Bill C-470 (Historical)
An Act to amend the Income Tax Act (revocation of registration)
This bill was last introduced in the 40th Parliament, 3rd Session, which ended in March 2011.
This bill was previously introduced in the 40th Parliament, 2nd Session.
Albina Guarnieri Liberal
Introduced as a private member’s bill. (These don’t often become law.)
Second reading (House), as of Nov. 3, 2009
(This bill did not become law.)
This is from the published bill. The Library of Parliament often publishes better independent summaries.
This enactment amends the Income Tax Act to revoke the registration of a charitable organization, public foundation or private foundation if the annual compensation it pays to any single executive or employee exceeds $250,000.
- April 21, 2010 Passed That the Bill be now read a second time and referred to the Standing Committee on Finance.
Income Tax Act
Private Members' Business
April 19th, 2010 / 11:05 a.m.
Robert Carrier Alfred-Pellan, QC
Mr. Speaker, it is a pleasure today to speak to Bill C-470, which was introduced at first reading on October 29, 2009, by the member for Mississauga East—Cooksville. The bill itself is very short. It would amend several subsections of section 149.1 of the Income Tax Act.
These amendments would enable the minister to revoke the registration of a charitable organization, public foundation or private foundation if any of its employees receive compensation in excess of $250,000. Bill C-470 clarifies that compensation includes not only salaries, but also “wages, commissions, bonuses, fees and honoraria, plus the value of taxable and non-taxable benefits”.
Lastly, Bill C-470 enables the minister to make public the names and salaries of the five highest-paid employees in each organization registered as a charity, as part of the annual listing of charities in accordance with section 149.1 of the Income Tax Act.
I would now like to describe the circumstances that led to this bill. On October 1, 2009, the SickKids Foundation made headlines when it was reported that its president collected a severance package valued at $2.7 million. A debate ensued on the huge salaries paid to charity executives, what constitutes fair compensation, and whether these salaries are in line with such organizations' missions.
In Quebec, a series of articles was published in les affaires in 2008 calling into question the salaries of top executives at a number of charities. The title of the series was “Philanthropy: worthy causes, whopping salaries”. Naturally, the articles made a lot of people skeptical about how donations to these organizations are being used and may have a negative effect on future fundraising efforts for charities as a whole.
The author of these articles explained how surprised the average Quebecker was to learn that such a significant portion of donations and other amounts received by charitable organizations is spent on salaries, including those of the directors of these organizations. According to the figures declared to Revenue Canada in 2007, 55% of the revenues at Moisson Montréal was spent on salaries, 44% at Mira Foundation, 38% at Fondation québécoise du cancer, 35% at Sun Youth Organization, 31% at Leucan and 60% at Le Bon Dieu dans la rue.
This was also surprising to experts in the field. For example, the CEO of Bolduc, Nolet, Primeau & Associates, a philanthropic management company, stated that when salaries are as high as 30% or 40% of all revenues, there is a problem.
According to these articles, the average salary of directors of charitable organizations in Quebec was $125,000. These high salaries surprised not only the public, but also the experts, who thought they were much too high. Even more disturbing than the high salaries was the silence or reluctance of some major organizations to reveal the salaries of their directors.
This made the public even more doubtful about the legitimacy of these salaries. There is a lack of real safeguards, and there have been concerns that these salaries could get out of control and end up comparable to the salaries of American charitable organizations, which had an average salary of $410,000 in 2007. These salaries have been skyrocketing in recent years. In Canada, they increased by 17% last year alone, and there was a 44% increase between 1999 and 2008, according to the annual survey of benefits and compensation published by the Canadian Society of Association Executives.
However, the Bloc Québécois knows how essential it is for charities to be able to continue hiring qualified managers.
Bill C-470 would require that the names of the five highest-paid employees in each charity be published. The Bloc Québécois understands the underlying principle of transparency in this initiative, but it is worried about the privacy of these organizations' administrators. Perhaps the requirement of publishing these names should be removed from the bill.
Quebec charities with executives who earn an average of $125,000 a year will have some room to manoeuvre when it comes to salary increases. By respecting a $250,000 ceiling, these organizations will be able to recruit and retain qualified applicants.
But what about the salaries of executives in larger Canadian charities? Numerous factors need to be taken into consideration: the size of the organization in terms of its revenue, expenses and staff; the complexity of the regulatory environment in which the organization works; and the number of departments and government organizations it deals with.
Of course, these factors affect each organization differently. We cannot determine a realistic salary ceiling without considering these factors and taking into account the changing needs of the organizations as well as the domestic and international market.
The heads of several Canadian charities are already being paid over $300,000, which seems reasonable, considering the size of the organizations they manage.
Also, the number of Canadian charities is quite remarkable: 161,000 in all. In Laval alone, where I am from, there are 383 registered charities, including childcare centres, community centres, volunteer associations, regional recycling depots, private schools, the Laval symphony orchestra and the Laval health and social services centre, a Government of Quebec organization. All of those organizations are registered under the Income Tax Act.
So it would be very difficult to establish a salary cap for such a diverse group of charities and organizations whose volunteer elements are not necessarily obvious.
Given that the Quebec and provincial governments have full jurisdiction over the charitable sector, we must ensure that Bill C-470, in its current form, does not infringe on Quebec's areas of jurisdiction.
Furthermore, given that any charitable organization that wishes to register in Quebec must first be registered with the CRA, we must ensure that Bill C-470 fits in with Revenu Québec's provisions in that regard.
In any case, the Bloc Québécois is in favour of the principle of Bill C-470, which is why we will support it at second reading, so we may examine it in committee.
The Bloc Québécois recognizes the importance of charitable organizations in Quebec society. In order for these organizations to be able to pursue their charitable missions, it is important to maintain their credibility and the public's trust in them.
Nevertheless, the bill's impact on all charities must be thoroughly reviewed in order to ensure that these organizations can continue recruiting qualified staff despite the limitations this bill would impose.
Income Tax Act
Private Members' Business
April 19th, 2010 / 11:10 a.m.
Sukh Dhaliwal Newton—North Delta, BC
Mr. Speaker, I rise today to second private member's Bill C-470 put forward by the visionary member for Mississauga East—Cooksville. I call her visionary because she brought in a bill on proportional sentences for murderers that was so good for Canadians that the government adopted it. I hope the government takes the same lead on this private member's bill as well.
Charitable giving is part of our nature as Canadians. Charities across the country receive billions in contributions from Canadians of all income levels, of all backgrounds, and from every province and territory.
That being said, I am well aware of the challenges that charities have faced in recent years. In 2008 Canadians donated $8.19 billion, a 5.3% drop from the previous year. Although the figures for 2009 have not been released yet, the charities I have spoken to have told me how difficult 2009 was as well. The global economic downturn has had a huge impact in this regard, and like businesses, charities have felt the pinch.
There was good news however. The number of donors did rise to 5.8 million, which represented a 1.7% increase from the year before. This bill is about those 5.8 million Canadians.
The first component of this bill has to do with transparency, which is a standard that each and every charitable organization should be trying to achieve.
Those that give to a cause want to know that their gift is going to the right place. So we ask about a charitable organization's administrative costs, and how much of a donation is actually making a direct impact.
But surprisingly, up until last year, the Canada Revenue Agency never required charities to report the salaries of their top executives.
