Thank you.
Mr. Chairman and members of the committee, good afternoon.
I practice law with the law firm of Drache Aptowitzer LLP. We are engaged in the practice of both charity law and tax law, and we are, on a daily basis, involved in minutiae and technical aspects of charity regulation and donations.
We also have an interest in public policy in the area, having studied and written on the topic of charity law for many years. We applaud Parliament's decision to examine the charity area, as historically Parliament has paid only scant attention to some aspects since special treatment of certain wartime charities was introduced in the Income War Tax Act of World War I.
We agree with previous witnesses from the Department of Finance that from a tax perspective the current system is quite generous, so we are not proposing any additional measures where the purpose is to increase the generosity of the tax credits. But fundamentally, there must be two factors present in any incentive system. The first factor is that Canadians must understand the system so that they can act accordingly. The second factor is that disincentives should be, to the extent possible, eliminated from the system. In this regard, the biggest disincentive to giving is the latent mistrust that comes with the charity sector, which is less than perfectly regulated.
In our written brief we make five suggestions to improve the incentive system and at the same time improve public trust in the regulation of charities. Specifically, our suggestions are as follows.
Our first suggestion is to introduce a single rate for the calculation of tax credits to replace the current two-rate system.
Our second suggestion is to move the deadline by which donors may take advantage of donation tax credits resulting from donations from December 31 to the end of February. By divorcing the tax deadline for gifts from the sentimental Christmas season of giving, charities could use the new deadline to campaign for new donations and to better educate donors about the tax incentives for giving.
Our third suggestion is to increase the maximum deduction or credit that can be taken on donations from 75% to 100%, in order to support social enterprise.
Our fourth suggestion is to legislate a definition of “charity” in order to ensure that charities can be created to meet the needs of modern society. We would point out that this issue was debated by Parliament in the 1930s and questioned in the Senate in the 1970s, but to our knowledge it has not been seriously studied since the current income tax system was implemented. The question of what qualifies as a charity is a fundamental concern to this country and should not be glossed over.
Our fifth suggestion is that the federal government should begin discussions with the provinces to bring them into the regulation of charities.
Of these five suggestions, I believe the fifth one requires the most additional explanation. It may surprise the committee to know that the constitutional jurisdiction to regulate charities belongs to the provinces, but because the provinces have effectively abdicated their authority, Parliament has used its taxing power to impose some level of regulation over the sector. Unfortunately, federal jurisdiction relating to charities is restricted to what can be reasonably justified to maintain an income tax, and Parliament is therefore quite limited in the types of rules it can impose. As a result, some parts of the sector are poorly regulated or are left unregulated.
For example, there is no statutory regulation of charity fundraising expenses, and the CRA recognizes, in its guidance to the sector, that it has no legal authority to do so even administratively. As the committee may know, controversy over fundraising costs receives media attention with some frequency, and the distrust caused by the lack of regulation of this, and of other areas, is a significant disincentive to charitable giving.
In our submission, the provinces, as those with the constitutional authority to govern charities, must be brought into a joint regulating body so that proper regulations can be drafted. This, of course, would apply equally to areas such as fundraising, transparency, and political advocacy by charities. I outlined in much greater detail the problems with the current regulatory structure and my proposed solution in a paper I wrote, which was published by the C.D. Howe Institute in 2009. The paper has garnered significant interest and support, but no solution to the problem of charity regulation is possible without parliamentary agreement. I have e-mailed a copy of the paper to the clerk of the committee for your review.
I'm happy to answer any questions you may have about our submission, but for now I confine my oral comments to the above.
Thank you.