Mr. Chairman, honourable members, thank you for this opportunity to speak to you today on behalf of my members.
I represent Canadian charitable foundations and grant-makers from across the country. Collectively my members manage more than $7.5 billion in charitable assets and disburse around $270 million annually into the community to support all types of charitable activity.
Canadian foundations of all kinds contribute up to $1 billion of charitable funding every year. Our focus and our purpose is to support the work of the close to 80,000 charities that contribute essential services to Canadian communities.
We have watched the negative impacts of the financial crisis and the recession over the past year with great concern. These negative consequences are worsening as charities exhaust their reserves and their traditional sources of funding become restricted, and as those who make grants, whether governments or private funders, unavoidably reduce their commitments and donors reduce or postpone their gifts. Charities are also facing reductions in earned income. Their budgets for 2010 will almost certainly be smaller, leading to cutbacks in services or layoffs in personnel. In other words, they are facing a perfect storm in finance. This situation points to the serious structural difficulties faced by charities in accessing capital.
Our first recommendation to you addresses the problem of the unmet need for investment capital by charities. Such capital is used as it would be by any small business to finance facilities, bridge-finance the acquisition of equipment, invest in soft capital, such as business plans, and otherwise finance organizational growth. Capital is not accessed easily by Canadian charities, particularly the smallest ones. We believe there is a gap in the market not adequately filled by commercial financial institutions, even credit unions.
While Canadian foundations can do more to provide loans and investments out of their own capital, they must work within the limitations of the federal Income Tax Act, which makes a strict distinction between charity and business. We need more creative, more innovative solutions to the urgent financing needs of charities, especially in light of the worsening outlook for traditional funding.
We recommend that the federal government undertake a comprehensive review of the regulatory structures and vehicles that could promote more access to finance by the community sector and more flexibility for charitable foundations. There are many models. For example, the community development financial institutions fund set up by the U.S. Treasury in 1994 is government action to encourage non-profit capital market development. It has been responsible for channelling more than $1 billion into community development organizations and financial institutions serving the community, and has leveraged more than $26 billion in private sector investments. And in the U.K. the government is moving ahead with all-party political support to create a social investment wholesale bank designed to enable third-sector organizations to access the finance they need to grow and become more sustainable. We have a similar opportunity for creative public policy in Canada, and we urge the committee to examine it seriously.
Our second and third recommendations support those made by other groups that have submitted briefs and have appeared before this committee. The first is the recommendation for the stretch tax credit for charitable donations, led by Imagine Canada. This measure would partly address the funding situation of charities that I referred to at the beginning of these comments.
We know that individual giving has decreased as a result of the recession. We also know that individual giving responds to tax incentives. Therefore, we support the recommendation made by Imagine Canada for a stretch tax credit for new charitable giving. We believe that increasing the federal tax credit from 29% to 39% on all new giving over $200 will encourage Canadians to give more and will benefit all charities.
We also endorse the recommendation made by Imagine Canada and the Canadian Bar Association for an urgent review of the so-called “80-20 rule”, or the disbursal quota for charities. We think this regime under the Income Tax Act imposes a complex administrative obligation, especially on smaller charities.
My members wish to underline that we are not asking for a change to the current requirement to disburse 3.5% of assets annually. We believe it is our responsibility and mission to use our charitable assets to support Canadian communities every way we can. But we believe the 80-20 rule is arbitrary and its application unclear, and we urge the committee to recommend a review of the quota regime to the minister as soon as possible.
Thank you for your attention.
Thank you. It will be a pleasure to answer your questions.