Evidence of meeting #38 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was charity.
A recording is available from Parliament.
3:30 p.m.
Conservative
The Chair Conservative James Rajotte
I call this meeting to order. It is the 38th meeting of the Standing Committee on Finance. I want to welcome all our colleagues back to the House of Commons for our first finance committee meeting in 2012.
Before I get to orders of the day, I understand, Mr. Julian, you have a brief announcement to make.
3:30 p.m.
NDP
Peter Julian NDP Burnaby—New Westminster, BC
Thank you, Mr. Chair.
Yes, I just wanted to welcome Robert Chisholm to the committee. He will be officially a member of the committee as of Thursday as the new deputy finance critic for the NDP. Mr. Marston, who is our pensions critic, will be focusing on pension issues over the coming weeks, as you may imagine. He will be in and out of the committee as need be over the course of the next few weeks as well.
3:30 p.m.
Conservative
The Chair Conservative James Rajotte
I think I can speak for everyone in welcoming Mr. Chisholm. We will welcome Mr. Marston back any time. We certainly valued his input here. He was Shelly's dance partner.
Thank you very much for that, Mr. Julian.
We will now get to orders of the day. Pursuant to standing order 108(2), we are starting our study of tax incentives for charitable donations. This is our first meeting on this issue. We have before us here today, first of all, the Canada Revenue Agency. Second, we have the Department of Finance. Third, we have Statistics Canada. We'd like a presentation from each of you. I think we'll start with CRA and then just go down the table.
I believe it's Ms. Hawara who's doing the presentation. If you want, you may introduce your colleague as well. Welcome to the committee. You may begin your presentation.
3:30 p.m.
Cathy Hawara Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
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.
3:35 p.m.
Conservative
The Chair Conservative James Rajotte
Thank you very much for your presentation.
We'll now go to Mr. Keenan from the Department of Finance. Please go ahead.
3:35 p.m.
Sean Keenan Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
Thank you, Mr. Chair.
My name is Sean Keenan. I'm the director of the personal income tax division of the tax policy branch in the Department of Finance. With me today is Mr. Blaine Langdon, who is the acting chief of the charities section of the personal income tax division.
I welcome this opportunity to be here today.
Let me first describe the role of the Tax Policy Branch in the Department of Finance when it comes to the charitable sector.
The branch is responsible for developing tax incentive policies to encourage Canadians to make donations to registered charities. This entails examining current tax incentives in order to make sure that they are as effective as possible. This also includes analyzing and developing options to limit excessive or inappropriate tax benefits, and making sure that regulations for charities are in place in order to safeguard the integrity of the tax system and to protect the donations made by Canadians.
We have provided you with a presentation that gives an overview of the tax treatment of charitable donations and the regulatory regime for charities in Canada. I'd like to mention a few key points from that presentation.
First, Canada has a two-tiered tax credit structure for individuals making charitable donations. For the first $200 in annual donations there is a federal tax credit at a rate of 15%, while amounts above $200 per year attract a 29% federal tax credit. When combined with incentives offered by the provinces, government support for donations over $200 per year is roughly 46% of the value of the donation. For most taxpayers, once they have donated $200 in a year, the credit provides tax relief at a rate that exceeds the tax they pay on the income used to make the donation.
While government assistance on charitable donations is usually about half of the value of a donation, for donations that also receive an exemption from capital gains tax, the rate of assistance is typically about 60%. Canada's high net income limits and carry-forward provisions also allow donors to receive greater tax assistance for gifts that are large in relation to the donor's income. In terms of overall generosity, Canada's tax incentives for charitable giving have been described as among the most generous in the world.
Based on the statistics provided by Statistics Canada, donations for which official tax receipts were issued totalled $8.3 billion in 2010, a 6.5% increase over 2009. Excluding tax shelter donations, donations have been increasing at a rate of 4.5% since 2003. Donations are obviously a significant source of revenue for Canadian charities, but the extent to which these organizations rely on different revenue sources varies considerably.
For organizations in general, government funding represents more than two-thirds of all the revenue whereas donations represent only 11%. However, the charitable sector includes hospitals, universities, colleges and school boards, which receive significant amounts in government funding. If we exclude those organizations, charities typically collect 60% of their revenue from donations.
The regulation of charities is an important part of any discussion of tax incentives, as giving to charities is very dependent on donors having confidence that their donations will be used appropriately. As such, in the presentation we mention a few of the key regulatory provisions for charities.
First, under the Income Tax Act, charities must be established for and operate exclusively for charitable purposes. Charities may not have secondary or additional purposes that are not charitable and may not use their resources for the benefit of any private individual or organization.
Second, registered charities must either devote their resources to charitable activities they carry on themselves, or, if they make gifts of their resources, the gifts must be made to other qualified donees.
