Finance Committee on Jan. 31st, 2012

[Cathy Hawara]

The Income Tax Act defines what a qualified donee is. By and large, we're talking about registered charities, but there are other entities under the Income Tax Act that are qualified donees and are therefore able to issue tax receipts as well. Examples of those would include, first, the crown, but also municipalities--

[Shelly Glover, Conservative, Saint Boniface, MB]

I did see the list of the qualified ones, but it indicates something about how the qualified ones sometimes transfer money to non-qualified donees, and I don't know what “non-qualified” means.

[Cathy Hawara]

It essentially means they are not in the list of what is considered to be a qualified donee. A municipality, for example, is a qualified donee, and the municipality is able to issue a receipt and is able to receive gifts from other registered charities. However, if a registered charity were to make a gift to a foreign organization, let's say, more than likely that organization would not be part of that defined group of qualified donees. That's when we would say that the charity has made a gift to a non-qualified donee.

[Shelly Glover, Conservative, Saint Boniface, MB]

That is is not allowed, right? Are there any circumstances under which that would be allowed?

[Cathy Hawara]

Under the Income Tax Act, charities are obligated to devote their resources to their own activities or to gift them to qualified donees. If they want to work with a non-qualified donee, they could do so if they have the appropriate contractual agreements in place, but the basic framework would still be that the registered charity would carry out its own activities through this intermediary. There are no circumstances under which a registered charity can simply hand over money to a non-qualified donee.

[Shelly Glover, Conservative, Saint Boniface, MB]

Okay, very good. Thank you.

I also want to talk about another CRA slide, which I think it was slide 14. We talked about the appeals process and how, if the appeals process is exhausted, the applicant then has to go through to the Federal Court.

I am wondering why they're going to Federal Court. Would there be an argument for savings and accessibility if they were to go to the Tax Court of Canada?

[Cathy Hawara]

Currently the legislation provides the appeal to the Federal Court of Appeal. Making any changes to that structure would be a matter of tax policy. Perhaps--

[Shelly Glover, Conservative, Saint Boniface, MB]

I'm looking for the pitfalls there, because to me tax courts typically don't have the backlog, but maybe I'm wrong, so I'm looking for your expertise. Would there be an advantage to allowing appeals through that court rather than through Federal Court?

[Blaine Langdon, Chief, Charities, Personal Income Tax Division, Tax Policy Branch, Department of Finance]

I think I'll answer that question in two ways.

First I'm going to address the issue of backlog. The one thing I would say is that it can be a quicker process to go through the Tax Court of Canada, but there are concerns right now about the current workload of the Tax Court. The department has actually put forward some proposals to try to mitigate some of the backlog. A lot of that has to do with the tax shelter gifting arrangements that have been prevalent over the last 10 years and a lot of the appeals that are going through in that conncection.

In terms of moving jurisdiction from the Federal Court of Appeal down to the Tax Court, certainly that's a proposal we've seen before. It was put forward—I think, probably not the first time—to the joint regulatory table. The government looked at that proposal, and there were a number of different concerns with it. The Federal Court of Appeal has more expertise when it comes to common law issues. When you're dealing with registration and deregistration of a charity, that's primarily based on the common law. When we put in place the intermediate sanctions for registered charities—the imposition of a penalty, the imposition of a suspension—we actually did make those types of appeals go directly to Tax Court, seeing as they are issues it would address more frequently.

[The Chair, Conservative, James Rajotte]

You have 30 seconds.

[Blaine Langdon]

In terms of cost savings, because of the ramifications of a charity law decision and its implication for other groups and on who gets registered and the impact on the tax system in that way, certainly if there were a decision in the Tax Court that the government didn't agree with, more than likely it would appeal it, so I'm not certain if you're saving the charities any money as much as building a layer onto the actual appeal process for them.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you for the explanation.

I'm hoping there's a second round.

[The Chair, Conservative, James Rajotte]

Yes, there will be more time.

We'll go to Mr. Mai, please.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Thank you, Mr. Chair.

I have a question for Mr. Keenan. In the documents, on chart A.1, page 24, there's mention of donations to tax shelters. In 2010 we know it was $300 million. I understand that tax shelters are accepted. Can you explain to us what exactly those donations for tax shelters are?

