Public Accounts Committee on May 11th, 2023

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you very much.

I wonder if you could expand on this comment of yours: “Where warranted, the CRA may undertake an audit.” It prompted me to ask a question about the general process with respect to investigations of charities. How does a concern about a charity's activities typically come to the attention of the CRA? How are they chosen for investigation? If a concern comes up, what avenues are exercised to move that along? Do you have any thoughts or comments that you can provide?

[Bob Hamilton]

Certainly, Mr. Chair. I will deal with it in two parts.

The first part is about how we select things we might want to look into further. We have our own monitoring within the charities directorate of the charities that are out there, or we may uncover something that we want to investigate further. We may get leads, as I mentioned, if somebody tells us something that they think is inappropriate, and we follow up on all of those leads to investigate them.

After we've done that, we take a risk-based approach and we move on the basis of where we think the highest risks are among all the things that have come to our attention.

Once we decide to do something, we have, as Sharmila indicated, a range of tools in our tool kit. We can do some education, because charities are a very broad grouping of organizations, and while some are very sophisticated, some are less sophisticated. We might find that conversation and education are very effective ways to put things back on track. As Sharmila said, if it seems to be a single occurrence and accidental, we can do it there.

If it needs to go a bit further, we can write an administrative fairness letter to the entity and say, “We uncovered these things and we need you to fix them.” They get an opportunity to give us their side, and then we go from there.

At the end, we may decide to do an audit, and the audit could lead to an administrative fairness letter. In an audit, we walk in, look into the books in detail and go from there.

We have that range of tools that we can use. We get the input, we do a risk assessment and then we decide what tool is best placed.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you very much.

You've mentioned the leads program here in your answer, and you made reference to it in your testimony. I'm not sure many Canadians will know about that. It relates to the overall integrity of the process because, as I understand it, this program allows Canadians, where concerns exist, to elevate those concerns anonymously to the CRA.

Could you expand, Commissioner, with a little more information on what the leads program is all about?

[Bob Hamilton]

Through the leads program, we encourage people to come to us if they think there is an issue somewhere. Then, as I said, we follow up on all of those. That would apply not just in charities. It cuts across all areas of compliance within the agency.

Then what happens is we investigate all of them, to some degree, and then we can form a judgment as we go in to see how serious it is and whether we need to continue or not.

The interesting thing to identify on the leads program is that if you give us a lead, we don't go back to you to report and say, “Thanks for your lead, and we're now at this stage of the process.” The only way we start talking about what has happened is if we sanction, if we have a penalty or if we have a revocation, and then it's public knowledge.

The leads program can be quite effective, and we encourage people, if they see something, to bring it to our attention so that we can look at it. Not every lead results in a revocation, obviously, but it is information that helps us steer our activities and our resources to the right places.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Mr. Chair, I have about 10 seconds.

[The Chair, Conservative, John Williamson]

You have time for a quick one if you want.

[Peter Fragiskatos, Liberal, London North Centre, ON]

I will just go back to the importance of the integrity of the overall system. I think there's a fairness element here. Colleagues might be frustrated with the lack of specific answers they get today to some of their questions, but I think you've explained, Commissioner, why privacy has to be paramount in the process with respect to not only this organization but also all organizations.

Thank you.

[The Chair, Conservative, John Williamson]

Thank you very much.

Over to you, Ms. Sinclair‑Desgagné, for six minutes.

[Nathalie Sinclair-Desgagné, Bloc, Terrebonne, QC]

Thank you, Mr. Chair.

Thank you to the witnesses for being here today.

I have a lot of questions for you, so I'll get right to them.

Under the tax rules that were in effect until the end of December 2022, a foundation had to spend 3.5% of its donation assets. Ms. Freeland, the finance minister, changed that. As of 2023, the requirement was increased to 5%.

What are the consequences if that rule is broken?

[Bob Hamilton]

I'm going to ask my colleague Mr. Trueman to comment on the disbursement quota.

It's definitely a policy matter, not an administrative one. In all cases, we are responsible for administering the new rules and the consequences of non-compliance.

[Geoff Trueman, Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency]

Thank you for the question.

The disbursement quota is particularly important for foundations and for ensuring that they meet that requirement. On the rules governing this particular provision, a number of calculations are involved in determining the disbursement quota—formerly 3.5% and, as you mentioned, increasing to 5%. We will look at those. It's something we are very aware of when we do compliance work with respect to foundations.

There may not be an exact match every year. There is the possibility of averaging these amounts over a number of years, and of providing a carryforward or a carryback so that the foundations have a little bit of flexibility in when and how they choose to deploy their funds in order to meet their needs.

[Nathalie Sinclair-Desgagné, Bloc, Terrebonne, QC]

Thank you.

As Mr. Hamilton said, the CRA is responsible for administering the act. If a foundation broke the rule over and over again for years, what would the CRA do?

[Geoff Trueman]

Thank you.

Yes, certainly one of the things we would look at is whether there is a persistent or ongoing failure to meet the quota. As discussed, there would be a number of compliance tools available to us.

We would generally start with an education letter to the entity and perhaps seek to enter into a compliance agreement. If there was a persistent or egregious failure to meet the requirements, we would move into the area of—

[Nathalie Sinclair-Desgagné, Bloc, Terrebonne, QC]

Do have an idea as to how many years?

I realize that the agency can delay action when an organization breaks the rule for one year, but if it breaks the rule for two, three, four or five years, that's a lot.

[Geoff Trueman]

Yes, certainly we'd have to look at the facts of any given situation, so it's difficult to provide a hypothetical response to a situation.

[Nathalie Sinclair-Desgagné, Bloc, Terrebonne, QC]

If I understand correctly, the agency's decisions are somewhat arbitrary.

A charity might be revoked after three years of non-compliance, say, but if the agency has no standard, it could mean that sanctions are applied arbitrarily.

[Geoff Trueman]

Thank you.

I'm not sure I'd use the word “arbitrary”. I think it would be a calibration with respect to the circumstances. There may be a reason. For example, if a foundation is saving to fund a particular project, they may seek an allowance to accumulate funds over a particular number of years and then dispense a larger amount in future years.

[Nathalie Sinclair-Desgagné, Bloc, Terrebonne, QC]

In that case, I have another question for you.

When an organization receives a donation from abroad, is it proper to issue a tax receipt listing a name that isn't the name of the person who made the donation?

[Geoff Trueman]

I think, as noted earlier, our general approach is certainly that the receipt should be put in the name of the true donor.

[Nathalie Sinclair-Desgagné, Bloc, Terrebonne, QC]

Can an organization issue a tax receipt to someone who is not a Canadian resident?

[Geoff Trueman]

It is possible to have a non-resident donor, yes. Generally speaking, the receipt is issued because individuals have an interest in the tax credit or the tax deduction. A non-resident would need to have some sort of taxable income in Canada to benefit from that.

[Nathalie Sinclair-Desgagné, Bloc, Terrebonne, QC]

Let's look at the registered company Millennium Golden Eagle International. As I understand it, the fact that the company's majority shareholders are based outside Canada is perfectly fine with the CRA.

Can you tell me whether any tax deduction requests were made further to that donation?

[Geoff Trueman]

I can't provide a commentary on this specific situation. I'm sorry.

[Nathalie Sinclair-Desgagné, Bloc, Terrebonne, QC]

I see.

Can you at least tell me whether you know what the relationship is between Millennium Golden Eagle and China?

[Geoff Trueman]

Again, I'm not able to comment on the specifics in this case.