The charitable filings for 2009 mark the first time Canadian charities have disclosed compensation information for their ten highest paid officials. Previously, charities only had to provide limited information about their five best paid staff positions.
Yet, there is still great ambiguity with this disclosure. There are no exact salary figures for these individuals. Instead, there are only categories, like the top bracket of $350,000 and over, which leaves a lot to be desired when it comes to information.
The bottom line is that if someone chooses to make a contribution, they have a right to understand exactly what the leadership within their chosen charity is being paid.
Donors are like shareholders of any public company, so disclosure needs to be a lot more specific to give donors the information they need to make informed decisions about where they choose to donate their hard-earned money.
The second aspect of this bill is about introducing a salary cap of $250,000 within the charitable sector.
As the hon. member for Alfred-Pellan mentioned, there was great confusion and even anger when last year it was revealed that one of Canada's largest charities, the SickKids Foundation, paid its former president $2.7 million in 2008. To many this is a figure that is very hard to comprehend, particularly when considering how hard it is for a charitable organization to raise that kind of money. It is especially hard to see how someone can faithfully accept that kind of salary for doing good deeds.
The salary cap in Bill C-470 would allow charities to pay their top executives salaries comparable to federal deputy ministers who run even larger and more complicated organizations. If a charity wants to exceed the cap, it would fall to the federal minister. If he or she does not accept the justification, he of she can decide to de-list the charity.
I have an issue with those who say that the House of Commons should not be involved in the salary decision-making process.
As I mentioned previously, tax receipts were given to over 5.8 million Canadians in the year 2008. The Government of Canada encourages charitable giving through these subsidies. This is a long-standing tradition and I will go as far as to state that it is one of the essential components behind charitable giving in our country. Thus, we as members of Parliament have every right to scrutinize the salaries of executives that are, to an extent, being partially paid by way of Canadian taxpayers.
This past December, the Fraser Institute released its 2009 Generosity Index. The Generosity Index measured charitable giving for both Canada and the U.S. in the year 2007 and detailed the percentage of tax-filers who donated and the percentage of income that they gave to good causes.
For Canadian charities, the numbers were troubling. Americans donated 1.6% of their aggregate income to charities while Canadians donated less than half of that, at 0.73%. In dollar figures, Canadians donated approximately $8.5 billion to charitable causes, but if we had given at the same rate as our southern neighbours, the total would have been in excess of $17 billion.
Bill C-470 is an attempt to assist charities with this gap by instilling greater confidence in their practices among the Canadian public. The successful passage of this legislation will ensure that not only will Canadians be able to access more information, but they will also be able to have confidence in compensation packages that are equitable and fair in consideration of their charitable gifts.
As the economy recovers, the rate of charitable donations will recover. This bill would open the books of charities so that Canadians can open their wallets to charities with confidence.
Once again I thank the hon. member for Mississauga East—Cooksville for bringing in this important measure as a private member's bill.
Income Tax Act
Private Members' Business
April 19th, 2010 / 11:20 a.m.
Kelly Block Saskatoon—Rosetown—Biggar, SK
From the onset, I will state that our government agrees with the member on the importance of ensuring proper and appropriate regulation of the charitable sector in Canada. This includes the need to remain vigilant against undue personal benefit for individuals employed in the sector.
Our government is always open to exploring ways to strengthen current legislation. In that regard, we welcome and will support Bill C-470 for discussion in the finance committee in the coming weeks and months. Moreover, we understand that many charitable organizations, both large and small, would like to participate in the debate on Bill C-470 and potentially make some suggestions related to the proposal.
We are especially encouraged that the member noted earlier in the debate that she was ready to more fully explore this proposal at committee stage. The member for Mississauga East—Cooksville would likely agree that we need an opportunity to hear the voices of those involved in charities across Canada to make certain that occurs.
I also believe that all members of Parliament share in the member's belief that charities are a vital part of communities right across Canada. That is why since 2006 our government has taken some notable actions to help bolster charities and allow them to keep doing the great work they do in our communities.
In budget 2010, our Conservative government announced it would move forward with a plan to reform what is referred to as a disbursement quota. This reform is intended to reduce unnecessary red tape to better allow charities to focus their time and resources on their charitable activities and helping their communities.
For the benefit of the House, I will relay a small sampling of the feedback we have received on this particular budget 2010 announcement.
Imagine Canada applauded it for providing the following:
...greater flexibility for charities as they seek to meet the increasing and changing needs of Canadians....
The [disbursement quota] added layers of red tape and reduced flexibility in responding to the needs of Canadians and communities. ...[it] will help charitable organizations, especially smaller and rural ones, to better plan their activities to meet the real needs of their communities.
The Salvation Army cheered it by saying:
The removal of the quota will provide The Salvation Army; one of Canada’s largest charities, with increased flexibility....
We are very pleased with this announcement. The proposed changes will allow us to better respond to the needs of the people we serve in 400 communities across Canada.
Finally, someone the member for Mississauga East—Cooksville may be somewhat familiar with, the Community Foundation of Mississauga's executive director, Eileen MacKenzie, explained:
We applaud the government’s decision to reform the disbursement quota policy. ...[it] will lessen the administrative burden on our charities, direct more resources to addressing community needs and enable them to plan more effectively for the future.
This is a specific example of a helpful initiative our Conservative government has undertaken to support Canada's charitable sector. Today's proposal deals with the accountability of these registered charities, specifically regarding the compensation given to those employed by such organizations.
To put this debate into context, I believe it would be informative to look at how charities are regulated in Canada. First, responsibility for the regulation of registered charities is divided between the federal government and provincial and territorial governments.
Within the federal government, the Canada Revenue Agency, or CRA, regulates registered charities. The CRA is responsible for applying the provisions of the Income Tax Act relating to registered charities. Beyond income tax considerations, the regulation of charities is constitutionally under the jurisdiction of the respective provinces and territories in which they operate.
As mentioned earlier, recent reforms have given CRA more powerful compliance tools when regulating the charitable sector. The ultimate compliance tool is the ability to de-register a charity. If a charity is deregistered, it immediately loses its ability to issue tax receipts to donors. It also may become taxable on its existing assets. In addition, it must transfer its charitable resources to another charity within a specified period of time or pay a revocation tax to the government. Clearly, considering the special tax treatment that registered charities receive, excessive compensation for those employed by them is not something that donors or everyday taxpayers would approve.
That is why, currently, if the CRA comes across a situation where a registered charity is not fulfilling its charitable purposes and/or there is undue personal benefit, such as compensation clearly in excess of fair market value, CRA can take strong corrective action.
Under the present system, for the first infraction by a registered charity, CRA can impose a tax of 105% of the amount of the undue benefit. If a charity repeats such an infraction within five years, the penalty increases to 110%. In addition, CRA can immediately suspend the tax receipting privileges of the charity. Finally, if the problem is ongoing and repeated, CRA can move to deregister the charity completely.
Before concluding, I want to state that our Conservative government firmly believes that Canadians who donate their hard-earned money to charities should have the proper tools available to ensure that those organizations are accountable, and that is why we took action to improve accountability.
Up until last year, CRA had only required charities to report on the compensation for the five highest paid employees and indicate limited salary ranges, with the last threshold being $119,000 and over. Our Conservative government did not believe that to be sufficient and brought in changes. Now we require charities to report the 10 highest paid positions, double than before. What is more, we expanded the salary ranges, with the last threshold being $350,000 and over. I note that all of this information is available publicly and online for all to view at www.cra-arc.gc.ca.
