Finance Committee on Feb. 7th, 2012

[The Chair, Conservative, James Rajotte]

I call this meeting to order. This is the 40th meeting of the Standing Committee on Finance, with our orders of the day pursuant to Standing Order 108(2), a study of tax incentives for charitable donations. I want to thank all of our guests for being with us here this afternoon.

First of all, we have as an individual, Mr. Donald Johnson, who is a member of the advisory board of BMO Capital Markets. Secondly, from the Canadian Association of Gift Planners, we have Mr. Robert Kleinman. From the Canadian Land Trust Alliance, we have Ms. Karen Cooper. Welcome. From Imagine Canada we have Marcel Lauzière, who is president and CEO. We have two United Ways: from United Way of Burlington and Greater Hamilton is CEO Mr. Len Lifchus—I hope I am pronouncing that correctly—and our final presenter will be from the United Way of Canada, Mr. Allen Hatton.

You each have five minutes for an opening statement. We'll begin with Mr. Johnson.

[Donald Johnson, Member of Advisory Board, BMO Capital Markets, As an Individual]

Good afternoon, ladies and gentlemen. Thank you for providing me with an opportunity to participate in this important hearing on tax incentives for charitable donations. l'm appearing today in my capacity as a volunteer board member of four not-for-profit organizations in each area of the charitable sector—health care, education, social services, and the arts. In this capacity, my responsibility is not only to provide oversight and guidance to the management of these organizations, but I am also actively involved in fundraising from the private sector and donating personally.

The fiscal challenges facing the federal, provincial, and municipal governments are also creating fiscal challenges for our vital not-for-profit sector. With governments at all levels reducing their deficits by focusing on spending cuts and restraint, our charities desperately need additional funding as the demand for their vital services continues to grow, especially for health care and education.

The removal of the capital gains tax on gifts of listed securities has been an enormous success. The initiative began with the Liberal government in 1997 and was completed by the Conservative government in 2006, with the support of the NDP, as well as the Liberals and the Bloc Québécois. Since 2006, our charities have received over $1 billion every year in the form of stock donations.

You now have an opportunity to capitalize on this success by expanding the capital gains tax exemption to include gifts of two other appreciated capital assets: private company shares and real estate. Both are exempt in the United States, and it is estimated that removal of this tax barrier to charitable giving would result in an additional $200 million per annum of incremental donations, at a cost to the federal government of only $50 million to $65 million.

Concern about valuation abuse can be addressed very simply. The charity could not issue a tax receipt to the donor until the charity has received the cash proceeds from the sale of the asset. Furthermore, if the purchaser of the asset is not at arm's length from the donor, the charity, not the donor, would have to obtain two independent professional appraisals to confirm that the value received by the charity for the sale was fair market value.

These measures would help level the playing field for our hospitals, universities, arts and culture organizations, and social service agencies who are competing with their U.S. counterparts for the best and brightest talent. In addition, entrepreneurs who create and build companies and keep their companies private would have the same tax treatment for donating shares in their companies as entrepreneurs who take their companies public.

Understandably, many of the 107,000 members of the Canadian Federation for Independent Business would be supportive of this change. Also, because municipalities derive their revenues from property taxes, not income taxes, members of the Federation of Canadian Municipalities would also be supportive. Not-for-profit organizations in each of their communities would benefit from these increased donations. We urge your committee to recommend that Finance Minister Jim Flaherty include these proposals in his upcoming budget.

Thank you for this opportunity.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Johnson.

We will go to Mr. Kleinman now, please.

[Robert Kleinman, Executive Director, Jewish Community Foundation of Montreal, Canadian Association of Gift Planners]

Hello. I represent the Canadian Association of Gift Planners. I am accompanied by our Executive Director, Diane MacDonald.

We have over 1,000 members. Our expertise is in the area of planned giving and legislation respecting planned giving.

I am the Executive Director of the Jewish Community Foundation of Montreal and was previously a tax partner with Zittrer, Siblin, Ernst & Young.

