points I wanted to follow up on. One, I suspect, is to Ms Patten. I'm not sure I seized the point you made as accurately as I would have liked to about large foundations, such as the Winnipeg Foundation, possibly being able to assist other foundations. Do you mean they might assist other smaller ones that are already in existence? Perhaps you could just tell me a bit more about that. Perhaps you meant the creation of others that don't exist in certain areas.
[Translation]
My second question is for Mr. Samson. I must admit that I didn't really understand why the French speaking community was excluded. I know that it does take care of some people, no doubt francophones, but on the other hand, there may be other groups that are unique that do not operate throughout Canada.
I would also like to ask you about the issue of charity. Unless I'm mistaken, you said that because of the way you would use the funding, if you had any, you would not meet the objectives that are recognized by Revenue Canada. Perhaps you could elaborate on that. I didn't grasp your point.
Mr. Samson: Because of the Act and the regulations, Revenue Canada maintains that ``community'' means the entire community. Consequently, no segment of the community can have a charitable organization for itself, according to the interpretation that was provided in the letters of refusal that were sent to our groups.
Charitable organizations can carry out community education programs, but there seems to be a narrow interpretation of who can become a charitable organization in terms of the various programs offered. The department has to study these programs to determine whether or not they are charitable programs or programs that will improve conditions in communities.
I am from a small community in Cap-Breton, Nova Scotia. A charitable organization there had a hard time getting funding because the national interpretation of ``community'' just did not cover this little place. Because of the regulations, the organization had to use terms that they were not very used to, but it is not part of our culture to use certain words to ensure that the interpretation is correct for Revenue Canada officials.
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Mr. Duhamel: I wouldn't want to put words in your mouth, but it's my impression that officials tell us, ``As long as you meet these standards, there are possibilities.'' As a result, we may change our language, our objectives or our mandates in order to meet their requirements rather than meeting our own needs. Perhaps we should look at that.
I don't understand why a community in a town, a province, or the entire country couldn't benefit from this, as long as the money it wants to raise is spent to improve people's quality of life. We will have to pursue this matter. I don't think we'll be able to solve the problem today, but I do think that we will have to take it further.
[English]
The Chairman: Monica Patten.
Ms Patten: Thank you. I realized as I spoke that what I was trying to describe wasn't as clear as I had hoped it would be, so I'm happy to say a little bit more about that.
I was referring to charitable organizations, not foundations, that may wish to build their own permanent endowment funds for their own future so that they could draw on the earnings from those funds for their operating expenses over a period of time.
That's a very daunting process for organizations to undertake, and it may not in fact be appropriate for some of them, but for many it is. There are certain skills and techniques, if you will, that are important in building an endowment fund.
Community Foundations of Canada and, more importantly, some of our members - Calgary, Winnipeg, Vancouver, some of our other members - have already put in place programs they take out to those organizations, if you will, in the community to assist those organizations in building endowment funds for their own benefit. My suggestion and my offer is that the community foundation movement is well placed to extend that service and support to community organizations.
Mr. Duhamel: Do you have the skill, the expertise and the willingness to do that?
Ms Patten: Absolutely.
Mr. Duhamel: Thank you.
The Chairman: Thank you, Mr. Duhamel. Mr. Solberg, please.
Mr. Solberg (Medicine Hat): I'd like to welcome the charitable sector to the finance committee. I think it's safe to say that everybody agrees you do a wonderful job, and we'd certainly like to do whatever we can to help you do an even better job.
I want to start by responding to what Mr. Johnston said a minute ago about Canadians essentially maintaining the amount they contribute to charities in the last few years, which in a way is remarkable when you consider for instance that purchasing power for the average family of four has fallen by about $3,000 in the last three years. I think that speaks well of Canadians.
I want to follow up a little bit on what Mr. Drache was saying with respect to John Bryden's report ``Canada's charities: a need for reform''. I don't take quite as hard line a view of his report. I think he's made some very valuable observations.
In a way I want to switch gears a little bit. Instead of talking about new ways of providing incentives for people to contribute - I think there are some really good ideas, the stretch target idea seems to be a real good idea - I will just ask you people whether or not you think some of the accusations Mr. Bryden has made are true and need to be dealt with.
I'm wondering whether or not - through the voluntary round table Mr. Armour made reference to - there are ways of addressing some of the concerns Mr. Bryden has raised. Clearly some groups do get charitable numbers, and certainly don't deserve to have them. That's pretty obvious. I think that's been proven many times over. This should be a concern, I would think, to the charitable sector.