Our new accountability rules will improve transparency, allowing those generous men and women in Canada, who donate their own hard-earned dollars, the information they need to make their charitable giving decisions with peace of mind.
Without a doubt, our Conservative government has taken action to both encourage charities to serve our communities across Canada better, while at the same time improving transparency surrounding their actions.
We are clearly committed to accountability and transparency in the charitable sector. While the tax system already has tools in place for both the regulation of compensation in the sector and to guard against undue personal benefit, we are always open to exploring other ways to strengthen it.
As Bill C-470 successfully passes second reading and advances to the finance committee, however, we again both welcome and urge a very comprehensive discussion at that stage. That discussion will provide an essential opportunity to hear directly from those in the charitable sector and explore their questions and concerns.
Income Tax Act
Private Members' Business
April 19th, 2010 / 11:40 a.m.
Paul Szabo Mississauga South, ON
I support this bill very much. I am little concerned because there has been some misinformation of which I think members should be aware. Probably the best reason this bill should go to committee is to enable the charitable institutions and foundations to provide some input. I understand there was concern in the charitable sector initially, but that actually has turned around. I believe there are some 85,000 charities.
I approach this not from the standpoint that I am looking for some charity that is doing something that it should not be doing. What is needed is greater transparency, openness and accountability. We are talking about taxpayers' dollars. When people make a charitable donation, they claim that donation and get the appropriate tax credit on their income tax return. All Canadians, all taxpayers, are subsidizing the contribution to various charitable organizations and foundations. From that standpoint, it is very consistent that disclosure of relevant information should be made available to all Canadians about how their tax dollars are being spent.
I do not think there are many people who have not heard some conversation about exactly who is getting how much and how much of their dollars is actually hitting the ground and helping the people they want to help. The United Way is asked this question all the time, and it reports on it and it boasts about it. Campaign 2000, which helps deal with the issue of child poverty, is constantly looking at how much money is actually going toward helping people and promoting the alleviation of child poverty in Canada.
It is extremely important that we look at this from the accountability aspect.
Today I received a letter from the Prime Minister's chief of staff, who subsequent to his appearance before the ethics committee on the subject matter, provided copies of the letters that he sent out to the ministers indicating that it is a responsibility of the government to promote accountability, transparency and openness. I think the House concurs. It is the law. It is a charter right.
I know where some of the confusion has arisen for some members who may have looked at this. It is one of those cases that if we just hear the short version, or the summary, we may get an impression which is not reflective of the full detail of the bill. The summary of this bill states, “This enactment amends the Income Tax Act to revoke the registration of a charitable organization, public foundation or private foundation if the annual compensation it pays to any single executive or employee exceeds $250,000”, period.
That is how the summary was drafted, but that is not exactly what the bill would do. The bill would not revoke the registration of a charity, or a private or a public foundation, if it pays any one person more than $250,000. The bill requires the disclosure and the minister may look at it. It is not absolute; it is optional. It is a matter that the minister may invoke if there is clear abuse. There is some ministerial discretion. This is not a black and white situation, that if a charity pays somebody over $250,000 that, all of a sudden, the registration of the charity is revoked.
I hope that members will look carefully at this. This is one question that has to be totally clarified in committee to absolutely ensure, to the assurance of all hon. members, that this bill is not an attack on charities.
The government deputy House leader had made an indication that in his view there was a royal recommendation required for the bill, and I think he made an interesting argument. However, the bill effectively only amplifies or adds further criteria under which the minister responsible for the act in question, the Income Tax Act, can have the latitude to take decisions if it is appropriate.
The Speaker ruled that in fact there was not a need for a ways and means motion for this amendment to the Income Tax Act. I think members should take some solace from that. The bill is a sound bill, it is a clean bill and it should go to committee to hear from the stakeholders who may be affected and may be concerned.
It is always good when we can have people on side. They will come before committee, they will ask their questions or make their representations and things will be clarified. Then it is not just what a half dozen people happen to say during the debate at second reading in the House based on their own information or knowledge, but it is the experts. It is those who are in the business and who can provide the details and the commentary on the legislation and its implications and make recommendations for changes to the bill if necessary. That is what the committee is for.
We cannot make amendments here on second reading. We can say that we have some concern about this aspect and we hope that the committee will do that. Those are the kinds of things that happen from time to time. The committee stage is extremely important.
I believe this is an important bill, primarily from the standpoint of the openness and transparency requirements and the accountability requirements that we expect from all matters as they relate to governing the taxpayers' dollars.
The member in question has been here for more than 20 years. I know she does her homework. Anyone who knows the member knows that she is a member of great integrity. She has not brought many bills before this place, but when she does, look out, because she is responding to critical issues in which the public interest is to be served.
I am not going to get into this, but people may want to look at her background. The member has a reputation for bringing matters that I think are extremely important for us to consider.
This is not an inconsequential bill. It is a significant bill. It is a bill that I believe will get a thorough hearing at committee, and I believe it will pass at all stages and become law.
There was a question that came up in one meeting I was at that I want to raise as well, about whether or not this would affect universities, and people were talking about foundations.
As we know, many hospitals have a fundraising wing that is separate from the hospital operations themselves, separate and incorporated entities to raise money for hospitals. These would be maintained separately. The bill would not affect hospitals or other foundations that are set up for that purpose. It is a small detail, one question only, but it is the kind of question that has come up.
Therefore I wanted to rise in the House today to say that I have taken the time to look at it. I heard the member present her bill in debate. I heard her represent her position last week in the media. After people asked their questions and got the answers, to fully understand, it is amazing how the outlook on the bill has turned so dramatically.
I want to leave it at that, and I want to encourage all members of Parliament to please vote for the bill on second reading and to encourage the committee to do appropriate hearings to ensure that we make good laws and wise decisions.
Income Tax Act
Private Members' Business
April 19th, 2010 / 11:50 a.m.
Albina Guarnieri Mississauga East—Cooksville, ON
Mr. Speaker, first let me thank members from all sides of the House who have added productively to the debate on this issue.
Bill C-470 seeks to add two ingredients to charity executive pay: reason and accountability. Salaries would have to be within reason, or the minister could take action in the interests of donors and taxpayers who often have no direct say on how their money is spent. Greater accountability will come with the disclosure of every charity's top five income earners and their salaries.
The government did make progress last year by requiring more detailed ranges of salaries, but no corporate CEO could get away with saying he just made over $350,000. Donors are paying the bill and deserve the names, positions and amounts, like any shareholder. Arguments for continued secrecy have largely withered over the past several weeks. It is simply not tenable for charities who rely on the faith and trust of donors to say they deserve salary secrecy that is unthinkable in either the government or corporate sector.
The promise of Bill C-470 is that donor awareness may be a cure for the high salaries and costs that are shrinking every donor dollar today. Bill C-470 also aims to add a measure of reason and restraint to charitable salaries. It does not seek to impose a hard cap, but simply to provide a long-overdue mechanism for the minister to restrain excessive compensation. The minister would retain the absolute discretion to act in the interests of both the cause and the donor community.
Diversionary concerns about the potential impact on the top salaries of professors and surgeons at universities and hospitals are not well founded, as most of these institutions have separate charitable foundations. For those that do intermingle operating and fundraising activities, the minister can make the obvious distinction.