Our association, CAGP, has three proposals, which we've outlined in our brief.

The first is the stretch tax credit. This was designed by Imagine Canada and has been talked about for a few years. As a nation, we are losing donors, which is troubling. More particularly, we are losing young donors, the young adults. Consequently, we have to change this movement and do something different. We have to change the paradigm, the agenda, and the discussion around the water cooler to civic involvement and charity. This requires leadership. We think this stretch tax credit can be one tool in moving Canadians to greater civic involvement, and this requires leadership from Parliament.

The second and third proposals we have are the capital gain exemptions on real estate and private company shares. When we're talking about private company shares, we're talking about something that's part of a unique system in the world.

The Canadian tax act is very unique, and how it treats corporations is unique. It motivates Canadians to create small businesses and put them in companies. They pay a lower rate of tax in that corporation. If they pull money out, they'll pay tax on dividends and salaries. But for the most part, if they don't need the money personally, they're going to keep it in that company and not pay that second round of tax. They're going to move it into holding companies. They're going to build wealth in their companies. That's different from the Americans.

So we need something to unblock that wealth—to move wealth from the wealthy to the public good—where a lot of it is in the hands of these corporations and holding companies. We believe this capital gain exemption on the transfer of private company shares to charities can be a great tool in providing that unblocking. This isn't for Bay Street. This is for coast-to-coast small businesses that have grown, that have done well, and that are the backbone of our economy, and whose turn it is to provide extra dollars to charity. We got that from the marketable securities from Bay Street; we got it from them, and they've done great. Now it's the others' turn.

Now, real estate is also another asset that is widely owned by Canadians across the country. Also, in some sense, there's an inability by some holders of real estate to dispose of it. The tax treatment is onerous because there is a tax shelter to real estate, and when you sell it, you pay back tax that you've saved. So sometimes they don't want to sell; they hold on to it. But we think the capital gain exemption is another way to unblock the movement of the value in real estate to charities. And when I talk about the movement of real estate, it's not the real estate; it's the cash.

At the end of the day, the CAGP, in examining these provisions and looking at it from a fairness point of view and the right way of doing it.... We've looked at the legislation currently in the Income Tax Act and we see that for gifts of non-arm's-length private company shares, sitting in the Income Tax Act today there are restrictions. The restrictions involve obtaining cash for those shares within a five-year period.

So we want to mirror the existing legislation used by CRA today, to their satisfaction, which indicates that for gifts of real estate or private company shares we have five years to monetize those gifts. If they are monetized within the five-year period, then that capital gain originally taxable on the transfer will be reversed and exempt. We want to use the same legislation.

[The Chair, Conservative, James Rajotte]

You have one minute.

[Robert Kleinman]

The second issue is valuation. By using cash as the king of what happens, that alleviates much of the valuation issues, because it's easy to value cash at the end of the day.

I thank you very much for giving me the ability to come here and speak. It's a great honour to be here.

[The Chair, Conservative, James Rajotte]

Thank you for your presentation.

We'll hear from Ms. Cooper now.

[Karen Cooper, Director, Canadian Land Trust Alliance]

Good afternoon.

My name is Karen Cooper. I'm a tax practitioner. My clients are largely charities and NPOs. I also teach the law of charities at the University of Ottawa. However, I'm not here in that capacity. I'm a volunteer and a board member with the Canadian Land Trust Alliance.

The Canadian Land Trust Alliance is a national land trust alliance that represents a membership of 55 land trusts across the country. We also work with the Land Trust Alliance of B.C., the Ontario Land Trust, and the Alberta Land Trust, which also represent local organizations.

What is a land trust? It's a charity whose principal objective is to provide long-term protection and management of ecologically sensitive lands. So these are land-based registered charities.

Land trusts can own this land outright, and they sometimes have conservation easements, so that's a right to have a say in the long-term protection of the land.

There are about 200,000 individual members and donors. We've got about 20,000 volunteers involved in the land trust movement in Canada.

