Finance Committee on May 28th, 2026

[John Hallward]

There have been many discussions and conversations over the past several years. I'm a researcher by background, so we did polling. We did polling among the operating charities in Canada, the 75,000-plus charities, to give them a voice as well. The majority of them are in support.

From talking with the peak organizations and foundations, I think there's general support for the concept. There are a few foundations that don't particularly like to be told what to do by Ottawa. Other than that, I think they like the concept. On the amount to each of them, they refer to it as a rounding error. It's not a significant cost. There's no extra burden to them if it's in their granting budget.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

Basically, you were describing two ways in which this fund could be fed. I find your idea of taxing their investment income rather intriguing.

[John Hallward]

In the United States, they already do this. Private foundations have a little over 1%—1.1% or 1.2%—on their income, so that, in a sense, they don't touch the capital. If a donor donates money and has agreements as to how the capital is to be used, this allows a workaround. By taxing the income from that capital, that provides the same amount of funding, if you will, without touching the capital.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

Right. I think that's probably a better idea.

Who would manage this fund?

[John Hallward]

The vision, at this point in the discussion, is to have maybe 40 or 50 different members, with each peak organization and each provincial non-profit network having a vote and a membership in this agency. There would be communities from the north. There would be peak organizations, if you will, such as Volunteer Canada and the chamber of commerce. Business needs to be at the table as well.

These people would vote for the board. The board would choose an executive director, and they would get on with administering the fund.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

All right. Thank you.

Mr. MacDonald, I really liked your statement that the sector is in a “perpetual state of start-up”. I don't like that—I'm not saying I like that—but I think it's a good description of the world in which you operate. You have to start everything all over again, and yes, that's a perpetual state of start-up.

Now, you mentioned that one way to perhaps address that is to have the CRA act as a regulator. I wonder if you could expand on that a little bit. I know that the CRA plays a big role, but how do we go from there to a regulator?

[Bruce MacDonald]

Well, the CRA is our regulator. I think there are a couple of ideas in here. One is that we seek to have more organizations file their T3010s, their annual tax forms, online. Only about 30% of charities do that digitally. They're still doing it by fax or paper. We want to take that up to close to 100%. The technology system that is used by the CRA and the government doesn't work well for the sector. Improvements need to be made there.

As it relates to the perpetual state of start-up, the biggest thing that could happen there is that in the reform of grants and contributions, approvals for renewals could be given earlier. What happens is that staff who are on contract are asking their employer, the charity, if their contract will be renewed. When there are delays in renewals, sometimes long past the renewal date, those staff quit to go and find jobs elsewhere. When the renewal finally comes in, they have to go and find new staff. They never really maximize the potential of the program. They're perpetually starting the programs over again.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

In our riding offices, when we talk with folks from the non-profit sector, it is that perpetual state of start-ups. It is also the same thing at the provincial and even municipal levels.

Perhaps I could move on now to YMCA Canada. You focused quite a bit on child care. That's more than fine. That's very useful.

I also find your approach interesting—that you have targeted seed funding. Could you elaborate a little on that?

[Kevin Muir]

Yes, absolutely.

When we're thinking about our centres of community, there is often federal government funding available, but not at the early stage, not for the seed funding. This can be the hardest funding to raise for us, because it is speculative, and I understand that's similarly why the federal government may be reluctant to make that funding available. It's so important for us, though, and if it were made available, we would be able to make lots more projects happen a lot faster.

[The Chair, Liberal, Karina Gould]

That's great. Thank you very much.

Yes, you've run out of time. Thank you, Monsieur Leitão.

Mr. Garon, you have the floor for six minutes.

[Jean-Denis Garon, Bloc, Mirabel, QC]

Thank you very much, Madam Chair.

Good morning to all the witnesses. I thank them for being with us today.

I'll start with you, Mr. Hallward.

First of all, I commend the work of the foundations. I am very sensitive to the fact that this sector is experiencing difficulties, somewhat like the community sector. However, we must remember that foundations are funded in part by public money, tax expenditures and tax credits granted by both the federal and provincial governments. There are tax expenditures in there.

You're proposing to tax a very small portion of the return on foundation investments to fund a national social sector fund.

Are you not concerned that, by doing that, you are going to allow the government to perhaps directly interfere in the way the investments in this fund will be made?