Fewer than 1% of Canadians earn $250,000 a year. Charities rely on the generosity of the other 99% and need to justify the exorbitant pay of their fundraisers. When one executive was reported to have received millions of dollars in salary incentives and severance, the excuses poured in from charities: “We have to attract fundraising talent from the U.S.”; “We cannot find competent people who would work for under a quarter million a year”. Other organizations have even argued that young people will not go into charity work if they cannot make a lot of money. I wonder if I am alone in finding this somewhat ironic.
From 2000 to 2008, the number of donors in Canada was basically stagnant, growing by less than 1% annually. So the charitable sector is not attracting more donors. Total tax receipted donations grew by an average of only 5%, little better than the rate of inflation. So Canadians are donating more, but hardly enough to justify ballooning fundraising pay.
Published information with the CRA reveals even less connection between pay and performance. Without a single person reporting making over $250,000, one charity raises twice as much money at half the cost per dollar of the highest paying Toronto medical charity. So it is possible to run a charity without investment banker salaries. But exorbitant salaries are infectious and are spreading to charities great and small and even very small.
One small foundation that pays more than $350,000 actually hiked salaries by 69% over the last five years while revenue dropped 33%. Thirty-six cents of every dollar raised is now lost to fundraising and administration, double the rate of only five years ago. Paying astronomical salaries does not always deliver astronomical results. Many sports leagues have adopted salary caps to respond to similar situations where competition was raising costs far faster than revenue.
In conclusion, Bill C-470 asks the House to take a small step in curbing a free-for-all with donor and taxpayer money. Parliament alone can take a stand to safeguard the sacrifice of donors by insisting that charities deliver more transparency and ultimately more charity.
Income Tax Act
Private Members' Business
March 15th, 2010 / 11:05 a.m.
The Deputy Speaker Andrew Scheer
I am now prepared to rule on the point of order raised by the hon. Parliamentary Secretary to the Leader of the Government in the House of Commons, concerning the requirement for a ways and means motion for Bill C-470, An Act to amend the Income Tax Act (revocation of registration), standing in the name of the hon. member for Mississauga East—Cooksville.
I would like to thank the hon. parliamentary secretary for having raised this matter, as well as the hon. member for Mississauga East—Cooksville, the hon. member for Mississauga South, the hon. member for Scarborough--Rouge River, the hon. Parliamentary Secretary to the Minister of International Cooperation, the hon. member for Algoma—Manitoulin—Kapuskasing, the hon. member for Eglinton—Lawrence, and the hon. member for Brampton West for their comments.
The parliamentary secretary pointed out in his remarks that the purpose of Bill C-470 is to allow for the revocation of the registration of a charitable organization, public foundation or private foundation, if it provides annual compensation in excess of $250,000 to any of its executives or employees. On this point, he and the member for Mississauga East—Cooksville agreed.
Beyond that, however, the parliamentary secretary contended that such a revocation would extend the incidence of a tax to organizations which are not currently subject to it. Specifically, he noted that such organizations, on losing their registration, would be subject to the revocation tax imposed by subsection 188(1.1) of the Income Tax Act, since the revocation tax is a tax imposed on a charitable organization which loses its official registration under the act.
He further characterized the effect of the bill as follows in the House of Commons Debates of December 1, 2009, at pages 7410 and 7411:
Upon deregistration of an entity in the circumstances proposed by Bill C-470, that entity loses its tax exempt status as a registered charity and, assuming it remains a charity, it will not be able to benefit from the other exemptions from tax provided for in subsection 149.1.
In other words, Bill C-470 would result in an extension of the incidence of a tax by including entities that are not already paying the revocation tax, or potentially, a tax on their income.
Finally, the parliamentary secretary noted that the issue of ways and means is one which the Chair takes very seriously. He referred to a November 28, 2007, Speaker's ruling regarding the case of Bill C-418, An Act to amend the Income Tax Act (deductibility of remuneration), introduced in the second session of the 39th Parliament. That bill had the effect of removing an existing deduction, and hence of increasing the amount of tax payable by certain corporations. It was clear that the bill, in removing a tax exemption, effectively increased the tax payable and therefore required that it be preceded by a notice of ways and means.
In her submission, the member for Mississauga East—Cooksville, in Debates of December 1, 2009, page 7,458, contended that the purpose of Bill C-470 is simply to add another reason that would allow the minister to revoke the registration of a charitable organization.
Bills involving provisions of the Income Tax Act can be complex and confusing. However, after careful examination of Bill C-470, as well as the authorities cited and the provisions of the Income Tax Act referred to by the parliamentary secretary, I have found the following reference from House of Commons Procedure and Practice, 2nd edition, page 900, particularly relevant. It states:
The House must first adopt a ways and means motion before a bill which imposes a tax or other charge on the taxpayer can be introduced. Charges on the people, in this context, refer to new taxes, the continuation of an expiring tax, an increase in the rate of an existing tax, or an extension of a tax to a new class of taxpayers.
It seems clear to the Chair that Bill C-470 does not propose a new tax, nor does it seek the continuation of an expiring tax, nor does it attempt to increase the rate of an existing tax.
The question which remains to be asked is the following: Does the bill extend a tax to a new class of taxpayer?
A close examination of the provisions of Bill C-470 indicates that the bill targets all registered charitable organizations, public foundations and private foundations, and seeks to introduce consequences for those within that class which pay to a single executive or employee annual compensation that exceeds $250,000.
I have difficulty in regarding organizations finding themselves in that situation as constituting unto themselves a “class of taxpayer”.
In the Chair's view, class of taxpayer refers in this case to registered charitable organizations, public foundations and private foundations, and Bill C-470 does not seek to alter that class.
It seems to me that the bill instead seeks to provide a new criterion that would allow the minister to determine into which existing class of taxpayer an organization falls. The existing tax regimes and the existing tax rates are not affected.
Accordingly, I rule that Bill C-470 does not extend the incidence of a tax to a new class of taxpayer and therefore need not be preceded by a ways and means motion.
I thank the House for its attention.
Income Tax Act
Private Members' Business
March 15th, 2010 / 11:05 a.m.
Albina Guarnieri Mississauga East—Cooksville, ON
Mr. Speaker, I would like to begin by thanking the Speaker for his charitable ruling. I would also like to thank the member for Newton—North Delta for seconding Bill C-470, an act to bring more transparency and charity to our nation's charities.
Every year, Canadians dig deep into their pockets to contribute billions of dollars to some 85,000 registered charities. That is one charity for every 300 Canadians. Most of the donors are far from millionaire philanthropists. They choose to make a financial sacrifice for what they hope is a worthy cause. They choose to save less for their retirement, their own children's education or some other personal investment or expenditure because they believe their dollars will be put to a higher purpose: helping sick children, aiding the poor and curing disease.
It is the goodwill and trust of these donors that must be a priority for this Parliament. However, the donors are not alone in putting their trust in charities. In the most recent year, the taxpayers of Canada contributed almost $3 billion in federal tax credits, so every Canadian has an interest in how this money is spent.
Last year, the Toronto Star shocked donors and taxpayers with the revelation that the head of one of Canada's largest charities, the SickKids Foundation, took home $2.7 million in salary and severance in a single year. Money intended for sick children was instead building a private fortune because of the lack of legislation. However, he is not alone in making charity pay. Others of the same charity reported making $430,000 and $290,000. In fact, one out of every dozen staff members was making over $160,000 U.S. to raise funds by asking others to sacrifice.
