Thank you very much for allowing me to address you today.
We are advocating abandoning the current approach to monitoring and supervising charities in favour of one that strikes a more effective balance between public accountability, on the one side, and allowing donors and charities the freedom and flexibility to effectively advance their charitable purposes, on the other.
A concept paper was created by the working group of the Canadian Bar Association, which I had the honour of chairing. It was submitted to the chair of this committee and to Finance Canada. It provides more detailed information about the presentation I am making.
We are asking for the replacement of the disbursement quota regime that charities currently have to work with, in favour of a more simplified approach that gives the flexibility both the charities and their advisors are looking for. The disbursement quota contains two major elements, one of which is that charities are required to expend 80% of donations for which they have given receipts in a prior year. There are some exceptions, the major one being that donors can make gifts requiring the charity to hold the capital for up to ten years without spending it. There is also a second component that requires charities to expend 3.5% of the value of assets that are not used in charitable activities.
The objectives of this disbursement quota are to ensure that charities use the bulk of their funds for charitable purposes, limit administrative and fundraising expenses, and prevent charities from having excessive accumulations of funds.
Both the charities sector and the Canadian Bar Association charity section support the need for supervision and accountability of charities. This isn't about fighting that; it is intended to demonstrate that the current rules do not achieve the desired results. We would like to urge an immediate change to those rules, because charities have been struggling with them for many years.
The current rules are too rigid, complicated, and arbitrary. They do not recognize the programming needs of charities. Most charities want to expend money, and they are being hampered from doing it in a way that cannot be good for anybody. Programming needs of charities are not being met, especially in these difficult economic times. Charities are suffering from this economy just like all businesses. What they are being forced to do because of this disbursement quota requirement reaches them in many levels. They are precluded from investing their funds in a positive, strategic manner because they're being forced to invest in ways that allow them to meet programming needs while dealing with economic losses. Small and rural charities in particular are being very hard-hit by both the economic downturn and the disbursement quota rigidity.
The government has a new fundraising policy that provides certain controls on overspending on fundraising by charities. That deals with one of the cornerstones of the disbursement quota. Second, the disbursement quota should allow donors and charities a certain amount of flexibility, while encouraging charities to expend in an appropriate way having regard for their programming needs.
We are recommending that the disbursement quota be abandoned in favour of a simpler approach of a percentage of funds to be spent every year by charities, and that the government work with the charities sector to develop a regulatory scheme that is more flexible.
Thank you.