Finance Committee on May 3rd, 2012
A recording is available from Parliament.
On the agenda
- Andrea McManus Chair, Association of Fundraising Professionals
- Owen Charters President and Chief Executive Officer, CanadaHelps
- Dennis Howlett Coordinator, Canadians for Tax Fairness
- Jim Patrick Senior Vice-President, Canadian Wireless Telecommunications Association, Mobile Giving Foundation Canada
- Ruth MacKenzie President and Chief Executive Officer, Volunteer Canada
The Vice-Chair Peggy Nash
Thanks, everyone. I'd like to call the Standing Committee on Finance to order for meeting number 56. Pursuant to Standing Order 108(2), we are continuing our study on tax incentives for charitable donations.
We have a number of witnesses this afternoon. We have Andrew McManus, chair of the Association of Fundraising Professionals; Owen Charters, president and chief executive officer of CanadaHelps; Dennis Howlett, the coordinator of Canadians for Tax Fairness; Jim Patrick, senior vice-president, Canadian Wireless Telecommunications Association, for Mobile Giving Foundation Canada; and we have Ruth MacKenzie, president and chief executive officer of Volunteer Canada.
Ms. McManus, we'll start with you. You have five minutes.
Andrea McManus Chair, Association of Fundraising Professionals
Good afternoon, and thank you for giving the Association of Fundraising Professionals the opportunity to testify before you today on an extremely important topic of tax incentives for charitable donations.
I am the chair of the association's board of directors. I'm also a fundraiser and have my own personal experience with raising charitable dollars for philanthropic missions and with working with donors and philanthropists across the country.
AFP is a professional association representing individuals responsible for generating philanthropic revenues for charitable and public service organizations. We are the largest association of fund-raising professionals in the world, and we represent more than 30,000 practitioners worldwide, including more than 3,400 in Canada in 16 chapters across the country in every province.
Fundraising is an integral part of the charitable sector. It serves as the gateway that drives philanthropy. It develops and maintains relationships with donors and philanthropists who provide funding for education, social services, health care, medical research, and many other altruistic but extremely necessary functions in a civil society.
Fundraising complements government supports for charities and ensures the survival of the charitable sector when governments lack the budgetary means to help.
Through AFP we foster development and growth of fundraising professionals through training and education, and we promote high ethical standards in our profession. The charitable sector in Canada represents a major source of jobs and economic stimulus, with more than 85,000 registered charities, over 1.2 million paid staff, 6.5 million volunteers, and more than $190 billion in annual revenue. In addition, the sector holds a large amount in net assets.
The economy has taken its toll on the sector. Statistics Canada mentioned that Canadians donated $7.8 billion to charity in 2009, down from the previous year of $8.19 billion. We were very pleased to see that giving levels rose again to $10.6 billion in 2010. However, many charitable organizations are still reeling from the downturn and this was compounded by the fact that Canadians and communities were relying on their philanthropic services even more than before.
There is a need for new incentives to spur additional charitable giving, and we offer the committee two recommendations for consideration. The first is to increase the flow of charitable funds in the wake of the recession and encourage Canadians to enhance their individual and personal charitable giving by establishing a stretch charitable tax credit. The second is to extend the exemption from capital gains tax to charitable gifts of private company shares, land, and real estate.
These recommendations are both contained in the brief that we submitted to the committee in January. AFP supports Imagine Canada's stretch tax credit proposal, which would apply to donated amounts above $200 that exceed a donor's previous highest giving level. This new measure would be based on an individual taxpayer's best previous year of giving and would provide a stretch tax credit of 39% on these new donations, which is 10 percentage points higher than the current level of tax credit on donations over $200.
Canadians would need to increase their levels of giving over their previous year's baselines to continue benefiting from the stretch tax credit in subsequent years. The maximum benefit would be $980 if it was used all in one year—for example, a one-year increase from $200 in charitable giving to $10,000 in giving. It is highly likely, however, that for many the increased benefit would be incrementally achieved over several years.
The stretch tax credit would benefit all charities across Canada and should over time broaden the base, while increasing the giving levels of Canadians. This is particularly important to small and medium-sized charities that find it more challenging to raise philanthropic dollars.
The government should also consider eliminating the capital gains tax on gifts to charities of private company shares and appreciated land and real estate. Peter Braid's private member's motion M-559 launched this study on tax incentives for charitable donations and included this key proposal, which is supported by Canadians such as Don Johnson and other representatives of the charitable sector.
