I shall continue.
The most obvious and most easily understood flaw with regard to the tax system for charities was highlighted in one of the comments in the 2010 Auditor General's report. That report indicated that there were only 40 auditors for the 85,000 charities across Canada, although CRA had 41,000 employees.
There are also other significant problems with the tax system for charities in Canada. Today I am going to identify a very specific problem. It concerns the tax regime applicable to private charitable foundations. This is a financial problem, and in times of crises or in times preceding crises, I think it becomes increasingly relevant to mention.
The problem stems from the fact that, essentially, the fiscal agreement between taxpayers and the founders of major private foundations is inappropriate, particularly during a crisis. Here is the agreement we are talking about. On the one hand, Canadian taxpayers give tax breaks to private foundations. This tax savings exceeds 50% of the capital of the donation in the first year following the registration of the private foundation.
On the other hand, the private foundation should invest significant funds into Canadian society, in the form of charitable activities, in order to ensure a balance of public finances. However, this is not the case. In reality, current tax law is such that, in our opinion, private foundations are forced to spend for charitable purposes the equivalent of 3.5% of the foundation's capital each year.
Let us take a concrete example. I invite you to note the fiscal deficit in the equation or the agreement referred to. What happens when a $100-million donation is made? On the one hand, the private foundation and founder will receive, starting in the first year, tax savings totalling over $52 million.
On the other hand, Canadian society only gets from the private foundation $3.5 million in charitable contributions to society, since that is the minimum amount imposed through tax law and charitable foundations rarely spend more than these tax laws require them to spend for charitable purposes.
I would like to draw your attention to the fact that this minimum amount was at one time much higher in Canada. In 2010, it was reduced to 3.5% by the Harper government due to the drop in the rate of return on capital, in order to reflect the drop in the rate of return on capital.
In the United States, this minimum requirement mandatory threshold charitable spending is 5%. At present, the Obama government is studying how to amend this agreement which puts taxpayers at a disadvantage. Many lobby groups are studying the issue and proposing ways to resolve the issue by increasing the requirement on charitable spending per year.
In conclusion, if time permits, I would like to draw your attention to two issues. The rules are as follows, meaning that private foundations are being asked to spend only the return on capital to respect the wish of founders who want their major private foundations to last into perpetuity and for ever. During difficult times and prior to a crisis, I think that it is a good time to look again at this power we are giving to founders of major foundations.
Finally, given that, according to the latest Canada Revenue Agency statistics, about $20 billion was tied up in private foundations in Canada, if the present annual spending obligation went from 3.5% to 8%—which has actually been done—we could inject annually up to $1 billion in specific sectors like health and education.
Thank you.