They've done a lot over the last few years to get their house in order, including the development of detailed standards and practices that all members have to adopt in order to be a member of the Canadian Land Trust Alliance. In addition, most land trusts are eligible recipients under Environment Canada's ecological gifts program. To be an eligible recipient under the ecogifts program, you have to adhere to the Canadian Land Trust Alliance's standards and practices. To date, over 920 ecogifts have been made, with a total value of $577 million, including 141,000 hectares of wildlife habitat.

Why are we here today? We have two recommendations to the committee. The first is an extension of the carry forward provision for ecological gifts to a minimum of 10 years. The reason we're saying to extend the current five-year carry forward to 10 years is because the gifts we deal with are ecogifts, they're large gifts, and very often the availability of the credit can't be used within the five-year period prescribed in the act.

This is particularly the case for lands under significant development pressure. We're talking about coastal land, waterfront property, the last little bit of undeveloped land on the outskirts of Calgary. All of that land comes at a high value, and very often the donors aren't high income to match. They're referred to as cash poor/land rich donors. So by extending the carry forward to 10 years, you give those donors a longer opportunity to benefit from the ecological gifts program.

The cost to the government of extending this carry forward is minimal, if any, because in fact the donor already has the entitlement to the credit. What's falling off the table at the end of the six years in total is their ability to claim it.

As I said, these are large gifts. The average value is about $600,000, if not more these days. Because of that, donors tend to divide their gifts. Sometimes it'll be half the land one year and six years later they'll do another half. Sometimes they'll provide the conservation easement one year and then the underlying title in their will. Multiple donations over time increase the cost to the government of administering the program and they also increase the transaction costs for our members.

[The Chair, Conservative, James Rajotte]

One minute.

[Karen Cooper]

Our second recommendation is, of course, to support Imagine Canada's proposal of a stretch tax credit for charitable giving. Not only are land trusts involved in ecological gifts, they also require increased donations for their stewardship funds. In effect, they use their stewardship funds to care for that land. It's one thing to have the land; it's quite another thing to have the money required to maintain, protect, and preserve that land in perpetuity. Our members view the stretch tax credit as an important opportunity to increase the tax benefits to your regular everyday donors, who are the donors who give our members the bulk of their stewardship funds.

Thank you for the opportunity.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll now hear from Imagine Canada.

[Marcel Lauzière, President and Chief Executive Officer, Imagine Canada]

Thank you, Mr. Chair.

I am happy to appear today before the Standing Committee on Finance.

Imagine Canada is the voice for the charitable sector in Canada.

Today I'd like to talk mostly about the stretch tax credit, which is the focus of our brief. I want to talk about it because we feel it's an innovative and exciting policy proposal that we believe will make a real difference for charities and for Canadians.

This is actually about challenging Canadians of all walks of life to give and to give more. This is about changing behaviour. At Imagine Canada we like to say that everyone can be a philanthropist.

In developing the stretch tax credit we had two broad public policy goals in mind. The first one was addressing the shrinking donor base, and you've heard about that in the hearing of last week. The stretch is about strengthening and broadening the donor base starting tomorrow morning, but also for the next 5, 10, 15, 20 years. This is about, as I said, changing behaviour.

But the second policy goal is also about promoting engagement because we do know there is a direct relationship between giving and volunteering, between giving and civic engagement. So this is also about Canadians taking ownership of their communities. We see this as a unique opportunity for broadening the donor base and building community engagement.

As you know well, when you develop new policy or you think of new policy, you ask yourselves a number of questions. We've asked ourselves a number of questions.

The first one is, is it affordable? Imagine Canada is very conscious that the federal government is in a deficit situation, that it wants to eliminate the deficit, and of course Canadians also support that. We are certainly concerned about that, but we feel this is a cost-limited proposal. The Parliamentary Budget Officer did the numbers in the brief—between $10 million and $40 million a year. What's interesting to also remember is that the tax credit, and so the government cost really, only kicks in if behaviour actually changes. So there's only a higher tax credit if there are more dollars going to charities, if people are actually changing their behaviour, and that, I think, makes it quite different from a number of other tax credits. It really only kicks in if that behaviour changes. So that was the first question we asked ourselves: is it affordable?