In 2006 the government removed the capital gains tax on donations of marketable securities to most charities, making them more attractive to potential donors. In the subsequent year we saw a doubling of the number of gifts of securities to charities. Moreover, the total value of those gifts more than doubled.
We encourage the government to turn its attention to private company shares, land, and real estate. Gifts of both of these appreciated capital assets are exempt from capital gain taxes in the United States, and Canadian charities and donors should have the same opportunity to access and give donations from the private sector.
At the C.D. Howe Institute's March 2011 conference on strengthening charity finance in Canada, one of the presenters estimated that eliminating the capital gains tax on gifts of land, real estate, and private company shares would result in an annual increase in charitable giving of $170 million to $225 million, and that the tax revenue cost to the government would be only $50 million to $65 million.
There is lots of potential and interest from Canadian donors regarding land and real estate. The 2005 survey of financial security points out that the single most important asset for Canadians was their main residence, which accounted for one-third of the $5.6 trillion in total assets surveyed.
From 1999 to 2005, a significant change in the composition of assets consisted of growth investments in real estate such as cottages, timeshares, rentals, and other commercial properties. Charitable organizations need the support of government to better serve Canadians. We work side by side with government to deliver much-needed services. Most important, a healthy charitable sector can help drive our economy.
We believe that these two recommended policy changes will assist in lowering the tax burdens on Canadians while strengthening the capacity of the charitable sector to provide critically needed programs and services.
Thank you for giving me the opportunity to testify.
The Vice-Chair Peggy Nash
Thank you very much.
Mr. Charters, you're next.
Owen Charters President and Chief Executive Officer, CanadaHelps
Thank you, ladies and gentlemen, Madam Vice-Chair, and honourable members of the House of Commons Standing Committee on Finance and parliamentarians for the invitation and opportunity to present and discuss with you our views on charitable giving and incentives for encouraging Canadians to donate to important causes.
My name is Owen Charters. I am the president and CEO of CanadaHelps. CanadaHelps is Canada's online charitable foundation. Since our founding in 2000, we've facilitated more than $250 million in giving to charities across the country. At CanadaHelps.org, donors can find and give to any Canadian charity from big to small. Our donors are from every corner of Canada and from all walks of life.
CanadaHelps was founded by three university students, students who saw an opportunity to use the Internet as a medium to help engage Canadians in giving, and especially as an attractive medium to engage younger Canadians in giving. Twelve years after they started, we now transact almost $70 million in giving annually to tens of thousands of charities. Our donors are average donors with an average transaction value of just over $150.
We're here today because we're concerned. We're concerned that fewer Canadians of average and modest means are giving year over year and because we see small and medium-size organizations increasingly struggling to find funds to do their good work.
While we know that the total amount of aggregate giving has been on a slight upward trend, tax data also shows that fewer donors are giving year over year. Currently, the tax regime favours larger gifts, such as gifts of securities and the mega-gifts that usually go to large institutions.
This support is crucial, but equally important are the many organizations that depend on community-based philanthropy, the gifts that come from involved, engaged citizens who offer modest contributions.
I've been privileged in my work to see firsthand the work of small, local charities across this country. Of the tens of thousands of charities that use CanadaHelps, I've been able to visit several, such as the World Fisheries Trust in Victoria, B.C., which provides hands-on lessons to school children about local marine life and the impact of urban living on polluting a fragile aquatic environment. I was able to witness how children with behavioural disorders were immediately calmed, focused, and stimulated by the simple hands-on experiences provided by the World Fisheries Trust.
Or there's the story of Hope's Home in Regina, Saskatchewan, where a neonatal critical care nurse realized that day care facilities did not exist for infants and pre-schoolers with serious disabilities and that thus parents were not able to return to work to provide an income for their dependent family, as might be expected. Through community fundraisers, she has put together an incredible, loving space for these children and their siblings, allowing parents to enter the workforce again. Her model is now a template for others across Canada and the globe.
Each of these organizations and thousands more depend on small, modest contributions raised from local citizens in their community. These organizations struggle to pay the bills and make payroll, and often I witnessed the toll that the passion and dedication of founders, employees, and volunteers can take on their own paycheques, their health, and their relationships.
So I'm here today because we are concerned, but I'm also here because we see an opportunity in a proposal put forward by Imagine Canada, the stretch tax credit.
Under the stretch tax credit, Canadians would receive, as you've heard, an additional 10% tax credit for each dollar of their charitable donations that exceeded their previous highest giving level.