I think there's also a degree of arbitrariness in how different groups are chosen to fall into certain charitable categories. I know in my own riding I'm working right now with a group that had a charitable number. It teaches abstinence in the schools and is recognized by Alberta education as an alternative program, but it has been told that they no longer qualify as a charity. This is despite the fact they enjoy tremendous support in the community.
Meanwhile, there are other groups that are educational charities as defined by Revenue Canada and certainly are questionable. Mr. Bryden makes some reference to them, people like the Quimby Foundation of Red Deer, where they promote the memory of a mesmerist and a clockmaker from the United States. To me, that's a fairly obvious inconsistency in a Revenue Canada ruling.
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So I'm wondering if you can speak to the accusations Mr. Bryden has made and to what I think is an overall uneasiness many Canadians have about what seems to be some people passing themselves off as charities when they really aren't.
The Chairman: I see a number of hands. Chris Richardson and David Armour please.
Mr. Richardson: Mr. Chairman, if I could make a personal comment that I hope the Vancouver Foundation would support, I think that with 73,000 charities and the resources Revenue Canada has, the review of the 3010 is probably not what it could be. I think the department has gone a long way, and the most recent draft of the 3010 is much expanded.
I think a lot of it is that in the back room of a charity they're there to do programming and the accounting and compliance seems to slip. I think that, like anyone in the charitable sector, we would applaud anything. We're known by our baddest apples and our worst examples.
A number of years ago, Blake Bromley and myself put together a forum on the ethics of charities. We had a chap from Revenue Canada, an ethicist from UBC, and a chap from the Societies B.C. group. Of course, the person from Revenue Canada said it's the person in Victoria who's dealing with that. The person in Victoria said ``Well, you get the forms''. The ethicist of course said ``Hold it, somebody has to be monitoring this sector''. The charitable representative said ``We're doing good works''. I think it is something the sector has to examine.
I think that in 73,000 charities there are some examples, and I compliment Mr. Bryden in bringing those forward. I think the department is trying it. Sometimes their hands are tied, given confidentiality. If I applied for registration, Revenue Canada can't come to someone else in the community and say what about that - isn't that duplication; isn't there a similar group?
One example I heard of was about two groups that were trying to repair a damaged or burnt-out boat. Neither of them owned the boat, but they both wanted charitable status to repair it. It's a tandem track. They both had to get registration status.
In the definitional area there are many priorities of Canada in terms of the environmental area and the volunteer area that aren't charitable using the Statute of 1601. I think we're probably more true to that act than the Brits are.
I think there are some dilemmas. I think it may be something wherein Revenue Canada could use some more staff, but they could also use some more flexibility to meet the needs of Canada now, not Canada of the past.
Mr. Solberg: Are there some proposals the charitable sector could bring forward to make this a bit more of a self-monitoring thing, in a similar way to what you've done with your...?
Mr. Richardson: Certainly, but I think others can speak on it.
Mr. Armour: Sure. Speaking on behalf of the United Way of Canada and the broader group, the voluntary sector round table, it's important that the group understand the voluntary sector round table is a virtual organization created for three years to enhance discussion between leadership in the voluntary sector and leadership in the federal government.
One of the issues is what you have seen today, the issue of charitable tax credit, but it's important for you to know that your question is right on. We have talked a lot as a group about the absolute fixation we have on accountability, on transparency, on the public as volunteers being treated well in an organization, and the public as donors being treated effectively, knowing where their money is going, knowing how the organization is running.
We've been working on a number of plans with the federal government around the definition of charities, the issues you've talked about, around working on supporting Revenue Canada in their important work. We think Revenue Canada does a terrific job with the resources they have, but there are also issues.
There are 72,000 registered charities. They're all run by humans. Like any other human endeavour, there will be issues that need to be dealt with. On the whole, I think the Canadian public needs to applaud the incredible work done in those 72,000 registered charities. It's important for you to know that the voluntary sector round table hears many of Bryden's recommendations and would say that in many of those recommendations there are areas that need exploration. There are areas in there that need to be looked at.
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I wouldn't comment on the examples. For any story you could find great examples or scary examples, but there's real merit in some of his recommendations, and I think the voluntary sector round table will be grappling with them.
The Chairman: Thank you, David Armour.
Arthur Drache.
Mr. Drache: Apropos of this issue, when I raised the question of a charities commission, one of the key differences between the situation in the England and Wales charities commission and the situation here is that Revenue Canada is bound in all respects by confidentiality. You cannot get any information from them about who they're registering, why they're registering or why they're not registering. You cannot get any information from them about anything with regard to a charity, even people involved in the field.
So if I get a particular type of charity registered, somebody in Vancouver cannot find out about what the tests were, because Revenue Canada is bound by its confidentiality.
