Thank you very much.
Honourable chair, honourable members, my name is Sandy Houston. I am the chair of Philanthropic Foundations Canada. I'm delighted to have this opportunity to speak with you this afternoon.
PFC represents Canadian charitable foundations and grant-makers across the country. Collectively our members have about $7.5 billion in charitable assets, and in 2010 distributed about $307 million into communities across the country in support of all types of charitable activities.
In the brief we filed with you in January of this year, we made two recommendations to enhance the access of Canadian charities to money that will enable them to grow and increase their effectiveness. Neither of these recommendations is about tax incentives for charitable giving. While we certainly think tax incentives are important, we also think there are other routes to encourage the provision of more capital into the charitable sector, notably through loans and social investments.
We support the recommendation made by Imagine Canada for the stretch tax credit to increase new giving. We also support the recommendation that the government examine the possibility of extending the capital gains tax exemption to such assets as private securities and land.
But we know that many Canadian charities draw more heavily on their own revenue-generating activities than they do on charitable donations, and we believe, as does the Task Force on Social Finance, that social finance offers an unprecedented opportunity for Canada’s charities to open up new sources of financing at a time when they're under a great deal of stress and when their funding ties them into very short timeframes and inhibits their ability to innovate, expand, and sustain themselves.
Therefore, our fundamental recommendation to the committee is to pursue an examination of regulatory options that will foster more access to philanthropic capital by charities.
In a business, innovation or growth is frequently financed through a loan or an investment, but in a charitable context there are far fewer financing options. Operating capital is attained year to year from a range of funding sources—typically fees, gifts, or grants—investment capital is practically non-existent, and capital accumulation is discouraged by federal regulation.
On the investment side, federal and provincial laws allow only investments prudently made with a secure expectation of return. Federal regulators have ruled that even passive investments in limited partnership structures by private foundations are not permitted, because under the rules of partnership law, these investments could mean that the foundation is engaged in running a business, something that's prohibited under the Income Tax Act.
This attempt to maintain a strict dividing line between charity and business has meant that in practice, private funders remain confined to a funding paradigm focused almost entirely on grants. The implication of this is that it has not encouraged the full deployment of the approximately $39 billion or more that is held in foundation endowments. Charities benefit from the 3.5% to 5% of the endowment moneys disbursed annually by foundations, but typically don't access the other 95% of those assets held in the endowments.
We suggest that the federal government consider adopting a regulatory framework that encourages more philanthropic investment. We were really pleased to see this summer that the CRA has taken a significant step forward in this regard with the release of its new guidance on community economic development. In that guidance there is more latitude now for program-related investments. That's a really positive step, and we applaud it.
What we now urge the committee and the government to do is consider examining other regulatory options, specifically: reviewing the CRA's position on investments in limited partnership structures, qualifying specific social investment projects as qualified donees, and continuing to clarify CRA's guidance on the relationship between mission-based investments and business activities.
We urge the committee to recommend to the government that it reconsider its current interpretation of limited partnerships, which are currently barred to private foundations. We suggest that this rule merits reconsideration in the case where such an investment can be demonstrated to further a charitable purpose. The government has already recognized the principle that a private foundation can enter into an investment-like vehicle, such as a PRI, with a commercial entity as long as it furthers a charitable purpose. Consequently, we think it's logical to apply this principle to the situation of a limited partnership with certain conditions related to charitable purposes.
The regulatory changes we're suggesting would not incur a fiscal cost to the government but would promote greater access to capital for growth, through either debt or equity instruments, for the community sector in Canada.
Thank you for your attention. I welcome any questions.