The second one is, is it equitable? We believe this is really for Canadians of all walks of life. Successive governments have done, I think, very good work in the last few years in terms of measures to help wealthier or affluent Canadians become good philanthropists, and that has made a huge difference in terms of the dollars coming into the charitable sector to support Canadians. Overwhelmingly, those dollars have gone to universities, hospitals, and large cultural institutions, and that's a good thing. But the stretch is actually about levelling the playing field to ensure that Canadians of all walks of life also hear the message that they can be philanthropists. It's also about ensuring that the dollars actually go to charities that are small, that are large, that are urban, that are rural. So there really is, I think, something very equitable about the stretch.

Finally, we asked ourselves: does it actually have the support of Canadians? We worked with Ipsos Reid, which did a survey of over 1,000 Canadians across the country; 82% of those surveyed said they were in favour and supportive of the stretch tax credit.

Essentially, low cost, equitable—it means the broadest number of taxpayers will benefit the broadest number of charities, and it has the support of Canadians. For all of these reasons, we hope the finance committee will be supportive of the stretch.

As charities look at broadening the donor base, they are also mindful to continue to deserve the trust and confidence of Canadians. This is about transparency, accountability, and governance. Imagine Canada will be launching two major initiatives in the next few weeks. The first one is called “Charity Focused”. This is going to be a one-stop portal where Canadians will be able to have easy, user-friendly information about the 85,000 charities that exist in Canada right now. This has come.

[The Chair, Conservative, James Rajotte]

One minute.

[Marcel Lauzière]

We've been able to build this portal with the funding from the Canada Revenue Agency. That, I think, is going to be a game changer and will help Canadians to make their own decisions. I'd love to be able to give a demo to the committee down the road if you're interested.

The second one, and I'll finish with this, is that we're launching a standards program, an accreditation program for charities, so that they can show Canadians they have the systems and policies in place to be effective organizations, because we know that's what donors, funders, and volunteers are looking for. That, I think, is playing a leadership role worldwide and we're quite excited about that.

I am going to stop here. I'll be pleased to answer your questions, in French or in English.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much.

We'll hear from Mr. Lifchus, please, your presentation.

[Len Lifchus, Chief Executive Officer, United Way of Burlington and Greater Hamilton]

Thank you, Mr. Rajotte and members of the House of Commons Standing Committee on Finance.

My name is Len Lifchus and I'm the chief executive officer of the United Way of Burlington and Greater Hamilton. I'd like to thank you for the opportunity to address you today on the needed tax incentives for charitable donations.

I've had the pleasure of working in the not-for-profit sector for 34 years, the last 17 as the chief executive officer of United Way in Kelowna, Peterborough, and now Hamilton-Burlington. Over the course of my career with United Way I've had the privilege of meeting many of the donors whose philanthropy has provided such essential programs and services in their communities. Some support of many of these programs has become particularly crucial and urgent because of funding changes to programs previously supported by all three levels of government.

From my experience, there is a broad spectrum of people who support Canadian charities. Most of our donors are middle-income earners working in the private sector. Still others are blue-collar workers, and many work in the public sector. Some of our donors are low-income wage earners who have experienced poverty and want to help in any way they can, knowing from personal experience just how difficult life can be. Some come from very affluent backgrounds and have the ability to give very generously.

In Hamilton and Burlington our campaign has grown from $6.4 million in 2007 to $6.9 million in 2011. Corporate giving has grown from $1.5 million to $1.6 million in that same period, although the number of corporate donors has declined. As well, the number of individual donors has also declined, with fewer donors giving more money.