I refer to U.S. dollars because the only reason this information is public is because the United States is years ahead in transparency and this charity was registered in the United States as well as in Canada. Canadian laws keep donors in the dark about where their money is going. We know that 2,147 individuals earn more than $120,000 a year at charities. We do not know how much more. We can suspect that it might be a lot. We can suspect that because the average salary at charities is $71,000 compared to only $51,000 in private business.
It might be that people working in call centres are making $70,000 a year. However, it is more likely that they are making near-minimum wage while executives are earning many hundreds of thousands and driving up the average. Why should we not know? Why should donors not know? Why should taxpayers not know?
Six years ago, the United States recognized that it too had a significant problem with salaries at charities. At that time, the internal revenue service announced a new enforcement effort to identify and halt abuses by tax-exempt organizations that pay excessive compensation and benefits to their officers and other insiders. At the time, the IRS said:
We are concerned that some charities and private foundations are abusing their tax-exempt status by paying exorbitant compensation to their officers and others.
That was 2004. Where are we in Canada? The Library of Parliament has to scrape together bits and pieces to get any picture at all as to how executives at charities are spending money and, particularly, how much they take home for themselves.
I will read to the House some of what little we know. Some of our charities spend money on dining club memberships, golf memberships, fitness memberships, business-class travel, so-called flexible expense account provisions and even scholarship programs for their own kids. It is reported that of those who receive benefits, there is an average of $6,000 in retirement benefits, $4,000 in fringe benefits, $4,000 in auto benefits and another $4,000 in health benefits.
That is what we know from only one charity in one thousand responding to a survey. It is also far beyond what most donors could even hope for themselves.
The Province of Ontario requires charities that receive direct money from the province to disclose salaries above $100,000. Even in this small category, the top salary was more than half a million dollars.
We know that Canadians and taxpayers are contributing billions every year. We hope that most of it is spent with frugality and purpose. We know that some of it is spent on luxury rather than on charity.
Years behind the United States, Bill C-470 would not deal with many of the practices that have grabbed attention in recent years. From fundraising organizations that get a $180 commission for signing up a donor, regardless of the amount contributed, or to other high-class fundraising techniques that cost more than 30¢ of every $1, all that is left up to the minister to explore.
Bill C-470 would require charities to disclose the salaries of its five highest paid employees. In addition, a charity could be deregistered by the Minister of National Revenue if it pays any employee more than $250,000 in a single year. The threshold of $250,000 is more than a minister or a deputy minister earns to run a federal department. More important, it is about five times what the average donor earns.
At present, the revocation of a charity that violates the requirements of the Income Tax Act is at the discretion of the minister. Bill C-470 would not reduce that ministerial discretion. It would simply add to the existing grounds available to the minister.
An effective date of 2011 is included in the legislation so that charities would have time to adjust.
Bill C-470 would give the minister a much needed additional tool in the interests of the millions of Canadians who donate billions of dollars to charities every year.
Bill C-470 would also give charities a powerful incentive to maintain the trust of their donors while giving the minister the responsibility, the capacity and the discretion to respond to breaches of that trust.
I will respond to some of the usual resistance we can expect from those who do not wish to disclose and others who may want to maintain the luxury to which they have become accustomed.
First, on disclosure. Governments across Canada are forcing disclosure of top salaries of all those who rely on the taxpayer for their income. It does not matter whether one is the chief executive of a crown corporation or a transit worker with a lot of overtime, the person could find his or her name and income published. The principle is clear. If people take home taxpayer money, they cannot hide how much. As Canadian charities distribute almost $3 billion a year in tax credits, taxpayers have every right to know whether the salaries they are subsidizing are excessive.
Even more important, however, is the individual sacrifice of the donor. Publicly-traded corporations need to disclose their top salaries to the public. Why should donors not be told how much the top five employees at their chosen charity make? What is the excuse for that secrecy?
Perhaps a donor may decide that his or her money is better spent on charities that take less home for themselves. Charities that are really in it for the cause would benefit at the expense of charities that operate like a business, marketing a cause like it was a COLA, and being richly rewarded for every dime that comes in.
We all know people who have visited the offices of some charities and looked at the marble and grandeur and said that they do not need our money. All Canadians should have the same right to compare and direct their generosity to where it is most frugally managed.
One can only expect a hail of complaints and cries of impending doom from charities that pay more than $.25 million. They will say they need that money to attract top fundraising talent, people who know how to market a charitable cause.
I would submit that they will not because all 85,000 Canadian charities will be under the same rules competing for the same donor dollar. Therefore, charities would not need to keep upping the ante to keep the top people from going down the street because the charity down the street would have the same cap. The result would be that more money would end up where the donor actually intended it to go, not in the paycheques of executives but in the programs that the charity is there to serve.
Filings in the United States indicate that some very large Canadian charities are run by people earning very reasonable salaries. The CNIB, United Way and World Vision all reported top salaries far less than the $250,000 limit proposed in Bill C-470. Clearly, it is not necessary to pay people exorbitant sums to attract talent. However, we have an obligation to assure Canadian donors that whenever they donate to charity their dollars are not siphoned into luxury lifestyles.
This bill also aims to replace doubt and cynicism about the management of charities with the confidence that the personal financial sacrifice of donors is managed by people who are paid well but no so well as to make a mockery of the concept of charity.
Bill C-470 is about charity, transparency and respect for the generosity and sacrifice of millions of Canadian donors.
Income Tax Act
Private Members' Business
March 15th, 2010 / 11:20 a.m.
Jim Maloway Elmwood—Transcona, MB
Mr. Speaker, I congratulate the member on her bill, Bill C-470. She has described it as disclosure requirements for the five highest employees with a threshold of $250,000. She mentioned that the Province of Ontario requires disclosure of salaries over $100,000 for the top earners.
I would point out that in Manitoba for the last 15 or 20 years we have something called the public sector compensation act that lists all employees working for the government whose salaries exceed $50,000.
Does the member have any comments on whether this could be added into the bill at committee so that we would have more than just the top five salaries, that we would have a list of everyone earning beyond a threshold of $50,000, $75,000 or $100,000?
Income Tax Act
Private Members' Business
March 15th, 2010 / 11:25 a.m.
Ted Menzies Parliamentary Secretary to the Minister of Finance
Mr. Speaker, thank you for the opportunity to address today's proposal by the member for Mississauga East—Cooksville, in the form of Bill C-470. I am sure it will stimulate some very interesting debate. It is very timely and I congratulate the member for getting her private member's bill on the floor of the House. That is an accomplishment for any member of this House. As I say, it will provide an interesting discussion of charitable organizations and the compensation given to those employed by such organizations, a discussion that is certainly worth having.
Before addressing the specifics of today's proposal, let us look at the overall role and contribution of charities and the charitable sector in Canada.
As all members of this chamber would agree, charities are a very important part of the fabric of any country. Of course, that holds true for Canada as well. The Canadian Centre for Philanthropy has labelled charities and the larger voluntary sector as the vital third pillar of Canada's civil society. Indeed, there are approximately 85,000 highly diverse registered charities in Canada. These charities operate in a wide variety of areas, such as local services, health, the churches, arts and culture, education and research. I am a member of the world's largest service organization, the Lions Clubs International, and have been involved in many fundraising events all across this country.
