Finance Committee on Oct. 3rd, 2012

[J. Alexander Houston]

I think the incentive would be that the donor community recognizes a need, and that need is the absence of financing structures for charitable activities.

For the group of people who are interested in trying to move a set of structural issues in the sector and who want to do something beyond their grant-making, the possibility of investing in an intermediary that's going to deliver to a need is attractive. At the same time, if they can do this in a way that allows it to be an investment in which they would earn both a social return and some kind of a financial return, that's attractive too.

I think the incentive is there for a certain part of the donor community.

The issue of the risk arising from somebody’s becoming deregistered as one, I wouldn't really know how to answer. If we're talking about a loan transaction, I'm not sure that the status of the person to whom you're lending is necessarily relevant. You would still have the same financial relationship. You'd probably call the loan at that point because it would no longer be serving the community that you intended to serve or the organization was in some kind of difficulty, but that would almost be something that was within the structure of the loan provisions, which I must confess is not something I'm terribly familiar with.

[Shelly Glover, Conservative, Saint Boniface, MB]

You've answered the way I was hoping you would. I didn't want there to be some kind of criteria attached to it, because that would make it very complex.

Mr. Carmichael, you said there would be five tiers. I just want to make sure I understand what the five tiers are.

[Prof. Calum Carmichael]

No, that was in Portugal. I was not recommending that in Canada. I'm just saying one tier. I don't want my neighbour who works for the Canada Revenue Agency to come pounding on my door.

[Shelly Glover, Conservative, Saint Boniface, MB]

Okay. Perfect.

It's very interesting to me that you have studied this abroad, because we have had other people come and say, well, the United States has this, and the U.K. has that.

One of my colleagues already asked which country you thought has some of the best options, and I know you were hesitant to answer. If at any point you change your mind, and after you're finished here tonight you want to revisit that, please send us in your submission, because I'm curious to know what you think.

[Prof. Calum Carmichael]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Caron, go ahead.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I have one last question for Mr. Hallward and Mr. Houston, as they mentioned this topic during their presentations. Mr. Broder and Mr. Carmichael should feel free to provide an answer as well, if they wish to do so.

This is our eighth meeting on charities, and it is my third one. From what I can see, there is something that comes back again and again. Based on what people have said in their presentations—you are not the only ones, as those who presented before you said the same thing—the number of donors is going down, according to tax returns.

However, in March, Statistics Canada published the National Survey of Giving, Volunteering and Participating. This survey is conducted every three years. It seems to show that the percentage of people giving to charities has remained stable over the past three years, at 84%, and that the amount of donations has increased from $10.4 billion to $10.6 billion, I believe. So there appears to have been a slight increase, and the number of donors seems at least to be stable.

Looking at tax returns, there may seem to be a decrease. However, in these reports, we should remember that couples may share or split charitable donations. So, what is the right answer? Is the number of donors really going down or should we instead look at the results of the survey showing that the percentage is stable?

Mr. Houston and Mr. Hallward, we can start with you. Mr. Broder and Mr. Carmichael can answer afterwards, if they wish to do so.

[John Hallward]

I believe there are different data sources. The Canadian survey of voluntary giving and partnerships, which is run by StatsCan every three years, does quote that roughly 85% of Canadians give, and I think that's right. People have said, yes, they gave $5 to the Terry Fox run two weeks ago. The difference is it may not be receipted, and it may be very small. We're now at 23.1% of tax returns claiming a charitable receipt. That's been declining for 20 years; it used to be closer to 30%, so we're down almost a third.

This is people who have tax credits. They're smart enough to keep them and submit them. So we're probably talking about the bigger gifts and the wealthier people. But we need to know which ones we're tracking.

Yes, I can take my wife's donation and put it onto mine, and that explains maybe why it's lower. The median amount, which means half Canadians give more than this and half give less, in those claims is only about $250. So it's an extremely low percentage of the average household income. That $250 is relatively stagnant and not a big amount. So if I'm doing it for two, my wife and I, $250 is fairly petty. It's not a high number and that's our problem. It's not that Canadians don't give. It's that they don't know how much to be giving.

In an Ipsos survey, we asked Canadians if they knew how much they should be giving, and about 75% of Canadians said no.

Do all of you around this room know exactly what you should be giving to meet social norms? The people who know tend to give more. The people who had tithing, who were brought up to know what they should be doing, they give more.

So reason leads us to believe that teaching and defining works. We all have the same tax policy, so it's more than just a tax policy issue. It's a social, cultural, learned, mentored behaviour.

The same thing happened with recycling. Only 25 years ago, if you recycled, you were on the fringe and you were abnormal. In one generation if you don't recycle, there's peer pressure and you're a pariah. It was a multifaceted approach—teaching kids, peer pressure, and all these things made a fundamental change. It was the same with seat belts, drinking and driving, smoking. It takes time and it takes a multifaceted approach. That's what we're suggesting as a solution.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

As a more accurate indicator of donations in Canada, would you also suggest using the median amount of donations instead of the number of donors or the amounts given?

[John Hallward]

I'm a fan of the median if we're talking about all Canadians, because, as we recognize, something like 60% of the money donated comes from 10% of Canadians.

There are extremely wealthy people, and I'll leave those guys to Warren Buffet to go after. I'm talking about a behavioural, cultural thing so that a generation from now we don't run out of donors. So I want to go with the median, which defines and represents a metric for all Canada.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Caron.

I want to take the next round.

