Evidence of meeting #41 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was donations.
A recording is available from Parliament.
February 9th, 2012 / 4:25 p.m.
NDP
Hoang Mai NDP Brossard—La Prairie, QC
Thank you, Mr. Chair.
I have several questions for Ms. Alepin.
In your brief, you stated that according to an OECD 2009 report, Canada could expect to lose up to $200 million annually in taxes through tax evasion and fraud linked to the charitable sector.
Can you tell us what this substantial loss of funds is due to, what problems the loss causes and what Canada could do to prevent this?
4:30 p.m.
Chartered Accountant, Tax Policy Specialist, Author, As an Individual
With charitable organizations, there are technical issues linked for example to whether they are well run or not, or whether the rules are appropriate. We talked about that today. Because of all these technical issues, a good number of charitable organizations—and we have all heard of these cases—do not spend enough of the money that is given to them on charitable activities. The OECD and the Office of the Auditor General of Canada are the two main organizations that have looked into this issue recently. The OECD mentioned $200 million. You know the schemes, for example selling tax receipts for donations. A $10,000 tax receipt can be sold for $2,000. As a matter of fact, I think that example is quoted in the study. We all know that when it comes to audits and efficiency, there is lots of room for improvement at the Canada Revenue Agency with regard to charitable organizations.
4:30 p.m.
NDP
Hoang Mai NDP Brossard—La Prairie, QC
On that, you said there were only 40 auditors for all of Canada.
4:30 p.m.
Chartered Accountant, Tax Policy Specialist, Author, As an Individual
There are 85,000 charitable organizations and 40 tax auditors for all of Canada.
4:30 p.m.
NDP
Hoang Mai NDP Brossard—La Prairie, QC
Would you recommend that the number of auditors be increased to address these issues?
4:30 p.m.
Chartered Accountant, Tax Policy Specialist, Author, As an Individual
Absolutely.
It is shocking that there are only 40 tax auditors. And I am not alone in saying this.
Charitable organizations are important in that they have the capacity of reducing what Canadians pay in taxes. For our system to remain on the up and up, as is the case now, Canadian taxpayers must have the impression that CRA is keeping a close watch on charitable organizations. It is a shortcut for these organizations. They have a tax shield that they can take advantage of for life and, by giving out tax receipts, they allow taxpayers to lower their taxes. It just does not make any sense to only have 40 auditors.
4:30 p.m.
NDP
Hoang Mai NDP Brossard—La Prairie, QC
I would like to come back to this issue of 8% found in your main recommendation. Could you please tell us more? Would there be an impact on tax breaks per se or is this simply a way to ensure that charitable organizations spend where they should and therefore reinvest in the economy?
4:30 p.m.
Chartered Accountant, Tax Policy Specialist, Author, As an Individual
Actually as I was saying earlier, the rate is currently 3.5%. With that rate of compulsory expenditures for charitable purposes, if one compares the tax savings given to the founder of the foundation with what the foundation has to give back to society, one realizes that the Canadian government takes 20 years to replenish its coffers. In any case, it's a donation. Which means the donor wants it to be for charitable purposes sooner or later.
In order to ensure that the money is spent within a reasonable timeframe by determining a rate and an obligation to spend set at 8%, we ensure that the private foundation will require 10 to 15 years to spend the money it receives for charitable purposes. The private foundation is no longer a large bank account that is sheltered from taxes for ever. By increasing the rate to 8%, the foundation is forced to truly spend money every year for charitable purposes and not hang on to the capital in the name of some great founder until the end of time.
4:30 p.m.
Conservative
The Chair Conservative James Rajotte
Mr. Mai, you're almost out of time, but you will have another round.
Mr. Burrows has wanted to comment. Go ahead, Mr. Burrows.
4:30 p.m.
Head, Philanthropic Advisory Services, Scotia Private Client Group, Scotiabank
I have worked extensively with private foundations.
First, the 3.5% is a minimum. Many spend much more. The endowment system is for long-term benefit. To give you an example, we had a foundation that was set up in 1950 with $13 million. It's now $110 million. It has given out over $145 million to date. It's a long-term benefit for Canada.