What is more, according to Imagine Canada:
The nonprofit and voluntary sector is a significant economic force in Canada. When the value of volunteer effort is included, this sector contributes 8.5% to Canada’s GDP and is almost as large an employer as the country’s entire manufacturing industry.
Some of the smallest entities are run entirely by volunteers, with very limited budgets. At the other end of the spectrum are hospitals and universities and colleges, which are large organizations, both in terms of their budgets and in the number of people they employ.
Accordingly, the revenue base of these charities is equally diverse. Some depend primarily on donations they receive from the public, some raise considerable income from fees, while others operate related businesses. Still others depend highly on revenues from the federal and provincial governments.
There are three types of registered charities in Canada: charitable organizations, public foundations, and private foundations. The designation a charity receives depends on its structure, its sources of funding and its mode of operation.
The first category, charitable organizations, includes the majority of registered charities here in Canada. A charitable organization primarily carries on its own activities. It has a board of directors that is made up mostly or entirely of individuals who operate at arm's length from one another. Finally, it generally receives its funding from a variety of donors.
The second type of registered charity is a public foundation. Local community foundations or hospital foundations are typically structured this way. A public foundation is similar to a charitable organization in that it also receives its funding from a variety of arm's-length donors, and also has a board of directors that is made up primarily of persons who are at arm's length from one another. However, a public foundation primarily exists to help finance one or more charitable organizations. It may deliver some of its own programs, but most of its activities generally involve helping charitable organizations to run their programs.
Finally, the third type of registered charity is a private foundation. A private foundation differs from a charitable organization and a public foundation in that its funding often comes from one person or a group of related persons. This is often the case with a family foundation. A private foundation may fund other charities or it may operate its own programs.
The diversity of the charitable sector in Canada is especially noticeable in the size of its operations. Over half of the registered charities in Canada have total annual revenues of less than $100,000. At the other end of the spectrum, about 10% of charities have annual revenues that exceed $1 million. Again, as mentioned earlier, while charities have numerous sources of revenues and volunteer support, the generous donations of individual Canadians continue to be one of the principal sources. According to the recent “Canada Survey of Giving, Volunteering and Participating”:
In 2007, Canadians donated a total of $10 billion, an increase of 12% or $1.1 billion since 2004, and volunteered 2.1 billion hours, a 4.2% increase. The average donation increased to $437 from $400 in 2004.
In some of the larger charities, such as hospitals, health care institutions, universities and colleges, executives are responsible for overseeing the spending of millions of dollars in resources. They manage hundreds of employees. These charities are often involved in carrying out highly complex work. Because of the responsibilities placed on the shoulders of the leaders of large charities, such charities offer compensation for their executives. Today's proposal surrounds that issue of compensation.
Let us briefly turn to the regulation of charities in Canada and provide the chamber an overview of the measures currently in place to deal with just that issue and other issues related to today's proposal.
The Canada Revenue Agency, or CRA, has various tools to monitor and report on compensation at charities. At the federal level, the CRA administers a system to register charities under the Income Tax Act. As the regulator of charities, the CRA's responsibilities include processing applications for registration, offering technical advice on operating a charity, handling audit and compliance activities and providing general information to the public. Regulation of the charitable sector by CRA is based on both common law and the provisions of the Income Tax Act.
The common law requirement that charities devote their resources to charitable activities is central to how CRA provides guidance to the sector and enforces the rules. For instance, recent legislative and administrative reforms have given CRA additional compliance tools to use in the regulation of the charitable sector. An example of these include intermediate sanctions in the form of taxes or penalties for charities that do not comply with the requirements of the Income Tax Act. Prior to this, the only sanction available to the CRA was revocation of registered charity status.
At the same time, the concept of undue personal benefit has been clarified in the Income Tax Act. As a result, in the case of excessive executive compensation, the CRA has the authority under the Income Tax Act to conduct an investigation to determine whether the charity is indeed fulfilling its charitable purposes. It also has the authority to determine whether there is undue personal benefit and to impose a range of penalties up to and including the suspension of receipting privileges.
There is also more public information available today on the activities of registered charities. This helps increase accountability in the sector by providing prospective donors with information to determine for themselves whether they would like to donate to a particular charity. Under the Income Tax Act, all registered charities are required to complete a registered charity information return. This in turn is published on the CRA website and includes information about compensation.
What is more, our Conservative government recently made a key change to further improve the accountability surrounding charities. Up until 2008, charities were required to report on the compensation of the five highest paid employees and indicate their salary range, with the last threshold being $119,000 and over. We have changed that. Starting in 2009, charities were required to report the 10 highest compensated positions. The annual compensation categories were also expanded, with the last threshold being $350,000 and over.
The introduction of this new reporting on employee compensation has served as a key tool to help increase transparency in terms of how charitable resources are being used. Increased transparency is providing the generous Canadians who are donating their hard-earned money with even more information to help guide their giving decisions. Such concrete measures are examples of useful initiatives that our government has taken to address the broader accountability concerns.
Income Tax Act
Private Members' Business
March 15th, 2010 / 11:35 a.m.
Christiane Gagnon Québec, QC
Mr. Speaker, today we are talking about Bill C-470, which would amend the Income Tax Act in order to create certain conditions under which a charitable organization's registration could be revoked.
I will start by saying that the Bloc Québécois is in favour of this bill and will support it at second reading. We will then be able to study it further in committee and amend it as needed.
I would like to discuss the various amendments that Bill C-470 would make to the Income Tax Act. I will then outline the reasons behind the Bloc Québécois' support as well as some of the reservations we have about this bill.
Bill C-470 would cap salaries and other compensation given to directors of charitable organizations and would, by preventing excess, ensure the overall credibility of these types of organizations. The bill would cap charitable organization directors' salaries at $250,000.
Bill C-470 would also allow the minister to provide the public with a list of the five highest-paid employees in each registered charitable organization. This would make charitable organizations more transparent and would allow the public to trust them more.
The bill does not cover everything; it is a little bill. I would like to speak about the Bloc's stance regarding the two amendments to the Income Tax Act proposed in this bill.
We feel that this bill's goal is to create balance. On one hand, the ceiling for salaries cannot be too low because that would turn off the most qualified candidates. On the other hand, organizations have to maintain a certain level of credibility so that the public will trust them. We must strike a balance.
It is also important that this credibility and trust be maintained. More and more people in Quebec are making donations to charitable organizations.
According to Imagine Canada, from 2004 to 2007, Quebeckers increased the value of their donations by 24%, giving $1.17 billion of the $12 billion donated annually in Canada. That is the biggest increase in the country. There has also been an increase in major donations, that is, donations over $500,000.
If we want this trend to continue, the public must have confidence that these donations are being put to good use, especially in the current context, and that they are not being used to pay excessive salaries. Also, scrupulousness and performance must be a key part of the commitment made by the directors of such organizations.
However, the Bloc Québécois believes that a thorough review of the compensation paid to directors is necessary, so that charitable organizations can continue recruiting qualified staff despite the $250,000 salary cap.
As Peter Broder, a lawyer with an Edmonton foundation, stated:
—those salaries need to be seen in a broader context. That means a hard look at both the nature of the responsibilities of these individuals, given the mandate and scope of their charity's work, and better consideration of the salary structure within the sector as a whole...if we are to have a sector where people want to make a career, and a sector that attracts innovative and dynamic individuals, the other inadequacies of the current model need to be addressed.
