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.
Conservative
Mark Adler Conservative York Centre, ON
In terms of tax treatment, I understand a non-profit also does not have to pay tax in certain circumstances.
Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
That's correct, Mr. Chairperson. A not-for-profit organization can be tax exempt if it meets the requirements in any given year for being tax exempt. The difference between a not-for-profit and a registered charity is that the registered charity cannot operate on a for-profit basis, just like a non-profit, but on top of that, it also has to pursue exclusively charitable purposes, as has been defined by the act.
It's a subset, if you will. Registered charities are a subset of the larger group of NPOs, non-profit organizations.
Conservative
Mark Adler Conservative York Centre, ON
The not-for-profits, then, do have to file a return every year. Am I correct?
Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
There is some information that needs to be filed by a non-profit every year, yes. It doesn't come to my directorate, so I'm not as familiar with it, I have to admit.
Conservative
Mark Adler Conservative York Centre, ON
How public is the financial information of the charitable organizations right now?
Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
It's very public. The annual information return, which they have to file, contains financial information, and it is available on our website.
In addition to that, they have to file their full financial statements. Those are also available upon request to the public. They're not available online, but they are fully disclosable.
Conservative
Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
Yes.
Conservative
Mark Adler Conservative York Centre, ON
A non-profit, then, is still, if you can just clarify it for me, permitted to make a profit, correct? It's kind of a misnomer, isn't it?
Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
A not-for-profit organization cannot be structured with the intent of earning a profit.
January 31st, 2012 / 4:20 p.m.
Conservative
Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
Then it is not non-profit in that year.
Conservative
Mark Adler Conservative York Centre, ON
Would it be required to give up its non-profit status, or would it just pay tax on its profit and be treated as a for-profit organization for that particular year?
Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
It doesn't actually have a status that can be taken away in the same way that the status of a registered charity can be. It's based on an assessment that's done every year. If there are profits and the organization does not meet the definition for a non-profit in a given year, then it would owe tax.
Conservative
Mark Adler Conservative York Centre, ON
Would the onus be on the not-for-profit to declare that information to Canada Revenue?
Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
That is correct.
Conservative
Mark Adler Conservative York Centre, ON
Everyone else risks the possibility of an audit; if the not-for-profit is audited and is found to have made a profit, then there are going to be taxes or penalties and interest due and all that sort of thing. Is that right?
Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
That would be correct.
Conservative
Mark Adler Conservative York Centre, ON
You can see what I'm getting at here.
Take a trade union, for example, which is set up as a non-profit but makes a profit. Its revenues do exceed its expenses over the course of any given year, yet I'm not aware of any trade union that pays taxes.
Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
The Income Tax Act requires the not-for-profit to make the assessment every year to determine whether it meets the definition of a not-for-profit organization. Under our system of self-assessment, it would need to properly assess whether or not tax was owing.
Conservative
The Chair Conservative James Rajotte
Okay, thank you.
Thank you, Mr. Adler.
We'll go to Mr. Marston, please.
NDP
Wayne Marston NDP Hamilton East—Stoney Creek, ON
Your timing is absolutely perfect, Mr. Chair.
Following from Mr. Adler's comment and the fact that I came out of the labour movement, I will point out that trade unions survive on fees paid by their membership. They're not raising money by earned income, so it is a whole different thing.
Before I go too far, I want to just thank the chair for my time on this committee and for the fair and balanced way that you've conducted yourself, sir. Across this place, where we have significant differences, we went through the pre-budget hearings, I think, in a very good fashion, and showed that we're prepared to work together and disagree together.
Now I'll go back to work.
It struck me when the $200 level for a tax credit was mentioned in the CRA presentation, and then above that the proportion was higher--29%, if I remember correctly.
I was on the United Way board for 27 years. I was never the treasurer, but most of our donations to the United Way from ordinary people in the campaign were under the $200 limit. It just struck me that, sure, it's wonderful if somebody can give you $50,000, for instance, but why would the tax treatment for the two different levels be different? The value of what the person gives you at the lower level should be equal to the value of what somebody gives you at the higher level, should it not?
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
The tax credit that applies on the first $200 of charitable donations is not necessarily limited to the donation that an individual may make to one organization. If they gave $100 to the United Way and $100 to another organization, then that's the first $200. Anything above that amount that the individual chose would receive a credit at 29%.
Essentially, the system is designed to provide an incentive for people to give more. It provides a credit at the first income tax rate on the first $200, and then at the highest rate for anything above that, which, generally, for most taxpayers, is well in excess of the tax they would pay on the income they earned to make that donation.
NDP
Wayne Marston NDP Hamilton East—Stoney Creek, ON
My point was that the person who's giving you the $100 sometimes has to work harder to give that $100 to the charity than someone who has an income of $100,000-plus a year does, and so that gives it less value. It seems to me we could be encouraging them to do a little bit more by treating them equally together, but that's just my own humble view of it.
You talked about your audits, the 1%, and the compliance. I'm just curious. In those audits, what is the compliance rate? The second part of that is the reporting that has to be done. Every place you go, you hear people talk about red tape and the problems of accessing government in one form or another or about compliance.
Has there been a look at streamlining it, improving it, taking some of the burden off of these non-profits, which very often have volunteers doing much of the work?