Finance Committee on Oct. 27th, 2014

[Kevin Dancey]

Income is a lot more mobile than it was then so it is a different world today than it was in 1966. The principles that Carter applied to tax reform may not actually be the right ones today. I think we need to sit back and have a good look in terms of what tax reform should be, going forward.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Thank you, Mr. Dancey.

Quickly over to you, Mr. Baker, does Deloitte have any position or opinion on the so-called patent box approach to invigorating investment in research and development in Canada?

[Albert Baker]

We think it should be explored. A number of countries in Europe and elsewhere have that type of regime. As part of the BEPS project that was mentioned earlier, the patent boxes are in the process of being looked at. There are different types of regimes in different countries and the BEPS committees are still debating exactly what types of regimes are the ones that they would recommend moving forward with. There is no question that the patent boxes as an entity will survive. From our perspective, it is something the federal government should be seriously considering, given that it is potentially giving those countries a competitive advantage.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Just very briefly, are you aware of any exploration by the federal government towards this initiative right now?

[Albert Baker]

I'm not aware of exploration.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Cullen.

We'll go to Mr. Keddy. Maybe we'll have a Keddy commission.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

.... motion.

[The Chair, Conservative, James Rajotte]

You want a motion on that.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

We don't have time.

We're going to need a motion, Chair.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you, Mr. Chairman.

Welcome to our witnesses.

I've got several questions for Mr. Kirkby.

I listened to your submission and I've tried to do a bit of background on you but I really have some difficulty in what you're saying about how the charitable tax system and the audit system work. I think it's important to get on the record so I've got some questions.

When you did your master's thesis on 16 charitable organizations, that you're saying have been audited too strenuously by CRA, did you speak to CRA? Did you speak to any CRA employees? Did you speak to the commissioner or the deputy commissioner?

[Gareth Kirkby]

I attempted to get some information from them, but CRA has a lot of its policies and approaches on its website as it stated. I spoke to 16 charity leaders and five charity experts, and only eight of them were being audited or had similar experiences with CRA.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

One of the shocks I had as a member of Parliament, when I was first elected, is how much work we do with CRA. We all do a lot of work. But I've never met anyone, whether they were actually correct in being angry with CRA for being audited or if they were incorrect, who was happy about the process. No one really likes to be audited.

I really do have a question with your process. To begin with, as a member of Parliament, to come here with an anonymous statement of fact is not a statement of fact. Either you have a name and a place with it or please don't present it as fact. The charity is directed alone and is not subject to political direction. It's not subject from this government and I don't believe it was subject from a previous government, and I don't think it'll be subject from a future government. I think you have to give some credit to these professional men and women. We may not like the process.

I have to ask you this. From your own numbers, you state that charities spend less than 3% of their time on political activity. Well, they're allowed 10%. So if they're audited and they're spending less than 10%, then they're whole and that should justify their right. That's a selling point for them. That's not a negative thing.

[Gareth Kirkby]

Is there a question in that, sir?

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Yes, the question is, how can you say that somehow or another these organizations should not be open to audits? There is $14.24 billion in charitable money given by Canadians every single year. Are you suggesting we shouldn't audit any of those dollars?

[Gareth Kirkby]

I'm glad you asked that. No, that's not what I'm suggesting at all. What I found from talking to the charities, to a person, is that the leaders emphasized that they understand the need for audits. Many of the organizations have been through multiple audits in the past.

The difference is that starting in 2012, there was additional money resourced to CRA to hire additional auditors and to specifically audit political activities when there was no evidence that there was a problem with political activities. Obviously, it's really important that the regulations be followed by charities and that money be well used.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

But, surely, you don't think you should be able to spend more than 10% of your assets on political activities? Either you're a charity or you're a political organization. Somehow or another, we have to find some common ground and again, I have to tell you an anonymous source is not a source. I can give you a dozen anonymous sources.

I have another question. Energy Probe Research Foundation was featured in the Globe and Mail last week. It is a charitable organization. It was an interesting article. Did you speak to them? They've been audited and they would be called a right-wing think tank, but they deny that.

They claim they're the most audited group in Canadian history because of their position on atomic energy. They were audited by the Liberal government and they've been audited by our government.

Did you look for somebody who had a different opinion, so you could have some balance in what you're saying?

[Gareth Kirkby]

I audited from five different sectors in five different provinces, sir, and absolutely. I won't say who I audited. Part of my ethics process was that I not say that. The agreement with the charity leaders was that I wouldn't identify them or say anything that would lead directly back to them.

It's very interesting that so many of them felt a need to have that level of anonymity with something that's this public.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

I'll try to wrap this up, and I'll leave the anonymity alone. It really doesn't wash, quite frankly.

[Gareth Kirkby]

I'd like to address anonymity, actually.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

You talked about $13.4 million invested into looking for tax evasion in the charitable sector. However, that's a small amount of money. That's a pittance compared to the $14.24 billion in the 86,000 charities out there in Canada. What I'm saying—and I want to be very clear—is that government has an obligation to make sure that charitable dollars donated for charitable purposes are used for charitable purposes. It's as simple as that.

[Gareth Kirkby]

Absolutely. It's hard to imagine that anybody would disagree with that.

You keep referring to the value of the sector, which is a financial question. These are not financial audits. Again, sir, they're political activity audits, which are—

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

It seems to me they're financial audits based on the fact that you're only allowed to spend 10% of your funds on political activities.

[The Chair, Conservative, James Rajotte]

Thank you. Unfortunately, the time is up. Thank you, Mr. Keddy.

We'll go to Mr. Chan for seven minutes, please.

[Arnold Chan, Liberal, Scarborough—Agincourt, ON]

Gentlemen, thank you for all of your presentations.

I actually want to follow up on Mr. Keddy's point and continue the conversation with Mr. Kirkby. Thank you very much for your presentation.

In terms of your research, was there any sort of evidence you saw that this special audit program to investigate the activities of charities targeted specifically the political activities of charities that were immediately critical of current government policy, or is it spread all over the map? Was it particularly charities that you might view as being more opposed to the government as opposed to being in favour of government policy? Do you have any sort of statistical evidence out there, as opposed to giving away whom you actually spoke to, that would give us some comfort with respect to the position you're advocating?