From the onset, I will state that our government agrees with the member on the importance of ensuring proper and appropriate regulation of the charitable sector in Canada. This includes the need to remain vigilant against undue personal benefit for individuals employed in the sector.
Our government is always open to exploring ways to strengthen current legislation. In that regard, we welcome and will support Bill C-470 for discussion in the finance committee in the coming weeks and months. Moreover, we understand that many charitable organizations, both large and small, would like to participate in the debate on Bill C-470 and potentially make some suggestions related to the proposal.
We are especially encouraged that the member noted earlier in the debate that she was ready to more fully explore this proposal at committee stage. The member for Mississauga East—Cooksville would likely agree that we need an opportunity to hear the voices of those involved in charities across Canada to make certain that occurs.
I also believe that all members of Parliament share in the member's belief that charities are a vital part of communities right across Canada. That is why since 2006 our government has taken some notable actions to help bolster charities and allow them to keep doing the great work they do in our communities.
In budget 2010, our Conservative government announced it would move forward with a plan to reform what is referred to as a disbursement quota. This reform is intended to reduce unnecessary red tape to better allow charities to focus their time and resources on their charitable activities and helping their communities.
For the benefit of the House, I will relay a small sampling of the feedback we have received on this particular budget 2010 announcement.
Imagine Canada applauded it for providing the following:
...greater flexibility for charities as they seek to meet the increasing and changing needs of Canadians....
The [disbursement quota] added layers of red tape and reduced flexibility in responding to the needs of Canadians and communities. ...[it] will help charitable organizations, especially smaller and rural ones, to better plan their activities to meet the real needs of their communities.
The Salvation Army cheered it by saying:
The removal of the quota will provide The Salvation Army; one of Canada’s largest charities, with increased flexibility....
We are very pleased with this announcement. The proposed changes will allow us to better respond to the needs of the people we serve in 400 communities across Canada.
Finally, someone the member for Mississauga East—Cooksville may be somewhat familiar with, the Community Foundation of Mississauga's executive director, Eileen MacKenzie, explained:
We applaud the government’s decision to reform the disbursement quota policy. ...[it] will lessen the administrative burden on our charities, direct more resources to addressing community needs and enable them to plan more effectively for the future.
This is a specific example of a helpful initiative our Conservative government has undertaken to support Canada's charitable sector. Today's proposal deals with the accountability of these registered charities, specifically regarding the compensation given to those employed by such organizations.
To put this debate into context, I believe it would be informative to look at how charities are regulated in Canada. First, responsibility for the regulation of registered charities is divided between the federal government and provincial and territorial governments.
Within the federal government, the Canada Revenue Agency, or CRA, regulates registered charities. The CRA is responsible for applying the provisions of the Income Tax Act relating to registered charities. Beyond income tax considerations, the regulation of charities is constitutionally under the jurisdiction of the respective provinces and territories in which they operate.
As mentioned earlier, recent reforms have given CRA more powerful compliance tools when regulating the charitable sector. The ultimate compliance tool is the ability to de-register a charity. If a charity is deregistered, it immediately loses its ability to issue tax receipts to donors. It also may become taxable on its existing assets. In addition, it must transfer its charitable resources to another charity within a specified period of time or pay a revocation tax to the government. Clearly, considering the special tax treatment that registered charities receive, excessive compensation for those employed by them is not something that donors or everyday taxpayers would approve.
That is why, currently, if the CRA comes across a situation where a registered charity is not fulfilling its charitable purposes and/or there is undue personal benefit, such as compensation clearly in excess of fair market value, CRA can take strong corrective action.
Under the present system, for the first infraction by a registered charity, CRA can impose a tax of 105% of the amount of the undue benefit. If a charity repeats such an infraction within five years, the penalty increases to 110%. In addition, CRA can immediately suspend the tax receipting privileges of the charity. Finally, if the problem is ongoing and repeated, CRA can move to deregister the charity completely.
Before concluding, I want to state that our Conservative government firmly believes that Canadians who donate their hard-earned money to charities should have the proper tools available to ensure that those organizations are accountable, and that is why we took action to improve accountability.
Up until last year, CRA had only required charities to report on the compensation for the five highest paid employees and indicate limited salary ranges, with the last threshold being $119,000 and over. Our Conservative government did not believe that to be sufficient and brought in changes. Now we require charities to report the 10 highest paid positions, double than before. What is more, we expanded the salary ranges, with the last threshold being $350,000 and over. I note that all of this information is available publicly and online for all to view at www.cra-arc.gc.ca.
Our new accountability rules will improve transparency, allowing those generous men and women in Canada, who donate their own hard-earned dollars, the information they need to make their charitable giving decisions with peace of mind.
Without a doubt, our Conservative government has taken action to both encourage charities to serve our communities across Canada better, while at the same time improving transparency surrounding their actions.
We are clearly committed to accountability and transparency in the charitable sector. While the tax system already has tools in place for both the regulation of compensation in the sector and to guard against undue personal benefit, we are always open to exploring other ways to strengthen it.
As Bill C-470 successfully passes second reading and advances to the finance committee, however, we again both welcome and urge a very comprehensive discussion at that stage. That discussion will provide an essential opportunity to hear directly from those in the charitable sector and explore their questions and concerns.