When I look at our investments in local programs and services, the demands far exceed our capacity. In fact, this year we anticipate a $600,000 shortfall between requests for funding and the amount of money we will actually be able to raise. We currently support 133 programs and services provided by 73 agencies in these two communities. Last year these agencies reported over 291,000 client visits. What is very much needed is a shift in philanthropic thinking. We must find new ways to encourage more individuals to step up.

I know that some argue that it is government's responsibility to provide for all social programs and services, but I am not foolish enough to believe that the government can or should be the sole provider of social services in our country. Changes to the income tax laws, similar to what is being proposed by Imagine Canada's stretch tax credit for charitable giving, provide an incentive to individuals to increase their philanthropic efforts. This is one method of rewarding those individuals who make a personal financial contribution to the social health of their community.

As a funder, I ask that changes to the tax legislation be made a priority. If additional dollars are not raised by the charitable sector, we will increasingly be faced with the prospect of defunding programs that our communities have come to depend on. The stretch tax credit is an easy win for us all, providing needed dollars to benefit all Canadians. You can greatly assist us by ensuring an enabling and predictable regulatory environment for Canadian charities that supports the important work we do. We are very proud of our partnership, and together we can ensure that a strong, vibrant, and secure Canada is available to all.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll hear from Mr. Hatton now, please.

[Alan Hatton, President, Chief Executive Officer, United Way of Canada]

Thank you, Mr. Chair.

Well, we've been very active with Imagine Canada, and we also support the stretch tax credit. And obviously Len spoke before me, so as an organization, we do support this particular tax measure.

I want to talk a bit about what's going on in the sector, because I think that's really critical to keep in mind here.

At the end of the day, this is about strengthening civil society. We are the largest funder of health and social services in the country outside of government. Each year now, we raise in excess of $500 million. The vast majority goes into thousands of organizations in communities right across this country.

I know, from talking to two or three of you earlier, that you've been involved in either Centraides or United Ways.

There's been a lot in the press these days about advocacy and transparency, in a certain way a distortion, I think, of what's actually taking place on the ground with charities. I think it's important to keep that in mind, because whatever decisions you make about how to support charities, it's critical if we are going to have a strong society made up of strong governments, a strong private sector, strong labour, and also strong community groups.

We engage more than 200,000 volunteers in United Ways across the country, and we have 900 full-time staff. So we are very engaged in economic development just in terms of the activity we generate in local communities.

What we're about now is actually innovation: measuring and trying to create results in local communities so that we can really talk about not where the money comes from and how much money we raise but about what we actually do with the money in local communities.

This is about solving social problems long term. For us, it's less and less about shelters and food banks and more and more about how do you create more housing? How do you get people out of poverty? How do you create jobs? How do you reduce discrimination in communities? The latter is what divides people.

To do this, we have to engage volunteers, donors, and citizens much more profoundly than in the past. If we're talking about long-term impact, this is much more challenging. Reducing poverty costs a lot more than investing in a food bank. Both are necessary, but if you're going to solve these problems, you have to be in this long term.

So our role is increasingly complex. In a sense, if we're going to do the old work, which is important—namely, supporting specific organizations to meet vulnerable people's individual needs—we also need to have companion strategies long term.

What do we see now on the road, as other panellists have said? We see governments cutting back at all levels and investing less and less in the not-for-profit sector. More and more will be going to health. More and more will be going to education. That means, frankly, in the social domain, less and less will be going to agencies on the ground in communities.

The private sector is very committed to supporting communities in their area, but they don't have the resources to do that. They're under more duress to make profits, and charity for them is more and more strategic. That isn't necessarily in the best interests of the total community. It's not bad, but it's not actually solving some of the deep problems we see in communities.

We also see that those organizations are now dealing with clients who have issues that are much more complex, that are multi-faceted, that cross over various fields. We have to be thinking more strategically about that.

Where's the pressure coming for us? It's not to deal with those issues; it's to be more transparent, to fill up more reports, to follow more regulations. Those are all important, but that isn't the critical work we ought to be talking about as Canadians, and that really has to be addressed.