Furthermore, I note that most foundations act in provincial areas of jurisdiction, particularly in the health care sector, the children's health care sector and the education sector. In Ottawa, there's already a problem with spending power, because the government imposes conditions on the provinces in exchange for transfers.

Again, wouldn't your proposal create new interference between the federal government and the provincial governments, which have well-defined constitutional jurisdictions in certain areas?

[John Hallward]

Yes, they're all good questions, for sure.

When it comes to the charity sector, it's empowered by the Income Tax Act, and it really is a use of taxpayer money by way of charity tax credits given to donors. These are funds that could be used in other ways, if not given as tax credits to the foundations.

The Income Tax Act already dictates how charities are to operate, what they can do, what they cannot do, who they can give money to, who's a qualified donee, who is a registered charity, etc. I don't think we are really imposing any new requirements with this new sector fund.

[Jean-Denis Garon, Bloc, Mirabel, QC]

If I may, I will refine the question so that it can be clearly understood.

How will you ensure the independence of the social sector fund you are proposing if the fund must meet the objectives included in a national strategic plan?

How are you going to ensure its independence from the federal government?

[John Hallward]

Okay. That's a fair question as well.

The idea is to have the fund administered by sector players that already exist today. It would be an independent agency outside the political ecosystem, if I can call it that. The current organizations, such as Community Foundations of Canada, Imagine Canada, Volunteer Canada, etc., would be the responsible members of this agency. They would be acting on behalf of the benefit and interests of the sector, for themselves, and then include each of the provinces' nonprofit networks.

Really, it's a representation of the sector today. They would be empowered to elect the board of this new agency, which would hire the executive director. It would have full independence, if you will.

[Jean-Denis Garon, Bloc, Mirabel, QC]

So you would still need to work on a structure for managing the fund.

My next question is related to taxing return on investment. From what I understand, this is a challenge for some foundations. For example, Brigitte Alepin, who is a tax expert, has been very critical of certain foundations that were not giving back enough.

Large foundations, such as the Chagnon Foundation, have invested capital totalling over $2 billion, while very small foundations have invested capital of $800,000, $1 million or $2 million.

Isn't it unfair to have a fixed rate on the return on foundations' financial assets and to apply the same rate to both large and small foundations?

As part of your proposal, should you consider differentiated tax treatment based on the foundation's size and age, as well as its asset growth trajectory?

[John Hallward]

Currently, right now, foundations have a required disbursement quota, and it is somewhat scaled. The first $1 million that foundations have, there's an obligation to disburse 3.5%. Above $1 million of their endowment, they are obliged to give 5%. There are rules within the disbursement quota administration as to who qualifies, based on how much revenue they have and how much—

[Jean-Denis Garon, Bloc, Mirabel, QC]

How would the tax you're proposing apply based on a foundation's degree of capitalization?

[John Hallward]

The tax I imagine is possible with this sector fund, and is separate from the disbursement quota. The disbursement quota already exists. Foundations must already disburse 3.5% or 5%. The income tax—

[Jean-Denis Garon, Bloc, Mirabel, QC]

How would the tax work?

Based on the degree of capitalization of the various foundations, how would the tax be differentiated?

[John Hallward]

The vision for the sector fund is to have it on the income. If there's $100 million in a foundation and it earns 8% return, generating $8 million, 1% of that $8 million, just 1%, would be required as a grant—

[Jean-Denis Garon, Bloc, Mirabel, QC]

Therefore, it would be 1%, regardless of the foundation's size.

Is that correct?

[John Hallward]

Yes, that's correct.

[Jean-Denis Garon, Bloc, Mirabel, QC]

Thank you, Madam Chair.

[The Chair, Liberal, Karina Gould]

Thank you, Mr. Garon.

We'll now continue with Mr. Lefebvre for five minutes.

[Éric Lefebvre, Conservative, Richmond—Arthabaska, QC]

Thank you very much, Madam Chair.

Thank you to the witnesses for being with us today.

I'll start with a brief introduction. I have 39 municipalities in my riding, including several small ones. I always say that, in municipalities, volunteers are one of our greatest assets. Our volunteers bring our municipalities to life and make them vibrant.

I'd like to take advantage of your presence here today to thank them for what they do across the country, but particularly in my riding, Richmond—Arthabaska.

Mr. Muir, you said that the current unemployment rate for young Canadians stands at 14%. That's a concern, and we're aware of it. On the other hand, some businesses are having trouble recruiting skilled workers.

How could you work to bridge the gap between the two?