4:35 p.m.
Conservative
Mark Adler Conservative York Centre, ON
Thank you, Mr. Chair.
We just celebrated the sixth year of Prime Minister Harper taking power in Canada—of the first Conservative government being sworn in. Since that time, our government has introduced a number of measures that have supported charities. We've received a number of accolades from various charitable groups. I'll quote one of them from Philanthropic Foundations Canada. They said that these measures “will spur donations and enable private foundations to do even more for Canadian communities”. I would add that our friends opposite have opposed every measure we have taken to help charities.
I'll start off with Mr. Burrows. You mentioned that our current tax system in Canada is probably the most generous in the world when it comes to charitable giving and incentives. Could you compare that with the American tax regime? Notwithstanding all of that, why are Americans more generous than Canadians?
4:35 p.m.
Head, Philanthropic Advisory Services, Scotia Private Client Group, Scotiabank
I think in a number of crucial measures we have a more generous regime, contribution limits being one. Their contribution limits are a maximum of gifts equal to up to 20% of their annual income, and up to 50%, depending on which charity it goes to. We have up to 100%. So that's significantly more generous. But it speaks to the issue that it's not just a tax expenditure.
If we treat charitable donations as just tax expenditures and don't look at underlying issues of faith, values, social connections--who asks whom.... There's a whole social dynamic around the support of charities that's immensely important, and that's a strong part of the American culture. Strong government influence in the post-war period in Canada has perhaps dampened that a bit here.
4:35 p.m.
Conservative
Mark Adler Conservative York Centre, ON
So going forward, do you think that charities stand much of a chance in Canada, given government deficits? There will be less money to spend on philanthropy and charities. Are charities in Canada in jeopardy at all?
4:35 p.m.
Head, Philanthropic Advisory Services, Scotia Private Client Group, Scotiabank
I think many parts of the sector struggle with severe resource constraints. But the philanthropic spirit is actually very large and strong in Canada. We're one of the leaders in the world in that as well. We compare ourselves to big brother America, but they set a very high standard. So I don't think it's a crisis.
4:35 p.m.
Conservative
Mark Adler Conservative York Centre, ON
Are charities doing enough to create a culture of giving in Canada?
4:35 p.m.
Head, Philanthropic Advisory Services, Scotia Private Client Group, Scotiabank
I think that has changed significantly over the last 15 to 20 years. Professional fundraising groups that appear before this committee did not exist 20 years ago, for example. There's a whole culture and professionalism to ensure that support is there for the charitable sector.
4:35 p.m.
Conservative
Mark Adler Conservative York Centre, ON
Mr. Waters mentioned earlier that the Bank of Montreal had donated over $28.2 million to Canadian charitable organizations. I know corporations are giving more and more, and the lowering of corporate tax rates by our government has certainly helped that.
Do you think we will see individual charitable donations going down and corporate ones going up?
4:35 p.m.
Head, Philanthropic Advisory Services, Scotia Private Client Group, Scotiabank
No. According to the long-term trend for Canadian giving over a 15-year period, giving has actually gone up by 120% from 1995 to 2010.
4:35 p.m.
Conservative
4:35 p.m.
Head, Philanthropic Advisory Services, Scotia Private Client Group, Scotiabank
It's individual giving. Individual giving is four times corporate giving in the system. So we focus on corporations, but the individuals are the lifeblood of the charitable sector in donations.
4:35 p.m.
Conservative
Mark Adler Conservative York Centre, ON
When corporations give--in this case $12.8 million--how much of that is actually from individuals within the corporation who give $10, $20, $100, and then the corporation donates the money and benefits from the tax...?
4:40 p.m.
Head, Philanthropic Advisory Services, Scotia Private Client Group, Scotiabank
I think in most cases the system captures direct corporate transfers, as opposed to community fundraising that goes out in the name of the corporation.
4:40 p.m.
Conservative
Mark Adler Conservative York Centre, ON
So we're missing a whole bunch of individual giving, and it's really higher than it should be.