Finance Committee on Nov. 29th, 2010

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Thank you, Mr. Chair.

Ladies and gentlemen, good afternoon.

The Department of Finance and the Canada Revenue Agency have both described a situation that appears to be well under control with regard to the compensation paid by charities. The Department of Finance has confirmed that the Income Tax Act allows the Canada Revenue Agency to impose intermediate sanctions.

In your remarks, Ms. Hawara, you gave the example of compensation that would be above fair market value for services rendered. You mentioned paying an individual $50,000 for services rendered. In your words, that “would constitute an undue benefit if, in reality, there were no services provided or if compensation did not correspond with fair market value.” I am reassured to hear you say that.

Now, I wonder how you can actually apply that. Do you conduct audits in many cases? Do you conduct ad hoc audits by type of organization? Have you imposed sanctions on organizations following an assessment of the fair market value of services rendered?

[Cathy Hawara]

The agency has an audit program. To give you an idea of the scope, we conduct approximately 800 audits a year. We have audits that target what we consider to be potential risks in specific areas of the charitable sector. We also carry out random audits.

Some of the 800 audits can also be initiated following public complaints, media reports, etc. We address the issue of benefits to find out whether they are reasonable or undue.

Our audits do allow us to find cases of undue benefit. However, there has not been a single case where we had to revoke an organization's registration solely because a high or unreasonable salary had been paid out.

Nevertheless, we do identify cases of undue benefit involving personal or household expenditures, and travel. With regard to such cases, our audits last year allowed us to identify 27 instances of concern with regard to undue benefit. In six of those instances, the problems were serious enough to warrant a revocation of registration.

So we do have concerns in that regard, but we have yet to revoke registration because of unreasonable compensation.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

However, there appears to be unanimous consent within the committee: we feel the need to reassure the public and provide it with more information on compensation. I think that the best solution is to increase transparency.

With regard to the classification of various charitable organizations, you indicated in your opening remarks that health care charities offered higher levels of compensation. In reviewing this bill, I was surprised to learn that hospitals were considered to be charitable organizations, even though we know that they are not charities per se, but rather public service institutions funded by governments to provide services to the public. All hospitals set up foundations to raise funds.

Why do you not distinguish between a hospital's foundation, which could be considered as a charity to which donations can be made, and the hospital itself, which must compensate executives at quite high salary levels? Why do you not make such a distinction?

[Cathy Hawara]

Indeed, as it currently stands, the act does not distinguish between the organization that renders the services and the foundation that collects donations. That is the state of the current legislative framework. The bill would therefore apply to both types of organizations.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Have you not considered targeting actual charities in order to properly assess and compare them?

[Cathy Hawara]

That question touches on the legislative framework. Unfortunately, that is somewhat beyond the scope of my duties.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

We spoke earlier about access to information. It is all very well to want to improve the rules and the act, but Canadians are not better off if they cannot access that information.

Has your agency considered providing the general public with greater access to the information so that it can make more informed decisions about those organizations?

[Cathy Hawara]

In fact, public awareness is one of our key mandates. That is why I am happy to answer your question.

We spend a lot of time and money to inform the public on our role, as the regulatory agency, as well as on how Canadians can make informed donations, do the research into the organizations they would like to support financially, and avoid fraud. Unfortunately, some people want to take advantage of Canadians' generosity.

In recent years, we have placed great emphasis on our website and list of charitable organizations, which is not publicly available. The website contains all annual returns completed by charities as well as financial information, including fundraising results and expenditures incurred as part of fund raising activities. We therefore completely agree that transparency and access to information are key to allowing Canadians to make informed choices.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Carrier.

Mr. Wallace, please.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chairman. I will be splitting my time again with Mr. Chong.

I think there have been changes in the fairly recent past, 2008 or 2009--I'm not sure which year. Charities used to have to tell you who their top five or ten employees were. Is that not correct? And now we do something different. What are we doing differently, and why?

[Cathy Hawara]

They used to have to disclose their top five salary earners, not by name and precise salary, but by indicating within which salary range they fell. The salary ranges that were provided to them went up to $120,000.

In 2009, we increased the ranges to reflect the fact that there were higher salary earners, greater than $120,000, and now we require that charities identify the top 10.

[Mike Wallace, Conservative, Burlington, ON]

So top 10, but it's in range, not by individual name and not by the actual amount.

[Cathy Hawara]

That's right.

[Mike Wallace, Conservative, Burlington, ON]

But that's us making that decision; that's not your decision. Is that right? Is that not correct? If this bill goes through, it basically directs charities with the top five employees over $100,000 to tell you who they are and what they're making. Would you be able to post that if that happens?

[Cathy Hawara]

The bill could require it, and if it did we would implement it. I only wanted to make the point that currently the salary ranges aren't prescribed in law; they are prescribed by the CRA in the annual information return.

[Mike Wallace, Conservative, Burlington, ON]

Because you didn't see the amendments prior to today, I'm assuming you'll be back on clause-by-clause day. As an organization, if we have questions on the clause-by-clause study, would you be available to answer those questions? Do you know that?

[Cathy Hawara]

I don't know that for a fact, but if the chairperson of the committee felt it would be helpful, we would certainly attend if we were invited.

[Mike Wallace, Conservative, Burlington, ON]

Okay. I appreciate that.

Mr. Chong.

[Michael Chong, Conservative, Wellington—Halton Hills, ON]

Thank you, Mr. Wallace and Mr. Chair.

I have a question for you, Ms. Hawara, about related corporations. CRA currently requires the disclosure of the salary ranges of the top compensated executives at each charity. If Madam Guarnieri's bill becomes law and the compensation of the top five executives is to be publicly enumerated, what do you think about also including in a public enumeration the compensation of the top five executives at related corporations, in other words, corporations related to the registered charity?

[Cathy Hawara]

I did take note of your question to Ms. Guarnieri earlier. I'm not aware of this being an issue in this sector right now. I think what would be important from our perspective is to determine to what extent the CRA could require that kind of information.

[Michael Chong, Conservative, Wellington—Halton Hills, ON]

You had mentioned in your opening remarks that CRA ensures that charities don't give an undue benefit to individuals related to those charities. What is your opinion of an increasing trend where people who control charities are setting up for-profit share capital corporations that are cohabited with these charities? In other words, they share the same offices, the same phone numbers, the same addresses, the same office space, and resources, and they use similar branding, they use the charitable company's or organization's brand and goodwill in order to promote the for-profit share capital corporation's business.

Does CRA frown upon that kind of set-up?

[Cathy Hawara]

Again, I'm not aware of this as being a trend. The law is very clear: a charity must devote all of its resources to its own activities and to charitable purposes. So in what you've described, depending on what the details would be, a charity would not be able to share its resources in that sense. It would need to maintain direction and control over its own resources. But I'm not aware of this being a trend that we've uncovered through our audit program.

[Michael Chong, Conservative, Wellington—Halton Hills, ON]

I don't want to name names here, but I am aware of certain charities that have set up for-profit share capital corporations by the same people involved with the charity, and these for-profit share capital corporations operate either in next-door proximity to these registered charities or in fact in the same offices, using the same phone numbers and addresses.

It's a concern to me because I think they're using the goodwill of a charitable registration number in order to promote the activities of a for-profit share capital business. I don't think that's in the public interest or the intention of a charitable registration.

[Cathy Hawara]

Again, the rules are very clear: charities' resources have to be devoted to charitable purposes. We certainly do take any information from the public and, where warranted, follow up as appropriate.

[Michael Chong, Conservative, Wellington—Halton Hills, ON]

Thank you.