One of the reasons I've been strongly in favour of moving this to a charities commission is to create a whole different aura, if you will, similar to the English one, where the charities commission is involved in public give and take. It throws this stuff out to the public and will defend charities or will...I won't say attack them, but will certainly identify offenders. This is one of the reasons this whole subject has to be taken out of the purview of Revenue.
The other point is of those 73,000 charities, if I had to pick a number, I would bet 65,000 of them are run by amateurs, by volunteers. We won't call them amateurs; we'll call them volunteers.
Ms Lawson: Thank you.
Mr. Drache: You have detailed reporting requirements, and for instance the public information retrieval, which is the basis of much of Mr. Bryden's information and Walter Stewart's information, is almost incomprehensible most of the time, because there are no standards. But you have amateurs preparing them, so something that would probably put a chartered accountant in jail if he put it on a form and filed it is just filed, because that's the best they could do. That's part of the big problem.
The Chairman: Ms Whelan, please.
Ms Whelan (Essex - Windsor): Thank you, Mr. Chairman. I have two or three questions. My first question is for Mr. Armour.
You made some interesting statements about the amount of money your organization, United Way, raises, which is quite impressive, but I know in my community what their target is for this year, and I was a little bit concerned by your comment that there don't seem to be any more dollars out there to be raised. I know Windsor and Essex County would raise, based on your numbers, far more than the average across the rest of Canada, and I'm wondering if you can explain that disparity.
Mr. Armour: I'd love to.
You pick a good example. The Windsor and Essex County United Way has been the highest per capita United Way campaign in the country for 26 years. There's just a tremendous sense of community in Windsor and Essex County, and you should be proud of your community's efforts in building community and supporting health and social services.
The Chairman: Is that because they've had excellent representation at all levels of government, probably?
Some hon. members: Oh, oh!
Mr. Armour: I don't want to speak as a former executive director of that United Way, but -
Some hon. members: Oh, oh!
Mr. Armour: But in addition, that United Way has had excellent representation in the federal government and the provincial government.
I don't think I said there isn't a lot more money to be raised. There is a huge amount of money to be raised. Our sense is that when people really understand what the needs are and how people in their communities need help, they'll be willing to support. And if there can be some encouragement from the federal government through charitable tax credits and a number of areas to assist people in making that decision, that will help greatly. But the key decision any donor makes or any volunteer makes by giving freely of their time is an understanding that the needs are there and that their time or money will be well used.
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I think the Windsor-Essex example is a tremendous example of a community. There's tremendous support from organized labour and from corporations, being a long way down Highway 401 from either Toronto or Ottawa, a community up against a city like Detroit across the river - twice the size of Toronto - and with a sense of a community where if we're going to help ourselves we're going to do it right here and right now. That's been the kind of spirit that's built that community over many years.
I have other reflections on that, but I think their goal of $7.7 million this year is quite attainable. With the generosity they've seen, I think they'll get that.
Ms Whelan: Okay, I raised that because you mentioned that the government funding change is dramatic and couldn't be replaced by voluntary dollars, and I think Windsor and Essex County has gone through the recession worse in the past than most other communities and yet was still able to maintain that highest per capita for 26 years.
Mr. Armour: Absolutely.
Ms Whelan: So there's a challenge out there to some other larger communities - and,Mr. Chairman, maybe you could talk to yours - to see what they can do.
The Chairman: Willowdale is not quite as large as Windsor, but you will find out, Ms Whelan, that they are extremely generous and very community-oriented.
Ms Whelan: Yes.
I also have a brief comment to Mr. Wilson. I've sat here and gone through this stretch target you proposed. I know for myself that I'm approached on a number of campaigns that are multi-year. The suggestion is, if you can't afford to give $1,000 in one year, you'll give $250 for four years.
Now, to me, your target or the stretch target would say ``Wait a second, I'd be better off to give that $1,000 in year one or in year four because it's more to my benefit'', whereas the organization is looking for sustainable funding. I'm not sure if that stretch target isn't going to lead those who have the ability to talk to tax planners to come up with other alternatives.
Personally, I'm not sure, and maybe you've done this analysis, but 40% after a certain amount wouldn't encourage people to raise to that amount on a continuous basis. There are those who are going to plan from year to year and do plan what they can afford to give, and I'm not convinced yet that the stretch target is the way to go.
Mr. Wilson: I have addressed the question of donor behaviour and the point you've raised in one of the appendices to the report.
Ms Whelan: Okay.
Mr. Wilson: It goes through some detailed numerical examples and reaches the conclusion that perhaps it's not as big a problem as you might first think.
