Good afternoon, Mr. Chairperson.
Thank you for the invitation to appear before you today on the study of the current tax incentives for charitable donations. My name is Cathy Hawara, and I am the director general of the charities directorate within the Canada Revenue Agency. With me is Bryan McLean, director of the charities directorate’s policy, planning, and legislation division.
As you know, the study of the charitable tax incentive is primarily a tax policy question, and my colleagues from the Department of Finance will be addressing that aspect today. As the federal regulator of registered charities in Canada, the CRA brings an administrative perspective to the study of this tax incentive. For the benefit of the committee, I would like to provide a brief overview of the existing regulatory framework administered by the CRA and also describe our administrative perspective when assessing new legislative proposals.
Under the Constitution, the provinces have jurisdiction over the establishment, maintenance and management of charities. The CRA's authority to regulate charities exists solely under the Income Tax Act.
To qualify for registration, applicants must be established for charitable purposes and devote their resources to charitable activities.
However, the act does not define the term “charitable”. As a result, the common law meaning is applied to make determinations about what is charitable.
The common law has established that charities must further purposes that relieve poverty, advance education, advance religion, or are beneficial to the community in a way the law regards as charitable. Charities must also pursue such purposes for the benefit of the public in a manner that does not confer any undue private benefit.
Some of the advantages of registration for a charity include exemption from paying income tax at the federal level, possible exemption from certain provincial and/or municipal taxes, the ability to issue official donation receipts for income tax purposes, and the ability to receive gifts from other registered charities.
In order to ensure that the benefits of charitable registration and the charitable tax incentive are not misused, the CRA administers the requirements for obtaining and maintaining charitable registration. The CRA monitors the activities of charities, taking a measured approach to resolving non-compliance, based on the severity of the offence. The CRA also monitors the accuracy of charitable donation claims made by individual taxpayers.
While tax policy is a matter for the Department of Finance, the CRA is often asked for its views on various legislative proposals. In considering any new measure, the CRA is guided by the following administrative perspectives: the first is cost and burden, which is the cost and level of effort for taxpayers to comply and for the CRA to administer, the second is accountability and transparency, and the third is risk.
From a taxpayer perspective, we would want to understand whether the new measure is likely to increase the existing administrative compliance burden, in this case on registered charities. Administrative cost considerations for the CRA would include the impact on human resource requirements, as well as any resulting changes that might be required to information technology systems.
Canada's tax system is based on voluntary compliance and self-assessment. Accountability and transparency considerations are focused on how the measure fits within a self-assessment system, but in the case of registered charities there is also a requirement that the majority of operational and financial information be made available to the public.
Finally, we consider the perspective of risk. Increasing the value of a tax measure might also increase the incentive or opportunity for abuse. Similarly, increasing the complexity of the regulatory framework might increase the likelihood of unintentional non-compliance. Assessing legislative proposals from these perspectives helps us identify any issues that, if not addressed, might impede the efficient and effective delivery of the charities program.
Mr. Chairperson, I would be pleased to answer any questions the members of the committee might have.