Absolutely.
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.
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.
3:55 p.m.
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
Absolutely.
3:55 p.m.
Conservative
3:55 p.m.
Conservative
Randy Hoback Conservative Prince Albert, SK
Thank you, Chair.
I would like to thank everybody for coming here today. I'd also like to welcome Mr. Chisholm to the committee. Mr. Marston was a good committee member and we'll certainly miss his input, but I'm sure Mr. Chisholm will try his best to fill his shoes.
My question is on the role of governance. I'd like to use an example process whereby we talk about setting up and establishing a charity and then about what we do in terms of governance modelling to ensure that the charity is actually a proper charity and is functioning as a proper charity. That's where you're going to see my questions go, so, Ms. Hawara, they will probably be directed toward you.
Please explain to us the process of establishing a charity. If I want to establish a new charity to help homeless people in Prince Albert, what process takes place? How do you evaluate whether it should be a registered charity or not?
January 31st, 2012 / 3:55 p.m.
Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
Mr. Chairperson, there is an established process for determining whether an organization can be registered as a charity in Canada. Primarily it has to be established for exclusively charitable purposes and it needs to operate on a not-for-profit basis.
We look to the common law to determine whether the purposes of the organization are charitable. There are four categories for what is charitable at law: the relief of poverty, the advancement of education, the advancement of religion, and other purposes that have been found to be beneficial to the community.
We have a team within the charities directorate that would look carefully at the 4,000 or so applications we receive every year in order to determine, first of all, whether the organization has charitable purposes; second, whether it is proposing to undertake activities that will further those purposes; and third, whether they are conferring a public benefit by virtue of those activities.
Those are the broad strokes of the framework we would use. More detail is provided in some of the materials we have provided to the committee.
3:55 p.m.
Conservative
Randy Hoback Conservative Prince Albert, SK
Okay, that gives us a macro sense of what goes on.
Then let's say that we have a charity established and that it has been functioning for two years. What kind of process is in place to establish the governance model for that charity to ensure that it is actually operating in accordance with the intent that it was originally established under? How do you go about evaluating that?
3:55 p.m.
Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
The Canada Revenue Agency has a limit in its mandate, so we don't actually get involved in the governance of charities per se.
However, there are quite a number of obligations that registered charities must abide by under the Income Tax Act. Probably the most important obligation on that charity is to make sure that its operators file their annual information return within the prescribed timeframes. That return describes the activities they have been undertaking and it provides quite a bit of information in terms of their financial position, their expenditures, their revenues, their assets, and their liabilities. That information return is accompanied by their financial statements. Every year they must provide this information to us.
We monitor the activities of charities. We then make that information available to the public through our website or upon request by the public. That is probably the most important interaction that we have with the charities on an ongoing basis, leaving aside audits and things of that nature.
3:55 p.m.
Conservative
Randy Hoback Conservative Prince Albert, SK
As far as the public disclosure of the charity is concerned, whether it is done via the good old Internet or in printed material, how do you evaluate the processes? As well, do you have established best practices that charities should utilize for public disclosure? Is there something that would say what the best practices are for disclosing salaries or for disclosing where they receive their funds? Is that in the system right now?
3:55 p.m.
Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
We do quite a bit of outreach with registered charities. We also make quite a bit of information available through our website, as well as through information sessions that we offer and through webinars, to explain to charities how they're supposed to be completing the information return. It can be complicated, especially when we consider that many registered charities are supported by volunteers who may not have joined the charity for this particular purpose, but rather to support the program. We do a lot to help charities understand how to meet their reporting obligations.
3:55 p.m.
Conservative
Randy Hoback Conservative Prince Albert, SK
Do you evaluate a charity when they say they are a homeless shelter--I'll use that example again--to ensure the funds are being used for a homeless shelter and not for something that isn't in their original mandate? How would you evaluate that, and what would the ramifications be if they weren't using it according to what they were originally established for?
4 p.m.
Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
We do have an audit program, which we establish every year. We audit roughly 1% of charities every year.
If we were to audit a particular charity, we would ask that exact question: whether they are carrying out the charitable activities they said they were going to carry out. There could be a range of non-compliance, and we're able to choose the appropriate tool depending on the extent of the non-compliance that we find. That ranges from educating the charity to sanctions or penalties to, in the most egregious circumstances, revocation.
4 p.m.
Conservative
Randy Hoback Conservative Prince Albert, SK
I have about a million more questions, but I'll turn it back to the chair.
4 p.m.
Conservative
4 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
Thanks very much to each of you for joining us today.
I have a question, Mr. Keenan, on tax expenditure. You said there was a $34 million tax expenditure in 2011 attributed to the capital gains tax exemption on gifts of publicly listed securities. Is that correct?
4 p.m.
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
In the personal income tax system, that's right, yes.
4 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
I have two points. First, if the contributions that were catalyzed by the reduction and ultimately the elimination of the capital gains tax on gifts of listed securities had never been made, you would have no tax expenditure. Am I correct?
4 p.m.
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
Do you mean if they had never been donated?
4 p.m.
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
Yes, essentially--
4 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
I think it's very important when you're using terms like “tax expenditure” to understand that while you deem it a cost to the treasury, it's difficult to argue that it is a cost if you view it as something that doesn't really cost the treasury directly as a tax expenditure. If there had been no contribution whatsoever in the first place, there would also have been none of the leveraging that leads to other types of activities in the philanthropic sector.
When you say “a tax expenditure of $34 million”, it somehow attributes a cost to the federal government. What if they never sold the shares at all?
4 p.m.
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
The government publishes a tax expenditure report, which is the name that's provided, and generally that's used across--
4 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
But it implies a cost to the government. If a person had Royal Bank shares for 20 years and never parted with them, there would be no revenue to the government from that, correct?
4 p.m.
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
Do you mean if they held on to the shares?
4 p.m.
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
That's true.
4 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
So when you have people actually giving their shares, there is a leveraging on that gift that is yielding....
For instance, have you calculated the amount of charitable giving that was catalyzed by and leveraged on those contributions that resulted from the donation of publicly listed securities?