Mr. Broder, I want to discuss your brief. On page 1 of the brief, it says that the CBA

...supports streamlining of regulation to reduce the administrative burden on registered charities and other qualified donees and other measures that promote efficiency and effectiveness in the charitable sector while ensuring that resources available for charitable work are maximized.

Then you have the letter to the Minister of Finance, and under number three you have:

Permitting the legal representative to designate all or part of the Undesignated Gift Portion to be transferred to any testamentary trust created under the individual’s will. The Undesignated Gift Portion would be available to be applied against estate income according to the ordinary rules respecting charitable gifts. However, the estate may have insufficient income to utilize the consequential charitable donation tax credit because the will provides for the establishment of one or more testamentary trusts. The CBA Section believes it is undesirable from a policy perspective that the unused portion of the charitable donation tax credit would be unavailable by virtue of a specific testamentary scheme set out in the will. The CBA Section recommends that section 118.1 be amended to allow the legal representative to designate all or part of the Undesignated Gift Portion as a testamentary trust created under the individual’s will.

I support what you said on the first page, but it seems you're recommending things that are going to be complicating, certainly from an income tax perspective, the regulation of charities. When Mrs. Glover asked you the question, I was a bit unnerved in the sense that it was my question as well. I wanted you to explain how it would affect the will of one individual passing away.

Isn't this a bit of a problem that we're facing? People say to streamline things, not to over-regulate; however, just make these three changes that, in fact, go against the streamlining of the regulation and make it more complicated. You could even apply that to things—whether they're good or bad policy ideas—like the stretch tax credit or the donation of securities, which came up in 2006. It was a good policy idea, but it makes the system more complicated.

That's just a concern I want to raise and have you address.

[Peter Broder]

Again, I think I have to defer to my colleagues in the wealth and estate section in terms of the specific recommendations for their piece.

The reference to streamlining the regulation is, of course, a general regulatory scheme that the charities and not-for-profit lawyers encounter on a day-to-day basis. In a number of cases, those rules are drafted quite broadly, and without, often, a clear tax-policy rationale. What we're seeking in the general regulatory framework that applies to charities, as opposed to the donation piece, is that we look at whether there's an opportunity to streamline those. We all know the pressures charities are under to keep administrative costs reasonable. That kind of broad drafting makes it extremely difficult for charities.

[The Chair, Conservative, James Rajotte]

I appreciate that. But on that point, if the committee recommends a stretch tax credit or some other changes with respect to private property in terms of donations, this is not making the charitable giving sector simpler. It's making it more complicated.

Would you agree with that?

[Peter Broder]

It depends on the measure. It depends on how the measure is drafted. Our hope would be that there would be a clear policy rationale in terms of the approach it's taking.

[The Chair, Conservative, James Rajotte]

Okay, I appreciate that.

Mr. Carmichael, a concern has been raised by a number of members on both sides. Just to address it again, is the government in the position, then, of favouring certain charities over others? How would the government decide that, for instance, donations to a low-income housing support charity are more or less important than donations to, say, military families funds for families that have lost loved ones as a result of their serving in the Canadian military?

How does a government, beyond saying that this should receive a charitable donation number, say that this one charity should receive more of a donation, or more of a credit, than that charity? How would you actually go about deciding that?

[Prof. Calum Carmichael]

I guess there are two ways. I don't want to be flippant, but how does the government decide what to spend on its wide portfolio of activities? Having to decide priorities is something that any budget exercise requires. In terms of the charitable sector, I think one would ask what types of contributions are the ones for which the incentives are already high enough for the giver. That's a type of organization where the actual services being provided are to the giver rather than to someone else.

I guess I would approach it that way. I think, though, that where there's a long-standing need, so that the sector is not having to adapt to the vicissitudes of government priorities, finding a problem that is ongoing, stable, and important is something I would urge. Other countries have defined that. Why hasn't Canada?

[The Chair, Conservative, James Rajotte]

Okay, thank you.

Colleagues, I have two more people on the list. I have Mr. Komarnicki and Ms. Glover, so they're going to share a round. I'll start with Mr. Komarnicki.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

I'll just finish off with Mr. Broder.

With respect to the stretch tax credit, you would normally have people who give more than they gave in previous years. They would give anyway. When you factor that into the calculations, do you know what percentage would give anyway?

[Peter Broder]

Sorry, I'm not sure I understand.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

If you gave an extra tax credit to those who give more than they had previously, there would be a percentage of people who would have given more in any event. Are you able to distinguish how much you're achieving with that?

[Peter Broder]

My understanding of how the measure would work would be that if someone gave $200 the first year and $300 the second year, they would get the augmented credit on the extra $100.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

It would be for both categories of people, and that's the simple fact of it.

With respect to private shares, the difficulty of evaluating them is obviously a factor that needs to be taken into consideration.

What would be the easiest method of resolving that difficulty? Would it be through accredited appraisers or some other method? Do you have any suggestions?

[Peter Broder]

Yes, CRA does have a procedure with respect to gifts in kind, in terms of what types of appraisals. I don't believe that's a legislated measure, that's an administrative approach, in terms of they have an expectation of an appraisal of gift in kind I think if the value is over $1,000. So there is a procedure for a—

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

So there's an objective way of arriving at that value. So valuation shouldn't, of itself, preclude moving in that direction?

[Peter Broder]

That's true, although I would add the caveat that the valuation cases in the courts have landed in sometimes different places. So in terms of case law, it can be a bit more of a challenge sometimes.