We believe this incentive would work. In 2010, the economics department at McMaster University undertook a survey of more than 250,000 of CanadaHelps donors. Significantly, 42% said they would definitely increase their giving if there were an increase in the tax credit, and another 23% said they were likely to increase their giving in response to an increase in the tax credit.
We know that donors are motivated by tax incentives. Our donation servers handle 6% of all of our annual traffic in one single day, December 31 each year, the last possible day to make a donation for the tax year.
We also know that donors have choices. Marketing research we received recently indicates that donors see substitutes for giving: paying a premium for local or organic produce, or the purchase of cause-marketing products. These may be worthy ways to support community, but they also displace donor dollars. Charities, as a result, continue to struggle.
There is also the potential benefit of new sources of earned revenue and the possibility of social finance tools for the non-profit and charitable sector, but these will be accessible at the start to only a few organizations, and significant revenue from these models is uncertain and likely many years away.
Finally, donors are struggling in the shadows of mega-gifts. They are seeking meaning in their giving in the midst of ever-larger campaigns and major donations. Canadians need to be reminded that their gifts are important, are valued, and that there are many small and mid-sized organizations worthy of their support.
Charities continue to struggle to provide key services and programs every day across Canada. They respond to local needs and need donor support.
The stretch tax credit is an incentive that motivates new behaviours and increased giving. These tax incentives for average Canadian donors will provide essential benefits to maintain the capacity of the charitable sector. A stretch tax credit will encourage Canadians to start, to grow, and to continue to support the organizations and communities they care the most about.
Thank you for the opportunity to appear today.
The Vice-Chair Peggy Nash
Thank you, Mr. Charters.
Mr. Howlett, you have five minutes.
Dennis Howlett Coordinator, Canadians for Tax Fairness
Thank you for the opportunity to appear before this committee.
I am representing Canadians for Tax Fairness. We're a new organization that is just one year old. We have begun a campaign for fair taxation. We support a tax system, based on the ability to pay, that will fund the comprehensive, high-quality public services and programs that are required to meet our social, economic, and environmental needs in the current century.
We submitted a brief back in January. We have three main recommendations. We have a different point of view from some of the others on this panel. We are concerned about increasing the incentives for charitable donations. We would advise caution, partly because of the tax revenue that would be lost. But our primary concern is that we not skew the tax credit system even more in favour of the rich, because we know that the rich have different priorities from the poor. The way the tax system operates, it treats donations by the rich more generously in terms of incentives than donations by those who give under $200.
The third point we would make is that we need to reverse the erosion of progressivity in the tax system by restoring the federal corporate income tax rate of 21%, which was in place in 2007, and increasing tax rates on top incomes. This would help to ensure that all sectors of society, including corporations and the rich, contribute to the common good according to their ability to pay, and not just leave it up to their whims or whether they have a generous heart or not and whether they choose to give or not.
There are a few additional points of clarification that I would like to make in addition to what was included in the brief. I want to stress that we are not criticizing charities. I have worked for charities in past years. Certainly, I know the value of charities to society. They play a very valuable but complementary role in relation to the government's role of providing public services and programs. They can be a way to develop innovative programs. They can be more responsive to community needs. But they cannot really replace government programs. We would warn the government that you cannot expect charities to fill the gaps that will be created by drastic government budget cuts in the area of the delivery of social programs.
Finally, I would like to comment on one of the most important roles that charities can play, which is to provide policy input based on their experience of providing front-line services, and their ability to speak on behalf of marginalized groups. A CRA policy statement on the political activities of registered charities, which was issued in 2003, and which is still the official policy—it's on the website—recognizes this when it says:
Beyond service delivery, their expertise is also a vital source of information for governments to help guide policy decisions. It is therefore essential that charities continue to offer their direct knowledge of social issues to public policy debates.
Some of the measures in the recent federal budget, namely the $8 million allocation for special audits by the CRA to see if charities are adhering to the 10% limit on advocacy, and additional restrictions in reporting rules, would seem to go against this recognition. Attacking charities that advocate on the environment, global or domestic poverty, or other issues, just because they may be critical of some government policies, is an attack on democracy.
The Vice-Chair Peggy Nash
Mr. Howlett, yes, your time is up. Could you conclude?
Coordinator, Canadians for Tax Fairness
—we would not oppose changes to tax incentives to charities if these incentives do not cost too much or don't give greater benefit to high-income taxpayers. Therefore, the stretch proposal is not as problematic from our point of view.... However, eliminating capital gains on private company shares, land, and real estate is something that we oppose strongly and would argue against.