Third, charities may engage in business activities as long as these are related business activities.
Finally, although not specifically mentioned in the presentation, while charities are able to engage in advocacy and political activities, these activities must be limited, which means they can involve no more than 10% of a charity's resources, ancillary and incidental to its charitable purposes, and they must be non-partisan in nature.
These rules are designed to strike a reasonable balance between permitting charities to contribute their expertise to the public debate and recognizing that charitable resources should be devoted to charitable activity.
I would be happy to walk the committee through any of this material in greater detail or to take any questions the committee may have.
3:40 p.m.
Conservative
The Chair Conservative James Rajotte
Thank you very much for your presentation.
We'll now hear from Statistics Canada. I understand that Madame Michaud will speak for Statistics Canada.
3:40 p.m.
Sylvie Michaud Director General, Education, Labour and Income Statistics Branch, Statistics Canada
I am going to start.
I'd like to thank you for the opportunity to speak to you.
I'm Sylvie Michaud. I'm the director general of the education, labour, and income statistics branch within Statistics Canada. With me I have Alison Hale, the director of the income statistics division. She'll go through a few of the highlights in the presentation.
I just want to give you a bit of background or a caveat on the information we'll provide. The statistics that we have on charitable donations and that are being presented today are based on tax filer data from the Canada Revenue Agency. The most recent data available are for 2010 and were released in December 2011.
The statistics are based on a preliminary file containing approximately 96% of all tax filers. We receive the file at the end of August and we use it to produce our statistics each year.
While Canadians contribute in many ways to charitable organizations, we cover just what is reported on the tax file in terms of charitable donations.
To have a more complete picture of charitable donations at all, we have a survey called the “Canadian Survey of Giving, Volunteering and Participating”. That survey will be released in the spring. If you're interested at that time, it provides extra information on charitable donations, such as who's giving and to what kinds of organizations and that kind of information. That's not part of the deck today; however, Alison will go over a few of the highlights from what we released in 2011.
3:40 p.m.
Alison Hale Director, Income Statistics, Statistics Canada
I'm going to highlight a few things that are in the presentation that was handed out to everybody.
I want to clarify that this is information from tax filer data. We have information on the person who reported the donation, who is not necessarily the person who made the donation, because families can pool their donations. In addition, individuals may keep their donations up to five years to pool and maximize the tax advantage.
If you want to follow along, slide 2 shows the key findings in 2010. One in five tax filers reported making charitable donations on their tax return--almost six million individuals--for a total of $8.3 billion. The median donation for Canadians was $260. I realize we're from Statistics Canada and we have to describe the statistics a bit, so the median is a number halfway through the distribution, meaning that 50% of the population have numbers lower than that median and 50% have numbers that are higher. For things like income-related tax donations, it's important to look at the median, because the average is often skewed by very high donations that are fairly infrequent.
Slide 4 shows that the total charitable donations in constant dollars since 1990 has almost doubled in the last 20 years. The figures have been adjusted so they're comparable over time. Total donations peaked in 2006-07 at about $9 billion. They decreased in 2008-09, coinciding with the recession, but we did see an increase in total donations in 2010.
Next is slide 5. It's not surprising that the proportion of donors is increasing as donors get older. Looking at this graph, you can see that 5% of tax filers under 25 reported charitable donations, but when you look at older tax filers between 55 and 64, approximately 31% reported donations. As well, as income goes up, so does the percentage of donors: just 4% of individual tax filers with incomes under $20,000 reported donations, versus 57% of filers with incomes of more than $80,000.
Looking at the picture of total donations on slide 7, we see that 80% of total donations are given by donors 45 years of age and older. We've given you a bar chart showing that 3% of donors are under 25 and account for about 1% of all total donations. It's still approximately $68 million. However, the 24% of donors who are 65 and older account for 33% of total donations, or about $2.7 billion.
Moving to slide 8, you can see that half of the total donations are given by donors with incomes over $80,000 a year. Again we're looking at individual information. Donors with incomes of less than $20,000 make up 6% of donors and 3% of total donations. While those donors with incomes of $80,000 or more make up 25% of donors, they make over 50% of all donations.
I also want to highlight the data on donations at the provincial-territorial level. The median donation varies quite a bit by province. I'm looking at slide 9, which is the last presentation in the deck. You'll notice that the median donation for Quebec is markedly lower than for the other provinces and territories. This is a trend that has been observed over time. As mentioned earlier, median donation for Canada in 2010 was $260. Nunavut had the highest median donation at $470, followed by Alberta at $390. Those are median donations by individuals in those provinces and territories. Quebec filers had a median donation of $130.
That was a brief highlight of some of the statistics in the presentation.
That ends our presentation. Thank you very much.
3:45 p.m.