Furthermore, when the charitable organizations were polled at the time of the voluntary sector round table issuing the interim report, they were asked questions on that point. The general feeling was it shouldn't be too much of a problem.
Ms Whelan: Thank you.
The Chairman: Mr. St. Denis, please.
Mr. St. Denis (Algoma): Thank you, Mr. Chairman, and thank you all for being here. As in the past, the discussion has proven very helpful.
Before I ask a couple of questions of my own on the stretch target idea, I want to comment that one idea I've never heard expressed around any of our discussion tables is the notion of having Revenue Canada allow you on page 4 of the tax return a little box to say ``Please forward $100 of my tax refund to charity X''. People are feeling good when they calculate that they have $500 coming back, so perhaps that might be a good time to have $100 go to somebody.
On the stretch target idea, I have a few small questions. Does the goalpost for an individual change during that person's lifetime? Let's say, if this were to start January 1, 1998, and a particular person had, in the previous however many years you go back, given $1,000 one year, would that $1,000 stay in place without indexing, without any moving of the goalpost for the rest of that person's taxpaying life?
Mr. Wilson: The goalpost does change. The stretch target is defined to be the greatest amount ever given by an individual.
Mr. St. Denis: So it keeps moving.
Mr. Wilson: It keeps moving. It keeps increasing.
As a simple example, if an individual has given $1,000 in the past, that's a stretch target. If he gives $1,100 the next year, then he gets that additional 40% tax credit on the $100 in excess of the stretch target. But now the stretch target is $1,100, and the only way he'll get the enhanced incentive is if he gives more than $1,100. It just keeps moving up as the individual is able to give more, so it continues to be a challenging, meaningful target for that individual.
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Mr. St. Denis: Does the voluntary or charitable sector have an idea of what the difference is between say the average donation and what the stretch would be for a typical Canadian, or in total dollars what, for instance, the 1995 donations were, and then what the total donations would be if the stretch ``roof'' were in place - if everybody were to go to the stretch target? What is the maximum tax forgone by the federal government if everybody were to respond to the stretch target proposal?
Mr. Wilson: If everyone donated up to the amount of their personal stretch target, then that would mean that they haven't increased givings. Just to get a ballpark on what the -
Mr. St. Denis: Yes.
Mr. Wilson: If people were to give more than they have given in the past, and therefore be entitled to the enhanced incentive, then there would be additional forgone revenue. But it is difficult to estimate that, because it is dependent on donor behaviour, and no studies have been done that would provide a meaningful estimate of that.
Mr. St. Denis: Okay.
The Chairman: We could maybe get those figures from Revenue Canada.
Mr. St. Denis: It would be just an outside limit. Thank you.
The Chairman: Yes, I'm sure they must have that. Thank you, Mr. St. Denis. We'll ask them for that.
Mrs. Brushett, please.
Mrs. Brushett (Cumberland - Colchester): Thank you, Mr. Chairman.
This is an extremely important panel before us this morning. I think everyone would agree that the charitable and not-for-profit industry is indeed a flourishing industry. It seems we're adding about 1,000 per year at recent rates, and it probably will increase with the incentives we've given in the past year.
I think it's important to let the Canadian public know that by reducing the amount from $250 to $200, applying the 29% tax credit, the cost to our treasury is $15 million a year. It's important to let the Canadian public know, when we make such changes, how much money it takes from treasury.
Another side of that equation is that we have the private sector out there complaining, almost daily in my riding, about everyone wanting to now have charitable or not-for-profit status. They don't pay taxes and yet they're competing with someone in the private sector.
As an example, we had CAA in front of us. They have a not-for-profit status, but they take their profits and build a travel agency that then competes with a private travel agency. This is what is happening. They've made profits as a not-for-profit corporation that they can then invest without paying those taxes, and they compete with the little guy who has been paying taxes, facing the banker day after day.
So when you come before this committee and ask us to increase the deduction to 100% of income, what kind of a message does that send to Canadians? In particular when these charities can be taken outside Canada to other charitable organizations, when they can be taken into universities outside Canada, have you given consideration to the amount of money that might leave this country and that we are distracting from our actual tax base?
The Chairman: I have the feeling that Mrs. Brushett might have read John Bryden's report.
Mrs. Brushett: Also, my library.
The Chairman: Patrick Johnston.
Mr. Johnston: I wonder if I might just try to respond in part to some of your comments.
It's important to understand and recognize that the vast majority of registered charitable organizations in Canada are operating - deliver their services and programs, raise their funds, generate and mobilize all their volunteers - in Canada. Certainly there's an important part that raises funds for work in developing countries. With today's news of Zaire, for example, we see the importance of doing that, as well. It's important not to forget that.
