Finance Committee on Oct. 3rd, 2012

[J. Alexander Houston]

We're starting to see the emergence of new funds or investment vehicles that would support loans to charities, for example. Take something like the new organization called the Community Forward Fund. They're a financial intermediary that gives loans to charities, because charities often have a tremendously hard time accessing conventional financing; they need working capital, they need bridge financing if they're in a capital project. This fund would provide funds to them. But most foundations wouldn't be able to invest in that financial intermediary because it's typically structured as a limited partnership.

So that would be an example of a funding community that would like to support that kind of innovative financial instrument, which would meet their charitable objectives and support the broader sector, but they can't do it, because the way the rules are currently set up, it's difficult to make that form of investment.

We're simply suggesting that we make a more enabling environment that would get some of that capital towards charitable purposes and remove some of the barriers we've unwittingly built in to those kind of innovative investments.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mrs. McLeod.

Mr. Caron, you have the floor.

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

Thank you very much.

Thank you for being here. Congratulations for your excellent presentations. Unfortunately, I only have five minutes. I will ask specific questions. I hope that your answers will be specific as well. I will deal with the same issues raised by Ms. Nash and Mr. Brison.

I find the idea intriguing, but I still have some questions on the effect it would have on our philosophy of charitable organizations.

As it now stands, historically, four underlying heads are recognized under common law, and they are used to define a charitable organization: the relief of poverty, the advancement of education, the advancement of religion, and other purposes that represent a clear benefit to the community.

Is your idea of a “charity+” program the equivalent of establishing priorities in these areas according to the will of the government?

[Prof. Calum Carmichael]

I'll try to be brief.

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

That is fine, because I have other questions for you.

[Prof. Calum Carmichael]

Okay.

Common law is something that is shared by many countries, but their practices of the tax treatment are very different.

In India and Australia, for example, religious organizations are not eligible for any tax credit, even though they share the same headings from Pemsel, the same common law reference.

Fair enough, they're charities, but the financial privileges that come with that designation are very diverse across the charitable sector.

Singapore is another case of a common law country that does not provide any tax incentives to a church.

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

I have a specific question. Is the proposal you are presenting today the equivalent of the government establishing priorities, and saying that, for tax credit purposes, some purposes are more important than others?

[Prof. Calum Carmichael]

The government has already done that, through the matching grant for providing assistance following international disasters. The government has already done that by recognizing that a tax credit going to a political party is worth a 75% tax credit as opposed to a 29% credit.

So the designation of certain areas as being privileged—we've already gone down that road.

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

I understand what you are saying. However, when people give or ask for donations in response to an international disaster, for instance, the government already has a policy of matching individual contributions. So it is a type of tax credit, but in the form of a direct subsidy related to the donation.

I am trying to see how a donation in response to an international disaster can be considered the same as a donation made to a charitable organization as presently conceived. I could make the case, for instance, that a donation to a political party or a tax credit for the arts, for children or for sports, both fall into a different category that is not the same as donating to a charity.

[Prof. Calum Carmichael]

Given the diversity of practices in different countries that have identified certain areas of activity as being more deserving of the government tax dollars foregone, I think this is something that governments should take into account.

Any budgeting exercise, as I mentioned to Mr. Brison, is one of making judgments. Where do the tax dollars best have a social impact? To simply forego, and let those people with the resources and inclination to donate—to give them a predominant vote—I think is wrong. I would suggest that governments should decide themselves where they think the tax dollars should go.

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

Thank you for your answers. That helps us to clarify the matter.

My other question deals with the effect this would have on administrative costs and on paperwork in general at the Canada Revenue Agency, for instance.

As it now stands, we have a single system for the four types of donations. Everybody is treated equally and it makes things easy.

Would your system not make things more complicated in terms of how it would be administered?

[Prof. Calum Carmichael]

Yes, it would.

I must admit, at this extent, I've not looked at the exact administrative procedures in, for example, Arizona or France. But it is being done. Would it take more work to designate certain tiers? Yes, it would. That's why I'm suggesting one additional tier, not multiple ones. There are five tiers in Portugal.

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

Thank you.

[The Chair, Conservative, James Rajotte]

Yes, thank you.

We'll go to Mr. Adler, please.

[Mark Adler, Conservative, York Centre, ON]

Thank you, Chair.

I thank all of the witnesses for being here this afternoon.

Mr. Carmichael, you're actually the second witness who's appeared here today who is a former instructor of mine from the Carleton University graduate school of public administration. The previous one was Avrim Lazar, who actually gave me an A, but you gave me a B+ in Public Administration 567, so I'm going to focus my questions on you.

[Voices]

Oh, oh!

[Mark Adler, Conservative, York Centre, ON]

I'm very intrigued by the “charity+” concept. I'm just wondering about this. It has been broached by a number of the other questioners. In terms of selecting the particular charities that would be beneficiaries of a charity+ concept, we can identify certain charities ahead of time, but then there are those instances that occur—earthquakes, tsunamis—that are unforeseen. Would not those charities be at a distinct disadvantage to those that are in the charity+ regime?

These are charities that would be outside the charity+ regime and that may indeed be more immediate in terms of need and maybe more worthy at that particular time, but because there are acts of nature that we could not anticipate, could that not be a problem with charity+? I'd just like you to explain that. Maybe I'm wrong.

[Prof. Calum Carmichael]

Given the public notoriety of international disasters, my sense is that an opposite phenomenon can happen. My understanding is that for the tsunami the organizations were receiving more contributions than they could actually handle, in having Christmas overlap with the actual disaster, so my sense is that the public profile these disasters receive...they already receive considerable government and private contributions. I don't see them as being in any way made an underdog by an ongoing endorsement of certain areas of charitable activity having an ongoing higher credit.

[Mark Adler, Conservative, York Centre, ON]

That's fair enough.

Just staying on designating those charities, again, who would designate those? Would there not be a competition between the charities? How would that all work? Wouldn't some charities be envious of others?

Just explain that whole process for me and how you envision it.

[Prof. Calum Carmichael]

Sure, and I think this is why organizations such as Imagine Canada would not endorse this—because they represent all charitable organizations, whereas this would recognize certain activities as being more worthy of tax dollars than others.

So it is a difficult issue, but it is being done elsewhere, and I think by default it's being done in Canada. For example, there is the matching credit program, as I said, for disasters, or at the provincial level, as in the U.K., matching contributions to institutions of higher education, where those are being rewarded.

So yes, but in addition, though, that's why I'm suggesting not to deny any organization its existing tax credit, but rather to top up for certain ones that perhaps deserve more, and cap the contributions that would be eligible for it, so that there would not be a flight of contributions to the more privileged ones. That is consistent with the practices in other countries.

[Mark Adler, Conservative, York Centre, ON]

But in Canada, how would you determine which ones would be topped off and which ones wouldn't? Who would do that determination?

[Prof. Calum Carmichael]

Who would do that? I would suggest that it is the responsibility of a government to decide what areas of investment are worthwhile for the population that they have been elected to serve. I see this as part of democracy—

[Mark Adler, Conservative, York Centre, ON]

[Inaudible—Editor]...bureaucrats, because that would be—

[Prof. Calum Carmichael]

I would; I would see, though, that it's also a stability. You don't want to change it. It would have to be put into place. But I think any budgeting exercise requires that decision: where are tax dollars best spent?

[Mark Adler, Conservative, York Centre, ON]

Yes.