The Vice-Chair Peggy Nash
Thank you, Mr. Howlett.
Mr. Patrick, you're up next, for five minutes, please.
Jim Patrick Senior Vice-President, Canadian Wireless Telecommunications Association, Mobile Giving Foundation Canada
Thank you. My name is Jim Patrick. I'm the senior vice-president of the Canadian Wireless Telecommunications Association, and I'm very pleased to be here this afternoon on behalf of the CWTA and, more specifically, our partner foundation, the Mobile Giving Foundation of Canada.
As you know, CWTA represents cellular, PCS, messaging, mobile radio, fixed wireless, and mobile satellite carriers, as well as companies that develop and produce products and services for the industry. We are the authority on wireless issues, developments, and trends in Canada.
Wireless market conditions in Canada are well served to support charitable activities today in a number of ways. We say that because wireless coverage in Canada reaches 99% of the population, and 98% of the population has 3G or faster coverage. There are more of the fastest wireless networks in Canada than in any other country. There are more wireless connections than wired connections in Canada. Indeed, 78% of Canadian households have at least one wireless phone, and 13% of households are now wireless only. We're projecting 100% wireless penetration, if not more, by 2014.
We employ over 260,000 people in Canada and generate a total economic contribution to the country in excess of $41 billion.
Not surprisingly, given the strength of our networks, Canadians are among the world's fastest adopters of smartphones and tablets, which brings me to the potential of this innovative platform that we've developed to make a tremendous contribution to the charitable life of the country.
We're at the forefront of economic growth in Canada, at the forefront of technology, and also at the forefront of philanthropy. The Mobile Giving Foundation Canada is a prime example of this. It's a registered charity and its purpose is to enable the wireless channel to process text message donations for the convenience of Canadian mobile users and to the benefit of registered charities. This is made possible through the collaborative efforts of the wireless industry, which has resulted in a donation option that is free to the consumer.
Here is how it works. Donations are pledged, usually in $5 or $10 amounts, through a text message that contains a key word to a short code number. The amount donated by text is then added to the customer's wireless statement, and there is no additional cost to the donor apart from their $5 or $10 donation. Donors can make text donations up to a total of $30 per month per campaign or per phone number. All donations made through this text message channel are remitted to the Mobile Giving Foundation by the wireless providers at 100%. The funds are then remitted to the respective recipient charities at 100%.
Through this model, Canadians have the ability to contribute targeted micro donations to various charitable organizations over the course of the year and receive one single tax receipt through the Mobile Giving Foundation website. Donations are private, secure, convenient, and they're instantaneous.
Here are a few statistics on how popular a donation channel this has become in a very short time. Since 2010, the Mobile Giving Foundation has raised and transferred over $1.3 million in text message donations to charities. A good example is that recently le Club des petits déjeuners du Québec raised $21,800 in three weeks through $5 donations from over 4,300 listeners.
More than 200 registered charities in Canada have now run a mobile giving campaign through the foundation, and more than 90,000 mobile phone users made a text message donation in 2011, generating more than 550 tax receipts that were issued to Canadians who made one or more donation, with most making multiple donations, in 2011. The average total receipt was $30, meaning that they made between three and six donations over the course of the year.
In conclusion I would note that in keeping with the growth of this platform, in Toronto this afternoon is the first annual mobile giving forum. This is drawing together not-for-profit organizations, wireless carriers, corporate foundations, technology providers, and other stakeholders for discussions on how text-to-give campaigns can be more effectively utilized in the future.
We would be pleased to keep members of the committee and their colleagues abreast of any developments in this innovative use of wireless technology to facilitate charitable giving.
Again, I thank the committee and the chair for the opportunity to be here this afternoon and look forward to answering any questions you may have.
The Vice-Chair Peggy Nash
Thank you, Mr. Patrick.
Ms. MacKenzie, you have five minutes.
Ruth MacKenzie President and Chief Executive Officer, Volunteer Canada
Thank you very much.
I'm very pleased to be here this afternoon to speak with you on the important topic of tax incentives for charitable giving in Canada.
Volunteer Canada is supportive of the efforts being made to encourage Canadians to contribute and actively engage in their communities, and recognizes that financial contributions are essential to the vitality of the charitable sector. For this reason, I want to state up front that we fully support Imagine Canada's stretch tax credit proposal and appreciate the perspective and expertise of our colleagues appearing before you today.