But remember now that for the past number of years registered charities working in all your communities have been told by governments, at all levels, that they have to reduce their dependence on government funding. They have been told to be more entrepreneurial, to be more creative in terms of the way in which they generate revenue, and they've been also told to go more and more to the private sector.
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You have seen examples of registered charities that have developed or are looking at the possibility of developing business-related activities that relate to their mission. This isn't so new. Historically, you've always had examples - for example, UNICEF marketing cards at Christmas. This is something that we've understood is part and parcel of the way in which charitable organizations generate revenue. Almost a third - maybe a little less than that - of the revenue that comes into the charitable sector comes from earned income, so that has always been an important source.
The issue is the appropriate balance, and I think Revenue Canada is clear that they will only allow business-related activities that relate specifically to the broad charitable mission of the registered charity. I think most registered charities would also accept that as a very reasonable, realistic prohibition against other kinds of activities.
Mrs. Brushett: Mr. Chairman, let me follow up with that, since he is suggesting that it's quite appropriate to work within your related fields.
Perhaps there should be a ceiling on how much funding is allowed to go into those particular related fields. Would that be an acceptable recommendation?
The Chairman: Suzanne Lawson, you had something on this.
Ms Lawson: Not on that specific part, but I did want to respond to the concern about donations going outside Canada.
As we see ourselves as a community in Canada, I think we are enriched by seeing ourselves explicitly as part of a global community. I would not want to see us starting to say that charitable values only reflect and only ought to be given incentives if they support us. When all is said and done, we are an extraordinarily wealthy nation. I just can't leave that without being strong in that response.
The Chairman: Well put.
Mrs. Chamberlain, please.
Mrs. Chamberlain (Guelph - Wellington): Thank you.
Mr. Drache, I want to follow up on your suggestion that with RRSPs there would be no withholding of tax when money is given to a charity. I want you to explain that a little more. You said it would be a minor change and would not be a cost to the government. Please elaborate on that a little bit.
Mr. Drache: Of course.
Let us take the simplest situation - somebody who has money in an RRSP and who dies with money in the RRSP. Under the general rules, if that money is not transferred to a spouse - which it can be if there is a spouse - the money would come into the estate as an asset of the estate and would be fully taxable. So if $100,000 came in, there would be $100,000 of income and it would be taxable to the estate. That's step one.
Step two is that anytime funds are paid out of an RRSP, there is withholding tax at source, and the level of withholding tax increases with the amount you pull out. If you went to your RRSP carrier tomorrow and said you wanted $5,000, they would withhold 15% on $5,000, and the amount withheld escalates with the amount you want from your RRSP.
What you have now is a situation where the individual dies and the money is coming into the estate - let's say it's $100,000 and 25% may be withheld. So the estate will get $75,000 and 25% is withheld against tax. When the estate files its tax return, it will get a credit against its other tax liability for the $25,000 withheld. You have withholding of source on your income - it's the same thing.
That all makes a lot of sense and there's no particular problem with it. However, with the changes made in March, which allow for 100% transfer of income to charities at death, if I say in my will that I want my RRSP money to go to the Vancouver Community Foundation, that $100,000 comes into income and then I get an offsetting tax credit equal to the value of the $100,000, which goes to them.
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The problem is that my carrier has withheld $25,000 at source. So they're entitled to $100,000 but I only have $75,000 on hand. In due course, after we file tax returns, we'll get a refund of $25,000, which I will transfer too, but this may take a year or more.
All I'm suggesting is that where the estate can show the financial institution that the beneficiary is a charity, the financial institution should be exempted from withholding the tax, which will ultimately come back to the estate. So instead of withholding it the estate gets the whole $100,000, which is then transferred immediately to the charity. It just simplifies life for everybody, but there's no cost to the government.
Mrs. Chamberlain: Thank you. I appreciate that explanation.
I just want to lend my voice to you people who are in all the communities across Canada doing such good things. I've had a particular closeness with the United Way - in particular, Morris Twist in the Guelph area is a marvelous administrator. It helps so many projects, so just keep up the good work. Thanks for coming and helping us know where to do things better. We really appreciate everything you do.
The Chairman: Hear, hear.
I have a couple of questions for Mr. Knechtel and Ms Lawson. You have suggested,Mr. Knechtel, that we could look at donations that go to religious institutions differently than we look at other types of donations to different institutions. We could actually enhance the tax incentives, except in the areas where they go to promote the faith or promote spiritual needs.
If I were giving to a church, do you think I could maybe split my donation between the work that goes to look after my spiritual needs and the money that would go to look after relief of poverty, food banks or providing medicine or shelter?