Conservative
The Chair Conservative James Rajotte
Thank you very much for your presentations.
We'll begin our members' questions with Mr. Julian, please. This is a five-minute round.
3:45 p.m.
NDP
Peter Julian NDP Burnaby—New Westminster, BC
Thank you very much, Mr. Chair.
Thanks to all our witnesses. I'm going to quickly go through my questions, and hopefully you can answer them or provide us with information later.
I'd like to start off with you, Ms. Michaud, with regard to the Statistics Canada information. As I see it, if I'm correct, with regard to the income groups in the table on page 6, “Charitable Donors as a Percentage of Taxfilers by Income Group”, what is being shown is basically income quintiles, right? Am I correct that we're looking at 20% chunks of the population?
You're indicating not completely.
I would be interested in knowing whether you have access to the percentage of charitable donations by quintile, by revenue of the population, and then how that's fared historically over the past ten years. I suspect that we would see higher-income earners giving more and lower-income earners, as times get tight, giving less.
Do you have any statistics of that kind that you could share with us?
3:50 p.m.
Director General, Education, Labour and Income Statistics Branch, Statistics Canada
Not here, but we could provide them. This doesn't represent the income quintile; this represents the income range. However, we could calculate something by income quintile, which we'd be happy to provide to you.
3:50 p.m.
NDP
Peter Julian NDP Burnaby—New Westminster, BC
Is it possible to look at it historically, at just the last ten years?
3:50 p.m.
Director General, Education, Labour and Income Statistics Branch, Statistics Canada
Yes.
3:50 p.m.
NDP
Peter Julian NDP Burnaby—New Westminster, BC
Okay. Thank you very much.
Secondly, to Ms. Hawara, thank you very much for providing us with the CRA information. Could you give us some sense, since you're responsible for administering and maintaining charitable registrations, of the number of charities over the past few years that have had their status withdrawn, and, if you have different categories for withdrawing registration, what the reasons were?
January 31st, 2012 / 3:50 p.m.
Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
Mr. Chairperson, we do have access to that information, and I can certainly provide it to the committee.
There are different reasons that a registered charity might lose its registered status. It might be revoked for cause, because of some serious non-compliance. It might ask for voluntary revocation. There actually are quite a few voluntary revocations each year. We have also started taking action in the last few years against charities that do not file their annual information return. A charity has to file its information return with us within six months of the end of its fiscal year. If it does not, we proceed to revoke their registered status for failing to file that return.
We have statistics about those three categories of information, if that would be helpful to the member or to the committee.
3:50 p.m.
NDP
Peter Julian NDP Burnaby—New Westminster, BC
Yes. Thank you very much.
Another question I had--hopefully you can provide this to us later--is on whether you do an evaluation of the proposals, which you've perhaps seen, that have come before committee. Do you do an evaluation of what the costs might be of changing the stretch donation credit, for example, or what the overall fiscal impact would be, or is that something that the finance ministry is charged with?
3:50 p.m.
Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
Most of the proposals before the committee that deal with the charitable tax incentive and other incentives that might further increase giving are matters of fiscal policy that fall within the jurisdiction of the Department of Finance. Whenever a proposal comes forward, we would look at what the impact might be for the regulator as well. We would need, in order to be able to do that, detailed proposals of what is being considered and what is being proposed.
3:50 p.m.
NDP
Peter Julian NDP Burnaby—New Westminster, BC
Okay. It's not something that you do, but it's something that you could do, and it's something that is more in your bailiwick than the Ministry of Finance's--or do you work together and consult?
3:50 p.m.
Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
We certainly work together. Their role is to make decisions with respect to tax policy issues. Once those sorts of determinations have been made, we would then look to see what the impact might be for the Canada Revenue Agency. It really does depend on the specific proposals being considered.
3:50 p.m.
NDP
Peter Julian NDP Burnaby—New Westminster, BC
Okay.
Finally, Mr. Keenan and Mr. Langdon, I was quite interested to see, in the exemption of capital gains tax, that the rate of government assistance is as high as 69%. Could you give us a sense of what the dollar figure is on capital gains tax charitable support for previous years, and maybe the evolution over the last 10 years?
3:50 p.m.
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
We have some estimates that we produced in the annual tax expenditure report. We have figures on the reduced inclusion rate for capital gains, for example, on donations of publicly listed securities. The estimate is that the reduced inclusion rate provided a tax benefit of $34 million in 2011. For donations of cultural property, we estimate the figure to be in the $6 million range.
We have estimates that go back to 2006, when the measure was introduced. We'd be happy to provide those figures to the committee. They are available in the 2011 version of our tax expenditure report.
3:55 p.m.
Conservative
The Chair Conservative James Rajotte
If you can provide all of that information to the clerk, we'll ensure that all members of the committee get it.