Volunteer Canada has been providing thought and practice leadership on volunteering and active citizenship for more than 30 years, in collaboration with 223 local and provincial volunteer centres and a broad network of national organizations. We promote volunteering and conduct research and create tools and provide training to help organizations effectively engage volunteers.
Our role is one of stewardship for volunteering as part of citizen engagement, and in that context I wish to speak to the link between volunteering and charitable giving.
Annually, 13.3 million Canadians contribute more than two billion hours through a range of volunteer activities, from mentoring to delivering essential services to leadership roles on boards of directors.
I don't have to tell you that volunteers played a big role in your being here today, in their tireless efforts on your election campaigns.
The social and economic value of these gifts of time have yet to be adequately measured. Even with a limited wage replacement approach, volunteer time contributes significantly to the GDP of Canada. Some 45% of volunteers, or almost seven million Canadians, report that when they volunteer they are engaging in fundraising activities. Volunteers are obviously crucial to an organization's ability to raise funds.
Also interesting is that 50% of the individuals who donate money are also volunteers, but 91% of the volunteers are also donors. This suggests that by enhancing volunteering you may also enhance your donor base.
Given the scope of our work and the diversity of organizations we work with, Volunteer Canada would also like to stress the value and importance of citizen engagement in the broader voluntary sector, half of which is made up of non-profit organizations that do not have charitable status, and thus would not be supported by the tax incentives being considered here.
Broader public policy is needed to promote a wider spectrum of engagement through the non-profit and charitable sector. This could take shape through one or more of the following three recommendations: addressing the financial barriers to volunteering, such as the cost of police checks, or proactively supporting the direct costs associated with leveraging volunteer time and talent when funding programs with voluntary organizations; supporting the skills building and career development benefits of volunteering with employment services; or recognizing the benefits of volunteering in integrating newcomers to Canada.
That said, the parallel question to today's deliberations would be whether volunteers should receive tax credits for their volunteer time. To do so would naturally require that volunteering be valued and quantified. Volunteer Canada feels that the development of an adequately comprehensive policy would be fraught with both philosophical and practical challenges. While in some unique situations, such as with volunteer firefighters, a case can and has been made for such credits, I'm sure you'd also agree that the value of volunteers engaged in literacy work, for instance, is beyond the dollar value given for that time.
While the time volunteers contribute certainly has great value, how would we calculate how much their time is worth? Would there be a standard hourly rate for all volunteering? Would this apply only to charities? Again, this represent only half of the non-profit organizations in Canada. What kind of administrative burden would this place on organizations and would it detract from the time to directly deliver on their missions?
Certainly, not the least, is there evidence that this would increase volunteering? A study by one of our provincial partners, Volunteer Alberta, entitled The Potential Impact of Canadian Federal and/or Provincial Tax Credit Incentives for Volunteer Participation, suggests otherwise and raises some significant areas of potential risk in doing so.
While proponents of tax credits for volunteering certainly have the best intentions in their goal of acknowledging the important contribution of time, these questions and others need to be carefully considered.
At Volunteer Canada we consider volunteering as a vehicle for citizen engagement and social inclusion, and we encourage creative and innovative policy to support both giving and volunteering for the charitable sector and the broader non-profit sector in Canada.
Thank you very much for the opportunity to speak with you today.
The Vice-Chair Peggy Nash
Thank you very much, Ms. MacKenzie.
We'll now begin our questioning.
Mr. Mai, you have five minutes.
Hoang Mai Brossard—La Prairie, QC
Thank you, Madam Chair.
My thanks to our witnesses for joining us today.
Ms. McManus, in your document, you say the following: “However, many charities are still reeling from the downturn. This was compounded by the fact that Canadians and communities were relying on their philanthropic services more than ever before.”
In my constituency of Brossard—La Prairie, there is an organization that is called on more and more to help working families who now have to use food banks, even with both spouses working.
You say that charities are being asked for their services to an ever greater extent. What do you mean by that?
Chair, Association of Fundraising Professionals
Thank you for the question.
I was actually referring to exactly what you've said. During the recession many people lost their jobs and their houses. The people who are the working poor, who live, work and operate their daily lives on a very fine line, fell over that line and had to turn to places like the food banks, the homeless shelters, and to many of those services they have never had to rely on before. So those organizations were really strapped, on the one hand, by an increased demand for service and, on the other hand, by a reduction in the amount of donations, the philanthropic revenue they had been getting, because their donors were also hurting.
It created a real crunch for organizations being able to deliver services, and that has continued.