Mr. Knechtel: We have considered this and there will be some complications, but I believe it can be done. There are many cases where a particular activity qualifies for special tax treatment, and that activity is then isolated into a separate entity. In fact, this is being done in our present system by governments through the crown agency foundation. Tax credits are allowed to individuals who make contributions to charities under the existing rules, but provincial governments that wish to enhance funding to the university sector, health care sector or the arts sector have set up crown agency foundations, and they've given status to that crown agency. So it doesn't interfere with the system, and it sets up a vehicle that permits the incentive to be given to the sector the government feels they have an obligation to support.
The Chairman: Going back to my question, if we were to enhance the tax incentives for any type of giving for the looking after the needy - food and shelter - if that latter service were being delivered through a religious institution in Canada, you would want the increased tax incentive for that portion of the gift.
Mr. Knechtel: Right, and I would see that being done through a separate structure.
The Chairman: Okay.
Mr. Knechtel: I understand that in Australia that is done through a separate structure, where the worship-type ministry gets one treatment and the other ministries are in a separate charity and get different treatment.
The Chairman: Thank you very much.
Ms Lawson.
Ms Lawson: I find it hard to separate what is a religious or spiritual need given to me as a result of a donation and what is my response to that, which may be spiritual or may be practical.
I'm kind of a hands-on person of faith. I was trying to think of an example of where I would find that difficult to do. If you were donating to a religious order - and the religious order one would see particularly as a centre of spirituality - I find it hard to say that's not a community service or does not include community service.
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Finally, I'd say to you if you were to donate to your local church and have a tiered system of tax receipts required, I want you to think of the human energy required of amateur volunteers - well, not necessarily amateur, but people who give of their time voluntarily - trying to separate that all out. You then have people spending their time on receipts and books when you could have them spending their time on either their spiritual development or community support.
The Chairman: Thank you.
Could I ask you a question, Charlotte Sutherland? You indicated that if we enhanced appreciated capital property rules so there's a total exemption in this area - and this is an area that has created a certain amount of controversy already - it would not necessarily be a break just to the wealthy, because there would be many lower-income people who would want to take advantage of it, and you used the example of teachers. Am I correct on that? I believe that's what you said.
Ms Sutherland: That's correct.
The Chairman: Okay. Having said that, would you still want the very wealthy to have that tax break if they gave, say, $10 million, or are you suggesting that perhaps we should put a limit on the amount so it is restricted only to smaller amounts?
Ms Sutherland: No, I would suggest there not be a limit. As I said earlier, wherever the money comes from, initially it is used for the benefit of many Canadians.
The reason I put forward the argument about people who are not necessarily wealthy and prominent people is that I know many of our organizations have had the experience of people who have accumulated wealth by careful and conservative investment and then are not in a position to make gifts from income because they are sitting there with highly appreciated property. They would like to be able to make a gift to an organization or organizations in their community and can't afford to do it. Many of these people are ordinary Canadians.
The Chairman: Thank you, Charlotte Sutherland.
Barry Campbell, briefly.
Mr. Campbell (St. Paul's): Thank you, Mr. Chairman.
I have a quick question. This may be taking us into a whole new area that everybody may want to comment on; I don't know. And I don't know if sufficient time remains.
The Chairman: Yes, well, thanks a lot for raising it.
Some hon. members: Oh, oh!
Mr. Campbell: We have the room until a certain time and I want to make sure we use all that time.
The Chairman: We have it until 2 o'clock, Mr. Campbell.
Mr. Campbell: That's right.
The issue is charitable purpose, the definition of charitable activity. In conversations with people involved, such as you - and very fine work you do - some have hinted to me that there are certain activities charitable organizations might want to engage in, and it might be appropriate and extremely important at this juncture, but they feel somewhat constrained by the traditional definition of ``charity''.
I wanted to give our guests this morning an opportunity to comment on that. One example I'll give that has been brought to me is the example of community economic development. I wanted to know if people would like to take advantage of this appearance here before us to raise that issue.
The Chairman: Arthur Drache.
Mr. Drache: Thank you, Mr. Chairman.
The issue of definition is an extremely difficult one in that the Income Tax Act does not attempt to define ``charity''. It only uses the term ``charity'' and the term ``charitable activities'', which throws us back into the common law as to what a charity is.
Revenue Canada's people feel constrained in two ways. One is that they must follow the common law definition as they understand it. Secondly, as bureaucrats, they are certainly not going to go out on a limb in any way, shape or form. They are not prepared to push the envelope in any way, if you will, in terms of taking into account changes that have occurred societally, whereas the English charities commission has pushed the envelope.