A salary cap must be established in order to avoid excessive salary inflation. In recent years, the salaries of directors of charities have increased significantly. Last year in Canada alone, they went up 17%, and between 1999 and 2008, they went up 44%. That is a significant increase.
Since there are no guidelines or safeguards, many concerns have been raised regarding excessive salary inflation in the very near future, which has happened in the United States, where the median salary was $410,000 U.S. in 2007. That is a lot of money.
When this bill is being studied in committee, we must consider adding a provision that will allow us to ensure that salary increases remain reasonable. This will act as a control mechanism.
In Quebec, with the average salary of organization directors being $125,000, a $250,000 ceiling leaves a lot of room to manoeuvre when it comes to salary increases. We know that it is more outside Quebec where somewhat higher salaries are paid to directors of charitable organizations. That is not the case in Quebec.
For greater transparency, people would also like to know how the money they donate to charitable organizations is spent. Some organizations have shown some reluctance to disclose the salaries of their directors, thereby fuelling a culture of secrecy that could hurt the image of other organizations.
The salaries of the directors could be disclosed without naming the people who earn these exorbitant salaries. We also feel that such a measure would contribute to making charitable organizations more transparent.
I believe it is necessary to look at a person's salary without that person being named in order to comply with the Privacy Act. The purpose of this initiative is to increase public trust in charitable organizations and make people more inclined to make donations. If there were more transparency, the public would be more inclined to make donations since people would see that their money is well spent and that directors are not too greedy when it comes to their salaries.
Nonetheless, we have to make sure this bill does not encroach on the private lives of the directors, as I was saying earlier, so that their lives are not paraded through the media. When this private member's bill is studied, we have to be careful of any possible invasion of privacy. That is why we are proposing that the requirement to publish the names, job titles and salaries of the five highest-paid employees of each organization be studied in committee and possibly amended to remove the name of the person whose salary will be published.
The publication of the salaries, as set out in Bill C-470, will allow comparisons to be made between the salaries of the directors of agencies of similar size and will help determine whether any stand out as being unjustifiably high.
In my opinion, that should be the objective. We cannot compare apples and oranges, that is, salaries paid by a large corporation and those paid by a small one. We must be fairly vigilant when it comes to employees of charitable organizations that we deal with. A public list would make it easier to establish an acceptable average based on data for the sector as a whole.
The Bloc Québécois is in favour of this bill, which should be studied in committee. We have a few minor reservations. However, the member who introduced the bill is willing to examine the reservations about this bill expressed by other parties.
If this bill is adopted at second reading, committee members will have the opportunity to sit down, discuss it and get the facts about a number of charitable organizations. I believe that the member who introduced this bill got it right and has identified a specific problem. For example, when a charitable organization pays $500,000 to an executive, and that amount represents a significant percentage of the funds collected by the organization, the salary has to be justified.
As I was saying, that may not be the case for our charitable organizations in Quebec. I know that, in Canada, there are other ways of doing things and charitable organizations are on a different scale, as they have patrons and receive significant donations.
We must also examine the qualifications of the incumbents of these positions. We believe that it is very important to maintain this balance and to reassure the public about how charitable organizations spend their donations.
We will be following this matter with a great deal of interest. We hope that the committee will make amendments to ensure that transparency is the objective of this bill.
Income Tax Act
Private Members' Business
March 15th, 2010 / 11:45 a.m.
Carol Hughes Algoma—Manitoulin—Kapuskasing, ON
Mr. Speaker, I am glad to be able to join the debate and express my support for Bill C-470, a bill that I feel is of utmost importance in ensuring that Canadians retain faith in giving money to charitable organizations across the country.
The bill will provide Canadians with the knowledge that the presidents, CEOs and other executives of the thousands of registered charities throughout Canada are limited in the amount of compensation they are receiving. Therefore Canadians will feel more confident donating to charities without having to worry that the money they are providing is going to line someone's already-deep pockets.
With the current state of the economy, perhaps more than ever we need charities that act in the best interests of Canadians. We need food banks to ensure that people who find themselves fallen on hard times can eat property. We need health and wellness charities to guarantee that we can adequately support the individuals and families of those who find themselves sick or injured.
To ensure Canadians feel confident in giving what they can to charities, we need to give them the benefit of the doubt that the money they provide is actually going to support their chosen cause.
The bill will put a much-needed cap on the amount of compensation executives of charities can receive. The bill will limit executives working for charitable organizations to a yearly compensation of a more-than-reasonable $250,000, with compensation in this instance to include all salaries, bonuses, wages, commissions, fees and honoraria.
It seems only logical to place a limit on the amount of money executives of charitable organizations receive, both as a benefit of providing greater oversight into the inner workings of charitable organizations, and as a method of restoring and maintaining donor confidence in an industry that has been tested by scandal over the past few years.
Here is an example of why this bill is needed. Some members may be familiar with one of the more high profile scandals over the past year with regard to executive bonuses. It involved former SickKids Foundation president, Michael O'Mahoney. O'Mahoney reportedly received a salary of $600,000 for the fiscal year of 2008-09. In addition to this, O'Mahoney also received a bonus of $2.1 million upon leaving his post, a bonus that the SickKids Foundation referred to as an incentive payment for the work he did for the charity.
Most of us called it a golden parachute, the kind of excess we are all too used to in the corporate world but would not expect in a charity. Is it not a little ironic that the president of one of Canada's most highly regarded philanthropic organizations pulled in a yearly income that would rival that of all but the most lucrative corporate salaries? Is it not also ironic that O'Mahoney pulled in a far greater salary than Mary Jo Haddad, president and CEO of the Hospital for Sick Children, for whom the SickKids Foundation does its primary fundraising?
To reiterate, this is not a slight against the SickKids Foundation or the Hospital for Sick Children. SickKids is one of this country's most beloved and well respected charitable organizations. They have done exceptional work to ensure that the Hospital for Sick Children is adequately funded and is provided with the latest in cutting-edge treatments and preventive care. The problem I have with a situation such as this is that the money provided to Mr. O'Mahoney would have been taken out of the coffers of the SickKids Foundation, thus undercutting the amount of money the charity could provide to the Hospital for Sick Children and damaging the reputation of the charity, which in turn hurt their donations. And that is exactly what happened.
When this story broke in the news media, the SickKids Foundation received a backlash from donors in the form of a reduction in donations. People were not willing to pad someone's golden parachute. They wanted to help their community. The end result was a 10% decrease in donations and a 38-staff layoff.
Why would we allow an individual to walk away from a post with $2.7 million while the charity he was supposed to support lost vital donations, income and staff? Many will argue that paying these kinds of salaries and bonuses is the best way to attract the brightest talent, but these are charitable organizations and should not be the types of places for upper-tier executives to act in a manner that is comparable to Bay Street executives.
If the main focus for these executives is to line their pockets, I am certain there are many corporations that would love to hire them, but I cannot in good conscience sit and watch them play with funds that are designed to help people. At least with this bill, the minister will be able to exercise discretion to de-list charities whose executives see fit to claim massive salaries under the guise of charitable work.
The Canada Revenue Agency's charities directorate has the ability to audit roughly 1,000 charities per year. With approximately 100,000 registered charitable organizations in this country, that amounts to currently being able to perform an audit of a charity once every 100 years. Not only that, if the charities directorate actually digs up some form of unscrupulous dealings within a charity, it has very limited means to warn the public about such matters, as current tax laws keep the CRA from warning the public.