[Sean Keenan]

Blaine, do you want to take this one?

[Blaine Langdon]

“Tax shelter” has a particular meaning in the Income Tax Act. In a nutshell, it is any donation arrangement where, through accommodation of tax credits or tax deductions, individuals will receive a benefit more than the cost they've actually paid to acquire the property. It's been a big problem since about the early 2000s. They started out as art-flip arrangements. That's what they were known as. Somebody buys a piece of property for a low price and then donates it to a charity.

Over the years, they've become more sophisticated. We introduced some rules back in 2003. There were additional rules that were introduced, which are part of a technical bill that hasn't passed, but those are what you're seeing there.

There was, as you see from that chart, a high level of those types of donations in and around 2006, but through the proposed changes and CRA audit work have managed to bring that number down quite considerably.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

A report in 2008 from the CRA noted that they refused $2.5 billion in terms of agreements relating to tax shelters. Should that be a concern in terms of a way for people to use it as a loophole or as a way to maybe benefit from the system in terms of gift donations on that issue?

[Cathy Hawara]

At the Canada Revenue Agency, we are very concerned about abuse of tax shelter gifting arrangements. We have been very public about that issue, issuing tax alerts and making it very clear that we are going to audit every single tax shelter. We will reassess the donors where appropriate.

With respect to the charities, each and every one of them is audited, and we have revoked the registered status of approximately 45 charities in the last few years, I think since 2003, for participating in abusive tax shelter arrangements. Because the confidentiality provisions of the Income Tax Act actually do allow us to release some information about charities, including when they're revoked, we have been issuing news releases every time we revoke a charity for having participated in one of these schemes.

We are very concerned at the Canada Revenue Agency, and we're doing everything we can at the moment to address it.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Would you have any recommendations on how to get rid of that problem?

[Sean Keenan]

I don't know that we would have any specific recommendations. In general, a very generous tax regime is currently in place. When any regime provides an opportunity for people to benefit, there's going to be abuse. There has to be a balance. Each time we assess proposals, we're trying to assess the opportunities for abuse. To an extent, we're always chasing what the next level of abuse is. That's why we thought it was important for the committee to have the data on donations, but to disaggregate that data to establish the value of donations going to registered charities versus how much is going to these tax shelter arrangements to get an idea about abuse....

There is abuse in the system. It's very true that there are opportunities for abuse. We're always trying to look at ways to ensure that we don't have that kind of abuse, and we work with the CRA to ensure that it's stopped. It's an important consideration when analyzing any policy proposals.

[The Chair, Conservative, James Rajotte]

I'm going to take an extra round as the chair.

I wanted to follow up on Mr. Mai's first round of questions, which I thought raised an important issue.

Ms. Hawara, I want you to really be strong on this point on the concern of organizations or individuals that CRA may be acting under political influence in terms of any of its auditing activities.

I remember being in opposition and having a lot of Conservative friends come in and say that they knew that the Liberal government audited them because they were Conservatives. I would insist to them that no, CRA is very independent; that does not happen, and there's no political influence directing CRA in terms of personal income tax issues, business income tax issues, or charities.

I want to clarify that point, because it has been an issue raised in some media circles. I want you to clarify. Is there any political direction given to you whatsoever in terms of who you audit or do not audit at CRA?

[Cathy Hawara]

No, there is not.

[The Chair, Conservative, James Rajotte]

There is none whatsoever.

[Cathy Hawara]

There is none.

[The Chair, Conservative, James Rajotte]

I appreciate that clarification very much.

I want to follow up on a second issue. Mr. Jean raised some points we raised with you last time you were at committee. They are with respect to a private member's bill on salaries of officials and transparency and accountability. At that time, many of the charities recognized the need to be more transparent and accountable.

One of the things raised was, I know, beyond what you have on your website. It is a very good website, and there's a lot of financial information there, but have you looked at publicly listing on the website any donation amounts above a certain amount, as they do with donations to political candidates or parties, as well as publicly listing all the activities the charity is involved in? You'd have the money coming in to a charity and the money going out. It would be fully transparent. People could analyze it. Citizens could analyze it, supporters of those charities could analyze it, and parliamentarians could analyze it. Is there any thought being given to implementing that type of a system?