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To give you a simple example, in England they recognize that an organization to promote better race relations is charitable. Believe it or not, in Canada such an organization is not charitable, and there is no way to change that. There have been a couple of legislative changes over the years, such as the concept of establishing a registered Canadian amateur athletic association because competitive athletics are not charitable. The only way Parliament could deal with it was to create a new category, as they did with national art service organizations.
Having said that, for those who say we should redefine ``charity'', I have to tell you there have been attempts in the United States, in England, in Australia, in all the major common-law countries. None of them have been successful in coming up with a legislative redefinition of ``charity''. So what we have is essentially a legal conundrum: it is almost impossible to define it with regard to legislation; on the other hand, we're trapped in the old system.
Again, I keep coming back to my concept of a charities commission because I look at the way the English charities commission managed to push the envelope. I think if it were not made up of bureaucrats - I don't use that term with opprobrium, but bureaucrats are bureaucrats - and if you had an independent body that made these decisions, you might find we would move much further away from the Statute of Elizabeth of 1601.
The Chairman: Thank you.
Briefly, Patrick Johnston.
Mr. Johnston: Building on Arthur's comments in a sense, I suppose, can I just lend my support to the notion of looking at the feasibility of a charities commission as a way of trying to deal with some of those conundrums?
I think part of the difficulty that we have in Canada - you as the legislators, we as the people in the charitable sector - is that there is a dissonance between the public's understanding of the word ``charity'' and how, over time, we have actually evolved the activities of charitable organizations. So although I use the terms ``charities'' and ``charitable organizations'' because those are the legal definitions, I think more broadly in terms of organizations that provide a community benefit, or a broad benefit to the community. If that's the framework, I think it allows you to perhaps push the boundaries out a bit.
I think there are a number of people in the charitable sector who are concerned about the issue of definition because it comes back or snaps back at us. I think there are a number of other people in the charitable sector who also wonder about certain organizations that do have charitable status. Just as one example, there are a whole host of business charities. Groups like the Conference Board of Canada and the C.D. Howe Institute are registered charitable organizations. I think we all wonder just exactly what the broader community benefit is there. Perhaps we can justify it, but if that's the overlay, then it may allow us to come to some resolution and perhaps incorporate more groups like those doing community economic development. But I'm coming to the view that unless we move to something like a charities commission - although that may not be the appropriate model - I'm not sure how else we would get to it.
Mr. Campbell: Thank you.
The Chairman: Lastly, Mr. Grubel.
Mr. Grubel (Capilano - Howe Sound): I apologize for not having been able to be here, but I'm very interested in this subject.
I just read a report by John Bryden - I don't know whether you're aware of it - in which he again pointed out some difficulties associated with defining the nature, the definition of ``charitable organization''. I'm shocked to read that three doctors can get together and have a foundation in which they promote information against smoking. They give to each other, get tax deductions, and there is no control over how the money is actually being spent. I'm not saying that it is, but this looks like it could be a tax scam.
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Then there are some other organizations, like the one that wanted to create homes for children with AIDS. They made a lot of noise and collected a lot of money, but they all disappeared, and nobody knows what happened to the money.
Have you sensed that this has become a more significant problem in Canada? Should the government maybe do something about that? What can it do? Maybe a charities commission can deal with these kinds of problems. Have you found that it reduced the money you get?
The Chairman: Who wants to deal with that one? David Armour?
Mr. Armour: Building on some earlier discussions the group had, I think that's an important issue. We spoke earlier of the voluntary sector round table being quite focused on the issues of accountability and transparency.
One of the things we've talked about as a group is the issue, as Patrick was saying, of the definition of charitable activity. I think Dianne's comments, and others we heard earlier, were about a sense of certain organizations that in their view were not charitable. They were doing something certainly on the fringes or outside the boundaries of charitable activity.
What we'll be working on, in whatever form it actually takes, is having a group of leading citizens from across Canada look at the issue to give us some advice on that. Then we'll look to see how we can assist the federal government in evolving, one might say, the definition of charities. This is without a predisposition of whether it will be broader or narrower, but how it fits with today's society.
The other thing I want to point out as a footnote is that, often when there's one side of the table and another side of the table, one can get the sense that the charitable sector is this group out there that's doing things. I think all of you who have been involved in the charitable sector would recognize that the best minds in business, organized labour, government and small business and among our community leaders are on our boards and committees. Similar to government, we probably are actually a part of the community that is made up of the whole community.
These are issues that the whole community has to grapple with, and they're very difficult. There's the issue of the definition of ``charitable'' coming from an act that's hundreds of years old. In current society, in the electronic age, what's a charity?
