Thank you very much.
Honourable Chair, honourable members, thank you for the opportunity to speak to you on behalf of my members. This is about the sixth time I've come to the committee. I noticed Donald Johnson was saying a couple of weeks ago that he was going to keep on coming back until you did what he said—so, check.
I represent Canadian charitable foundations and grant-makers from across the country. Collectively my members manage over $6 billion in charitable assets and disperse around $290 million into the community annually to support all types of charitable activity. As private funders, we remain concerned about the lingering impacts of the recession on Canadian charities. The endowments of most foundations decreased in value by up to 20% in 2009, and generally, grants to charitable organizations have not increased over the past year, although funders have worked hard to avoid reductions.
These restrictions, combined with continuing reductions in government funding as well as reductions in our own endowment and business income, are confronting Canadian charities with difficult budget realities for 2011.
We have two recommendations to address the problem of financing charities. The first is to examine regulatory options to foster more access to capital by charities, and the second is to promote new charitable giving through a stretch tax credit. I'll just speak briefly about both of those, although more details are obviously in our brief.
Private funders are important catalysts for social innovation and entrepreneurial activity in the non-profit sector. In a business context, innovation or growth is often financed through a loan or investment, but in a charitable context there are fewer financing options. Canada's charities remain undiversified in their financing structures and models. Operating capital is obtained year to year from a range of funding sources, such as fees and gifts, and investment capital is practically non-existent. Capital accumulation is discouraged by the federal regulators. There are few funding intermediaries that can provide both loans and financial capacity training to charities and non-profits, although such intermediaries flourish in the U.S. and the United Kingdom.
Foundations can make loans below market rate to registered charities, but the Income Tax Act does not allow them to provide this type of finance to non-profits such as housing corporations or other social enterprises. Even a non-profit loan fund structured as an incorporated non-profit cannot access foundation capital at less than market rate, because it is not a qualified donee. This has limited the establishment and growth of non-profit intermediaries, which cannot register as charities under the Income Tax Act.
On the investment side, federal and provincial laws only allow investments prudently made with a secure expectation of return. Federal regulators have ruled that even passive investments in limited partnerships by private foundations are not permitted, because under the law of partnerships these investments could mean that the foundation is engaged in running a business.
The attempt to maintain a strict dividing line between charity and business has meant in practice that private funders remain confined to a funding paradigm focused on grants. This has not encouraged the full deployment of the approximately $34 billion or more held in foundation endowments across Canada. Charities benefit from the 3.5% to maybe 5% of endowment dispersed in grants, but typically don't access the 95% of assets held in endowments.
The federal government could adopt a regulatory framework that encourages more philanthropic investment. We urge the committee and the government to be pro-active in examining all regulatory options, including clarifying CRA guidance on program-related investments by foundations, reviewing CRA's position on investments in limited partnerships, qualifying specific social investment projects as qualified donees, and clarifying CRA's guidance on the relationship between mission investment activities and business activities.
We believe that an in-depth review of federal policies is long overdue in order to improve access to growth capital, whether by way of loans or private equity investments in organizations within Canada's charitable sector. In that regard, the recommendations put forward by Imagine Canada are worth considering. They would allow non-profit organizations to access the current federal programs in support of small business.
Secondly and finally, Philanthropic Foundations Canada supports the recommendation made by Imagine Canada and others for a stretch tax credit to stimulate new charitable giving. Imagine’s proposed credit would apply to donated amounts that exceed a donor’s previous highest giving level--using 2009 as a baseline--up to a ceiling of $10,000.
We support this measure because of its potential to attract newer and younger donors of smaller amounts. We need to draw more new donors into the diminishing pool of donors in Canada. This measure would have the merit of benefiting charities of every size in every region and should over time broaden the base and increase the giving levels of Canadians across the country.
Merci. Thank you for your consideration