For us, as we look forward and ask, “Where are new streams of resources coming?”, the stretch tax, for all the reasons that Marcel said, I think....

Do I have one minute left, Mr. Chair, or one second?

[The Chair, Conservative, James Rajotte]

One minute.

[Alan Hatton]

Thank you.

Basically we support that, because for us it's broadly based. It's a way in which we can actually change donors' behaviour. This is critical. This is a long-term investment. If we get donors, our experience is that once we get people engaged in volunteering, engaged as donors, we have them for life—unless we don't deliver. And then, rightly so, they should go somewhere else.

Our sense is that this is a way to change behaviour for Canadians, and for us that's a long-term investment, because the work we're doing now, if we're to honour what donors want, what governments want, what communities want, which is long-term impact, is work that is more expensive than ever.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you for your presentation.

We'll start members' questions with Mr. Julian, for five minutes.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you very much, Mr. Chair.

I'd like to thank all of our witnesses for coming forward today, because of your testimony but also because of the good work your organizations do in the community. You make a terrific difference right across the country, and we thank you for that. I was involved in leading a United Way agency before I was elected to Parliament, and I know what a difference the work that each of you does can make in a community. I'd like to commend you.

Now, what we're going to be struggling with over the next few weeks really is that balance between providing that additional support for the charitable sector and making sure the dollars are well spent and the dollars that governments contribute actually go to help support the programs. So I'd like to start with the issue of the stretched tax credit.

I understand that a number of you are speaking very clearly in support of it. I'd like to get a sense from you of what you think the cost to government would be, what the cost to taxpayers would be, and what the benefits would be, in very concrete terms. I'd like to start with Mr. Hatton and Mr. Lifchus, and then, of course, hear from Monsieur Lauzière and Mr. Kleinman.

[Alan Hatton]

I think for us the advantage is that a donation that comes in to us is actually unencumbered. I don't mean that we use it foolishly, but that we can actually be really strategic. So many other grants, so many other projects, and so many other resources that come in are very targeted and have a lot of strings attached.

The beauty of this—people donating to something they believe is important, whatever that charity is, right across the country—is that it actually allows that charity to do some of the innovative things and some of the things they can't get resources for through other means. That's probably the main thing.

The second is the fact that it's broadly based. For this, it doesn't matter if you contribute a hundred dollars, a thousand dollars, or several hundred thousand dollars: every person can be challenged to make a contribution. It's broadly based.

On the cost to the treasury, as Marcel said, we've done some preliminary studies and we've had discussions with Finance. It's hard to say, but as Marcel says, this only kicks in when people actually make a contribution, so I think it's something we can measure year upon year and adjust as time goes on.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Monsieur Lauzière.

[Marcel Lauzière]

Yes, to add to what Al was saying, there's a dual policy goal here, which I think makes it really unique. The first one, of course, is to rebuild. I shouldn't say that it's to “rebuild”, because it's still very strong, but it's to strengthen and broaden the donor base for years to come. We often forget that many, many charities, the vast majority of charities in Canada, actually do their great work through very small donations, not through very big gifts. It's really the small donations in that engagement with communities: that's how they actually do the work. That's what the stretch is all about.

So that's the first goal. It's to challenge Canadians and remind Canadians that if they give $30, $100, or $200, that makes a huge difference to their particular community. That's the first goal.

The second one is that we know there's a real link with people who are volunteering, people who want to get civically engaged. Al was saying earlier that once donors are on board, very often they stay on board. I think the stretch is something that would be very helpful on that front.

Also, I think it will allow charities to have an extra tool in talking to potential donors and the donors they already have. The idea of the stretch is to get people to constantly think of stretching their dollars. If last year they gave $300, why wouldn't they try to give $350 the next year and maybe $400 the next year? It's that whole idea of stretching and of challenging. In that sense, I think it's a tax credit that is very different from other tax credits that have come forward.