These are issues that will have to bring the community and all those minds back together. It's not the staff of organizations, but the communities that ask what that is now.
Mr. Knechtel: I think we have to recognize, of course, that section 92.7 of the Constitution Act assigns to the provinces the exclusive jurisdiction over the regulation of charities. I think the provinces have not generally been preoccupied in regulating charities. I think we've seen some of it in Ontario, and we will probably be seeing more.
It seems to me that we should be starting with some effort to bring the provinces together with the federal government into something like a charities commission in which we can reach an agreement involving the sector as to the important ground rules, then move on from there, rather than having this jurisdictional problem continue to exist.
The Chairman: Thank you, Mr. Knechtel. Our time is just about over.
Are there any of you who would like to take 15 seconds to sum up and leave us one last message? We'll start with Ms Patten.
Ms Patten: My last message would simply be to echo what we said right at the very beginning: consider balance so that all of us benefit.
Ms Sutherland: I think I would like to echo that statement as a representative of an organization that is very diverse in membership. That balance is extremely important.
Mr. Wilson: I think working together is what I'd like to leave. We have begun a process of working together and we'd like to continue that to address many of the issues that have been raised so the doubts there can be resolved. Thank you.
Mr. Armour: Thank you for the work that each of you is doing on behalf of all Canadians in preparing your pre-budget submission and in looking at the whole issue of balance.
Mr. Johnston: Let me also just mention the ``balance'' word again, because I think that is so fundamental to the range of recommendations we're proposing.
Let me also mention another word: ``partnership''. We're coming here today with a real sense of partnership. We are in this together. Those of us who are involved with government, the charitable sector, and the private sector are all responsible for trying to meet the needs in our varous communities. We all have a role to play.
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Mr. Drache: The developments of the past year or two have been the most heartening thing I've seen in my 25 years of working here in Ottawa, especially in the charities area. Last year, you had a committee report that was sympathetic and knowledgeable. I'm pleased to see that you're carrying on in this way. I look forward to seeing your next one as well.
[Translation]
Mr. Samson: Given the changes in Canadian society, the possibility of expanding the definition of ``charitable organization'' certainly should be looked at.
The Chairman: Thank you.
[English]
Ms Lawson: I want to pick up on another concept of balance from Arthur Drache and say that while we focused a fair bit on a few charities that may be bad apples, the public needs to know of your confidence in the thousands of wonderful charities that are your partners in helping to make this a better country.
Mr. Knechtel: I think it's important that the sector does get together on many of these issues for some further discussion and to perhaps explore some of them in greater detail. I think we would all benefit from that.
The Chairman: Thank you very much.
We've heard from such a cross-section of the voluntary and charitable sector today that I think we're very fortunate to have had such important organizations represented, as well as such distinguished leadership. Many of you here represent not just a single organization, but umbrella organizations. So I have the confidence that you can speak for the vast majority of charitable and voluntary organizations in Canada today. This gives us enormous confidence in relying on your presentations to us.
Second, we've heard the need for balance in terms of not just targeting particular donors or charitable organizations who will be the beneficiaries. We take the message away very clearly that there's not just one approach that is going to work. There's the need for partnership between the voluntary sector, the private sector, the donor community and government communities.
We are extremely fortunate, I think, to have had the voluntary sector round table, which has brought many of the major players together and is working actively with government. This is an initiative that was spurred, I believe, after our report last year on the issue of appreciated capital property and what we should do with it.
The one little cloud that was cast over our hearings today is the question of definition. With more than 73,000 charities, we know there are going to be abuses. In my opinion, it's as difficult to define what a charitable object is in every single situation as it would be to find what is just, fair, right and decent in every situation. We will probably have to live with a certain degree of uncertainty at the edges.
This problem is not restricted in federal legislation to charities alone. We saw in the last election campaign how the charitable tax credit was made available to the Natural Law Party, whose candidates bounced on mattresses and levitated. So I don't think we can claim, as politicians, to have any gospel truth in this very difficult area.
I take up the challenge that you issued, Suzanne Lawson, just because there may be problems at the fringes and on the extremes, as there are always going to be in every situation we face in a life circumstance.
From all sides and from all parties in this House, we reaffirm, as you've heard today, our commitment to the job you are doing. Regrettably, as government people we have been pulling back in areas we have traditionally serviced. We are asking you to do far more than you ever have in the past. It is up to us now, having made this request of you, to deliver you the tools.
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On behalf of all members, may I thank you for your presentations to us today, and more importantly for what Mrs. Chamberlain alluded to - the incredible work you do in our communities on behalf of every Canadian. Thank you very much.
We meet this afternoon at 3:30 p.m. The meeting is adjourned.