Finance Committee on Feb. 2nd, 2012

[Prof. Adam Parachin]

Very quickly on bequests, I used to be an estate planner prior to joining the academy.

A useful first step might be to take a look at what donations out of testamentary trusts created in wills are actually recognized as gifts. The way the law currently stands, many distributions of income out of testamentary trusts do not qualify as gifts. Many distributions of capital out of family trusts created under wills do not qualify as gifts, and there's the potential to lose out on billions of dollars.

That might be a bit of an exaggeration there, but the point is that there's going to be billions of dollars of wealth transferred through trusts, and there's the potential that a bunch of that won't go tax-receipted. That's a serious problem.

[The Chair, Conservative, James Rajotte]

Thank you.

I think we'll have to let Ms. Payne answer in a following round. I believe Ms. McLeod has another round.

I'll go to Mr. Mai now, please.

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

Thank you, Mr. Chair.

As you've probably seen, a lot of the organizations or briefs talk about the stretch tax credit. I'd like to know your opinion. I think we've heard from Madame Laforest, and she's for it. From your perspective and according to your research, do you think it's a good thing, or do you think it should amended, and how? Anyone?

[Prof. Paul Reed]

It will be of greatest advantage to those who are already currently serious, systematic, and probably large-amount donors. It will contribute some increase in the dollars that are contributed charitably.

What is it going to do in terms of increasing the number of donors, or charitable giving as an activity behaviour in Canada? I'm not sure. For very small-amount donors, it's probably not going to do very much.

[Prof. Adam Parachin]

I have some concerns over this particular proposal.

I think, as it's already been published in the media, it could trigger some potentially abusive planning in terms of people just aggregating donations into a single year, giving nothing in other years, or combining spousal donations. I can tell you, as a certainty, that will be the tax advice that will be given. There will be ways to draft around that. There will be anti-avoidance rules to prevent that, but what that will make the rule complicated.

I don't have empirical data for this, but I suggest that the more complicated a tax incentive is, the less likely it is to act as an incentive. If you don't know the baseline above which you have to give, how is it going to incent more donations? I think the bigger the tax incentive, the more the government's likely to take a stronger regulatory posture in relation to charities. That concerns me in terms of preserving the independence of the sector.

I also have concerns regarding the tax equity of treating two donors, who donate the same amount in the same tax year, differently. Two taxpayers give $5,000 under that proposal, and one taxpayer might get a 10% greater incentive, even though they've behaved identically. Tax policy has a rule called tax equity. We typically try to treat taxpayers identically when they behave identically, and this particular proposal departs from that tax policy criterion.

I don't think any of those are fatal to the credit, frankly, but they're at least talking points to be taken seriously.

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

Mr. Reed, in your study of the core civic donor and how we can actually engage.... You mentioned the matching, or what happened in Haiti and all that, but what's your view on the best way to actually go forward in terms of which tools we should use to get people more involved? Obviously, we can't replace religion, but how can we help in terms of getting people to be more participative?

[Prof. Paul Reed]

Point number one is that it takes a generation to create a generation of civically active people. It's a learned process. Giving public prominence to this activity, not to individuals necessarily but to the activity, and the difference that it makes in our society, as well as public education—those are a couple of observations.

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

Ms. Laforest, we talked about the fact that the government was withdrawing from programs.

There is less and less support for organizations and their expenses. It is accepted politically that up to a certain percentage, everything in these organizations is verified. You mentioned certain concerns or consequences on the ground.

Can you tell us more about that?

[Rachel Laforest]

In fact, in practice, the organizations do not have many tools to find other resources. I think that that explains in part why they are very favourable to the idea of what is called in English the stretch tax. Indeed, this would give them a tool that would allow them to promote social action and community participation. That is their perspective, in any case. There is a lack of mechanisms to encourage people.

In the research that I did, I observed that in several provinces, in Ontario especially, organizations are turning to the provincial government because the federal government is withdrawing its funding. For instance, in the area of immigration, a number of services are offered to the community. There is a lot of uncertainty in this area, and because organizations are turning to the province to obtain funds, the provincial governments are under pressure. Those are two situations I observed in the field.

[The Chair, Conservative, James Rajotte]

Merci, Monsieur Mai.

I'm going to take the next round.

Mr. Parachin, I wanted to ask you two questions, and then hopefully I'll have time for another issue. I'll ask both of them at the same time.

You talked about the stretch tax credit and how it becomes then a three-stage credit. We have a two-stage credit now. What are your thoughts on moving then to a single stage, for which it would be the same percentage with respect to donations under $200 and over $200? That's the first question.

