Evidence of meeting #39 for Finance in the 41st Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was charities.
A recording is available from Parliament.
Conservative
Prof. Paul Reed
Sure.
What I've taken into account, using exactly the same data as Professor Lamb, is to look not only at what donors said they felt about tax credits; look also at how they actually behaved subsequently. After saying tax credits were important to them, did they intend to claim them? The answer, for a very significant number, was no. Another question was asked: Do you take tax credits into account in your charitable giving? The answer again was a very strong no.
So we look at both views and anticipated behaviours, and the numbers shrink progressively as you move through that analytical sequence.
Conservative
Conservative
Cathy McLeod Conservative Kamloops—Thompson—Cariboo, BC
Absolutely.
Do you have any comments? I think this is a really critical piece for us to understand, and it sounds like we have research showing different things.
Prof. Laura Lamb
Sure.
Our study was based on behaviours rather than on the survey question directly asking individuals whether a tax credit was important to them. I agree that statistically it's a difficult thing to test.
The Canadian survey of giving, participating, and volunteering asks a specific question about whether tax credits are important to you and if you plan to claim for a tax credit. That wasn't the measure we used in our study. We used a regression analysis, where the price of donation was a variable. So we included a variable that represented the tax credit, and that was shown to be statistically significant.
Granted, it's a difficult variable to measure, and I'm not sure what the statistical expertise of the committee is, but we have to deal with endogeneity issues. You probably work and consult with Statistics Canada people as well, but it's a difficult variable to measure, and we use a proxy variable to measure it.
There is a little bit of uncertainty, but there is whenever you're dealing with survey data. The specific study we have done has been recently accepted for publication in a peer-reviewed economics journal, Applied Economics Letters, in the U.S., so it has gone through a peer-reviewed process as far as statistical technique.
In addition to that, in one of our papers we compared our results with some other results done in different areas. For example, a couple of studies done in the U.S. have also found.... And I understand their tax credit system is different. Instead of using a tax credit, they use a tax deduction. A study by Brooks in the U.S. from 2007 also found the tax incentive to be effective. The two former Canadian studies we found that go back a little ways—Kitchen and Dalton in 1990, and Kitchen in 1992—also found tax incentives to be a statistically significant variable.
Although there are some complications and difficulties in measuring such a variable, our results did appear to be in line with some other studies that were quite similar.
Conservative
The Chair Conservative James Rajotte
Okay. Thank you, Mrs. McLeod.
We'll go to Mr. Hsu, please, for a five-minute round.
February 2nd, 2012 / 4:10 p.m.
Liberal
Ted Hsu Liberal Kingston and the Islands, ON
Thank you, Mr. Chair.
I'm going to ask a question and I'm not sure who to direct it to. I'm interested in this idea of the elasticity of donors.
Suppose we wanted to incent an increase in the number of donors, not necessarily an increase in the total amount of donations. What sorts of tax incentives do you imagine could incent one but not necessarily the other—or focus on one?
Liberal
Prof. Rachel Laforest
To date, most of the tax measures have targeted the wealthier donors and improved tax treatment of giving of assets. But now we really need to focus on first-time donors and those of limited needs. I'm supportive of the idea of the stretch tax.
I know that the economic data is really mitigated around whether you can use tax incentives to change behaviour, but I think that measure is interesting because of the full support it has from the non-profit sector. I think it's a useful tool they can then use to incite and get people to think about giving differently and setting benchmarks in order to improve from year to year.
I also think it's a really useful tool for the youth population. If we're looking at the fragility of the civic core, we need to be thinking about the future generation of youth and how they're engaging. The reality is that they're giving smaller donations and they're involved in youth movements, like Me to We. They engage in the public sphere very differently, and the stretch tax credit would be useful to them because they would have a huge impact even at the lower level of donations.
Prof. A. Abigail Payne
Yes.
Something that's coming out in all of this, which is being missed, is that there have been two events, the effects of which we could measure if we used individual tax returns. There's a longitudinal administrative data set through Statistics Canada that you could get private access to, so you guys could request that.
The first thing is the change in the treatment of publicly traded securities. You could actually look from year to year for individuals who used those types of deductions for their giving mechanisms, and you could understand better who was motivated by those changes.
The other big thing, more for the small or the bigger donor tax base, was the Haiti earthquake. If you remember, there was a big push put on regarding the government matching funds if people started giving. You could look at individual tax returns and ask who started giving to Haiti as a result.
There's potentially a lot of information you could gather to try to see whether a matching grant motivated people. That would help inform you whether doing something in terms of tax credits would be sufficient to motivate the donor base.
Liberal
Ted Hsu Liberal Kingston and the Islands, ON
Thank you.
A lot people who maybe are not necessarily so wealthy often want to help out a cause, and they switch back and forth between donating money and donating time. How do tax incentives affect this balance? Do we know anything about that?
Mr. Parachin.
Prof. Adam Parachin
Donations of services don't qualify under current law. That's not unique to Canada. There are probably some good reasons for that, at least one of which is the potentially highly significant revenue implications of recognizing donations of services, in the sense that people aren't bound, given the scarcity of their time, to donate in the same way as they're bound by scarcity of financial resources or property.
One of the other difficulties is there's generally a principle that you find in the cases, although it's not always articulated as bluntly, and that is we generally don't like to recognize donations that are difficult to value. That's one of the fundamental problems with recognizing donations of services as tax-receiptable gifts. If that's something the committee wants to look at, it would best be done as a separate regime, rather than piggybacking on the current one, which would require a valuation of the service contributed.
Those are reasons why this jurisdiction and others historically haven't recognized those kinds of donations.
Conservative
The Chair Conservative James Rajotte
Mr. Hsu, you're out of time.
Mr. Reed, you had put your hand up. Did you want to comment on that briefly?
Prof. Paul Reed
Very briefly; it's relatively easy. Mr. Hsu's question is a very sharp and pointed and important one. It's very important to recognize the difference in what I'll call the instrumental objective in raising more funds for the non-profit sector through a change in tax credits. But charitable giving has another dimension to it that involves civic participation: how people learn to contribute to their communities. That's where increasing the number of donors and the activity of giving become very important as long-term objectives.
We don't know very much about that.
Conservative
The Chair Conservative James Rajotte
Okay, thank you.
Thank you, Mr. Hsu.
We'll go to Mr. Hoback, please.
Conservative
Randy Hoback Conservative Prince Albert, SK
Thank you, Chair.
I would like to thank the witnesses for being here this afternoon.
First, I want to review what we have in place right now, and I want to make sure we've done the proper job promoting what's in place right now. I know there were a few comments earlier about how we seem to see an income gap between who's willing to donate and who's not. I wonder if that's as much knowledge-based as anything. In the higher income, you have a third party doing your income taxes. You have the ability to look at what your options are to take advantage of whatever programs are there.
Have we done a good enough job promoting the existing tax benefits that are sitting there right now?
Conservative
Conservative
Randy Hoback Conservative Prince Albert, SK
I was going to leave it wide open in case somebody wanted to express their opinion.
Conservative
The Chair Conservative James Rajotte
Is there someone who wants to take this?
Ms. Payne, go ahead, please.
Prof. A. Abigail Payne
I think one of the interesting things is that as people are using computerized tax services—so even if they're not using a personalized tax service to do their taxes—it's not uncommon for the software to ask you, “Did you donate? Are you aware of this?” That raises a very interesting thing about creating more knowledge for people. That's something we really haven't studied, or I don't know of anybody who has studied that particular phenomenon. But there is probably an issue about what information is out there.
The other issue is that these are non-refundable tax credits.