We need more stringent oversight into how charitable organizations do business. Many charities have been using commission-based incentives for employees, which can lead to aggressive, often-misleading tactics designed to lure people into donating to charities they might not wish to support otherwise. The use of such tactics is certainly frowned upon in the charity community. But with such lax oversight in this industry, it is almost impossible to discover who is using these methods.
It is not enough to simply expect charitable organizations to perform their duties in an honourable manner. I would assume most charities do operate nobly, but to simply assume they are is not enough. Take the example of the Wish Kids Foundation controversy of 2005. The fraudulent charity, which in name closely resembles the renowned Make-A-Wish Foundation of Canada, took $900,000 from donors who thought they were helping to give terminally ill children their dying wish.
As it turns out, not a single dime of the money raised by the Wish Kids Foundation went to sick kids. Instead, the executive director of the foundation, and I use the term loosely, took the money, purchased a new car, funded flying lessons for his son and put a down payment on a private jet. Think of the good $900,000 could have done for terminally ill children to enhance their quality of life, if only for one great day.
We need to work to ensure Canadian charities are acting in the best interests of the Canadian people. I am positive most are, but the few who are acting unethically tarnish the reputation of those looking to do some good for our country and the world at large.
If nothing else, limiting the amount of money executives earn within charitable organizations will provide much-needed oversight into how these organizations are run. It will allow us to more accurately see whose hands are in the till. People are cynical enough these days. We need to feel that institutions that stand for the name of good and charitable work are in fact delivering on their promise.
To summarize, given that there are so many charities out there, it is important that regulations are in place. We need to ensure that those dollars actually go to the right locations. I think the problem here is that we are seeing CEOs who are earning more than the Prime Minister, and he is running the country. If this were in place, I think we might end up seeing an increase in donations.
I would like to leave it at that. I certainly hope every member in this Parliament will support this bill.
Income Tax Act
Private Members' Business
March 15th, 2010 / 11:55 a.m.
John McCallum Markham—Unionville, ON
Mr. Speaker, I am pleased to rise in support of the bill proposed by my colleague, the member for Mississauga East—Cooksville. We on this side of the House believe the charitable sector is extremely important and it is important for government to act to strengthen it and to increase the credibility of the charitable sector in the minds of Canadian donors.
My colleague's bill would do just that. It is particularly timely because the government recently has acted to undermine the credibility of the charitable sector in the eyes of Canadians. Therefore, my colleague's bill is particularly important in order to redress the imbalance caused by the government's behaviour.
The first example I will mention is this. On January 14, the government promised to match the donations of Canadians for earthquake ravaged Haiti through the Haiti earthquake relief fund. However, two months and one day later, news has broken that the government has not sent a single matched dollar down to Haiti. This is causing a certain amount of anger in the Haitian community and among those who have contributed to Haiti on the understanding that the government would expeditiously match their contributions dollar for dollar. That hurts the government's credibility. The next time there is a disaster and the government promises to provide matching funds Canadians, who will no doubt respond with generosity, may not be as likely to believe the government will act swiftly and with purpose.
The second example where the government has undermined the charitable sector concerns the finance committee and prebudget proposals, which would have had the effect of enhancing the ability of Canadians to make charitable contributions. I believe the finance committee unanimously endorsed the following:
The federal government examine incentives that would have the effect of increasing the level of charitable giving by businesses and individuals. In particular, the government should consider:
an increase in the charitable tax credit rate to 39% for incremental annual increases in giving, provided that annual giving is more than $200 and less than $10,000;
the creation of a corporate structure for not-for-profit organizations that would allow the issuance of share capital and other securities;
and the elimination of the capital gains tax on donations of real estate and land to public charities.
Unfortunately, the finance minister did not share the finance committee's enthusiasm for strengthening Canada's charitable sector in one or more of the three ways that I have just described. However, as we know, there was no mention of any of these recommendations in budget 2010.
My first point is that while we on this side believe it is important to strengthen the charitable sector and to strengthen the credibility of that sector in the minds of donors, the government first, by not following through expeditiously on its matching donations to Haiti, and second, by totally ignoring the proposals to improve the ability of Canadians to give to the charitable sector, particularly at a time of recession when those donations are needed more than ever and when Canadians are less able than normally to afford to give them, the government declined to do. Therefore, it is more important than usual that a bill like that of my colleague arrives in order to strengthen the credibility of the charitable sector.
In the United States, charities file the salaries of their CEO and other top executives with the IRS and they are publicly accessible for anyone who is thinking of donating to that charity. Canadians are not so lucky.
Last fall, one CEO departed a very well known charity, with a $2.7 million incentive payment in cash for leaving that charitable organization before his contract was finished. This was on top of his annual $600,000 salary.
The old saying is “It takes money to make money”, and there is no doubt some truth to that. Some of Canada's largest charities obviously require some very good talent at the top if they are to raise the funds they need to provide services.
Even more important than this, however, is that Canadian donors can feel confident that the money they have worked hard for and donated to charity goes almost entirely toward the charitable purposes it was intended for and not toward very large executive compensation packages. Think about the example I just gave.
It takes a lot of donations from a lot of Canadians to pay someone $2.7 million. To make this tangible, let us assume that someone signed up to give $10 a month through automatic withdrawals to a charity. That is $120 a year. It would take more than 22,000 Canadians, at this level of donations, just to donate enough money to pay the departing CEO of that charity. I would argue this could be enough to damage the confidence some Canadians have in our charitable sector.
Worse, news only emerged about this case because the amounts were discovered in publicly available IRS documents, as this charity operates on both sides of the border. Media reports indicated that Canadians were so outraged by the revelation that the charity had to set up a special phone line to deal with all the incoming calls.
Canadians had a right to be outraged. Canadians listening at home should know that my good colleague, the member for Mississauga East—Cooksville, has heard them, which is why we are debating Bill C-470 today.
What exactly would Bill C-470 do to help deter this kind of behaviour and restore the confidence of donors in the charitable sector?
First, it would limit the pay of a charity's CEO to $250,000 per year. It would similarly limit the pay of other executives who work at a charity. The penalty for non-compliance would be that the charity would face revocation of its charitable status, quite a stiff penalty that I am sure every charity would want to avoid.
On the face of it, $250,000 seems to be a reasonable pay threshold for 2010. Should the bill go to committee and it is discovered that a very large charity cannot hope to find a CEO for that amount, I would be amendable to amending the bill slightly.
However, as my colleague has pointed out, there is also a further safeguard in that the minister is not obliged to force the cap of a $250,000 salary, so one cannot exclude the possibility that in some few cases there may be very large charities that, in order to be effective, may have to exceed that limit. The discretion would be in the hands of the minister to allow that and/or there could be amendments to permit it under certain circumstances.
Recent media reports have revealed that some of our larger charities, such as Big Brothers Big Sisters of Canada and the United Way of Canada, would not run afoul of the law without current executive pay incentives. Therefore, on the surface, $250,000 seems to be a good starting point for Bill C-470.
Once again, I would like to congratulate my colleague, the hon. member for Mississauga East—Cooksville, on her excellent work on behalf of Canadians. I have certainly heard from my constituents about the $2.7 million example I mentioned earlier. I am sure that many of the members of the House have as well.
I hope all members will listen to those Canadians and vote to send Bill C-470 to committee.