The second one is that I have the same reaction Ms. McLeod has. I like the fact that you're recommending clarifying the term “charitable donation” or replacing the term “gift”. I like that on the face of it. The concern I have is whether there are going to be unintended consequences that we are going to have to clarify through the legal system. If this legislative change is enacted, are we going to then have a whole new series of clarifications through the legal system regarding “charitable donation” that we have had to this point with respect to “gift”?

Could you please address those two points?

[Prof. Adam Parachin]

On the first issue of the single credit, there are other people making that submission before the committee. There's certainly something to be said for it. I don't think it's going to solve the revenue dilemmas that charities are currently facing, although it does have the benefit of simplifying the law. The other potential concern is that if you look at what that actually does, depending upon the value of the credit, donors are receiving more back in the form of a credit than they're actually contributing, which currently goes on, to some extent, depending on the tax bracket you're in.

That causes me some concern in terms of how we actually approach charities from a policy perspective. Are charitable funds public funds? Are charities public? Are they different from the government? That causes me some concerns, because it'll have impacts on how the government regulates charities. What hangs in the balance there is whether or not we actually lose some of the innovative potential of the sector if it's regulated too rigidly on the theory that this is all public money. I think that's a relevant concern.

On the other topic on unintended consequences, the big potential unintended consequence is regulating abusive donations. One of the advantages of the ambiguity of existing law is that regulators always have in their back pocket the ability to say that if you participated in an abusive arrangement you lacked “donative intent”, and because of that you made no gift. In theory, “donative intent” has no relevance. It's just something that's out there in the case law to give courts and regulators a safety valve to pull the plug on those schemes. But there has been some published literature on better ways to target them.

So there are concerns, but they're answerable, and they're answerable in a way that is better than the current way.

[The Chair, Conservative, James Rajotte]

If you have anything to submit as follow-up to that, and certainly on that point, I'd appreciate it.

The second issue I wanted to raise was that of tax filers and charitable donors.

Ms. Laforest, you said that the number of donors actually declined from 30% in 1990 to 23.4% in 2010.

Mr. Reed, you stated that the incidence of income tax returns that report charitable donations for tax credit purposes has been falling since 1982.

I asked Statistics Canada about a chart that showed the tax filers going from about $18 million to $24 million and the charitable donors staying constant in terms of numbers. My recollection of what they said to me on Tuesday was that I shouldn't be reading too much into that, and in fact they used the example of a couple, where one person may donate for the couple. I can certainly follow up with them on that, but they seemed to indicate to me that it wasn't too much of a concern that I ought to be looking at, whereas I think both of you are saying something opposite. So I wanted to give you the opportunity to expand on that point.

I have about a minute between the two of you.

Who would like to go first?

[Prof. Rachel Laforest]

The data I have from Statistics Canada is that the number of tax filers has increased and the number of donations has increased, but the actual.... From Imagine Canada, the trends in individual donations show that the number of donors has actually declined. I'm not sure.... I'm assuming they base that on Statistics Canada. I don't have direct knowledge, but that's where I got that information.

[The Chair, Conservative, James Rajotte]

I can certainly share it with you afterwards as well.

[Prof. Rachel Laforest]

Yes, please.

[The Chair, Conservative, James Rajotte]

Briefly, Mr. Reed, for 30 seconds.

[Prof. Paul Reed]

There are four sources of information, surveys, or programs that produce data on charitable giving. No one of them has a monopoly on accuracy and precision.

The stuff that comes from the income tax returns has some absolute strengths and advantages, but in other respects it has to be taken with great care. Stats Can's presentation was based entirely on income tax returns. Stuff that comes from the Canada survey of giving, volunteering, and participating is a different number. The stuff that comes out of the survey of household spending is a different number. The stuff that comes from.... I could go on.

[The Chair, Conservative, James Rajotte]

Okay.

[Prof. Paul Reed]

There is a great deal of care that has to be used.

[The Chair, Conservative, James Rajotte]

Yes. In fairness, Statistics Canada did advocate that we wait until their spring survey. I think it comes out—

[Prof. Paul Reed]

But it's going to tell a different story.

[The Chair, Conservative, James Rajotte]

It's going to tell a different story?

[Prof. Paul Reed]

Oh yes, for sure, because it's a different kind of measurement.

[The Chair, Conservative, James Rajotte]

Okay Thank you.

I'm going to go to Ms. McLeod first and finish with Mr. Brison.

Ms. McLeod.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you.

We have focused the conversation today on charitable giving by persons. I want to quickly mention charitable giving by corporations. I don't know if anyone has information they can share. Certainly corporations are in the business of making a profit, but does anyone have any thoughts or insights they would like to share in terms of this whole particular area?