Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 3 - Evidence - Meeting of December 2, 2004
OTTAWA, Thursday, December 2, 2004
The Standing Senate Committee on Banking, Trade and Commerce met this day at 11:05 a.m. to study on issues dealing with charitable giving in Canada.
Senator Jerahmiel S. Grafstein (Chairman) in the Chair.
[English]
The Chairman: I should like to extend a warm welcome to our viewers and to the taxpayers of Canada. It is my pleasure, on behalf of the Standing Senate Committee on Banking, Trade and Commerce and of our distinguished deputy chair, Senator David Angus from Quebec, to welcome you as we meet today to continue our study on charitable giving. We started last evening. One of the questions we will ask ourselves is whether it is more blessed to give than to receive. We will see.
We should like to thank our witnesses who are here today. Their ability to prepare on such sort notice is deeply appreciated.
The objective of this phase of our hearings on charitable giving is simple. It is to encourage ideas and propose policies that will unlock greater amounts of personal wealth for charitable purposes in a cost-effective way, always cognizant of the restraints on government revenues.
We are here to see if we can unleash more private wealth for charitable purposes, but we always must remember the limits of the government revenues and the increasing demand on those revenues. We are also here to respect the taxpayers' dollar. Our principle target, therefore, is tax policy, in order to determine what may be done to enhance the opportunities for affordable giving by Canadians at all levels of income and all levels of society where the potential for such giving exists.
In doing so, we will be looking at all levels and all means. We are all aware of the encouragement and incentives that already exist in our tax system, and there are many. We are also aware that there are ideas and proposals at various stages of study. We are interested in hearing about them. Further, we are hoping that the study we are undertaking will stimulate new thinking and new and different ideas.
We are delighted to introduce our first three distinguished witnesses. We have Ms. Sally Brown, the Chief Executive Officer of the Heart and Stroke Foundation of Canada. Our second witness is Ms. Hilary Pearson, the President of Philanthropic Foundations Canada. Last but not least, we have Ms. Darrell Louise Gregerson, the Chief Executive Officer of the National Arts Centre Foundation.
As I told the witnesses before the hearing, we are under time constraints. We will read your full documents and study them carefully, but because of the constraints of Parliament we have only a few short hours to proceed with a number of witnesses. Govern yourselves accordingly.
I urge colleagues to restrain themselves as well. We are limiting each of you to a short time. I urge my colleagues also to respect the limitations on our hearing time.
Ms. Sally Brown, Chief Executive Officer, Heart and Stroke Foundation of Canada, Health Charities Coalition of Canada: Thank you all for the opportunity to appear here today on behalf of the Health Charities Coalition of Canada. I will open with a reminder of the important role that Canada's health charities play in our health care system through funding research, public education and the direct delivery of services in every community in Canada.
In research, we are a co-funder and a strategic partner with CIHR on leading-edge research in the health field. In public education, we provide leadership on lifestyle change, focusing on prevention and health promotion, early detection and quality of life. In service delivery, we are part of a vast network of services that cares for people when they go into hospital, and when they go home. The voice of health charities is clear and sounds in all hallways of our health care system.
The Health Charities Coalition of Canada currently represents 16 of the largest and strongest organizations in Canada that come under the rubric of the health charities — for example, the ALS Society, the Canadian Cancer Society, the Heart and Stroke Foundation, the Foundation Fighting Blindness and the YMCA. We are large and small, with various missions, but with a common purpose.
I am sure you have heard from the Canadian Centre for Philanthropy the impressive data on who we are and our impact on the economy. More than $8 billion is given in individual donations to charities and non-profit organizations every year.
Health charities are vital to the health of Canadians. If you have a heart attack on the street and you arrive alive at the hospital, it may be because bystander CPR was applied; and those programs and guidelines are developed and distributed by the Heart and Stroke Foundation. They are taught through programs offered by St. John's Ambulance. When the patients are in hospital, they receive rehab training from another health charity; and when they go home, they might very well be looked after by VON. Again, it is a broad mandate.
We are here today to give you, as you discussed, five ideas that we hope you will think about. Some are new; some are in support of ideas you have obviously heard before. We want to talk a little about the enhancement to disability tax provisions; the need for an extension of the ``permission to accumulate'' opportunities to include research; the extension of capital gains provisions to include gifts of real estate; exploration of tax incentives to support increases in modest gifts; and exploration of tax incentives to support increases in corporate giving. I will only touch on these five areas.
First, we recognize and appreciate the work that the government is currently doing with respect to reviewing and amending the disability tax credit as it relates to the Income Tax Act. Section 64 currently allows a deduction for the cost of an attendant where a person eligible for the disability tax credit earns business or employment income or attends school. The proposed legislation will include attendant expenses, as well as other disability expenses incurred to enable the taxpayer to work or attend school.
However, it is currently limited to specific types of expenses. We would like to see those broadened. For example, commuting expenses should be considered. This is quite a large expense for some individuals and we think it should be eligible for a deduction. We hope that the disability tax credit will continue to be looked at regarding expenses paid to an attendant to enable an individual to work or attend certain educational institutions. While these expenses are deductible within certain limits, the taxpayer is not entitled to pay his or her spouse or common-law partner. We believe the taxpayer should be able to pay his or her spouse or common-law partner.
Section 67 of the act limits the amount to a reasonable amount if the concern is one of reasonability. This inclusion would support the economic independence of the disabled community and strengthen the economy of Canada. We would put those on the table.
The recommendations are: expenses for transportation to work or to the place of education, including expenses for parking, should be deductible as commuter expenses; a statement within all legislation that allows expenses to be added as innovations and technology advances are approved; the taxpayer should be able to pay his or her spouse or common-law partner. These are with respect to the disability tax credit.
The second one I mentioned was permission to accumulate.
The Chairman: I do not mean to interrupt, but we are giving our transcribers a fit here. Could you slow down slightly? We will give you a couple more minutes, because our transcribers are more important than any of us in this room.
Ms. Brown: Thank you, Mr. Chair. We tried to please by going quickly, but I will slow down a little. It is in the brief, and I hope that the transcribers will have that.
On permission to accumulate, the 80 per cent disbursement rule currently covers all annual donations, including grants by charities to fund and support medical research. Private non-profit organizations provided almost $400 million in health research support in 2001. We are talking about a sizeable contribution. Much of this investment came from individual donations.
A charity must disburse 80 per cent of its receipted donations in any given year. There is no easy way for a charity to accumulate funds for large multi-year projects or collaborative projects, a challenge that can compromise strategic approaches to funding innovation. We can accumulate funds for infrastructure and for capital costs, but not to fund multi-year research programs.
As you may know, the new way of funding research is through multi-year strategic programs in partnership with others; and we believe that we should be able to apply for permission to accumulate for multi-year research grants, not just for capital campaigns, buildings and equipment. That would help us play the research role that the government is asking us to play in partnership with CIHR. We put that on the table.
With respect to capital gains, the Health Charities Coalition of Canada supports continued legislation for reduction of capital gains tax for gifts of stocks. Due to the fact that Canadians, and an aging population, have increasingly more of their assets in property, it makes sense to us to extend the rationale for capital gains, which are currently allowed for publicly listed securities, to property and real estate investments. We therefore support the recommendation of the Canadian Association of Gift Planners to extend the one-half capital gains inclusion rate incentive for gifts of appreciated publicly listed securities to gifts of real estate for both public charities and private foundations. In the event that capital gains are eliminated entirely on gifts of publicly listed securities, we ask that this committee recommend the same provision be extended to real estate gifts to public charities and private foundations.
In terms of modest gifts, in 2003, less than 25 per cent of Canadians claimed charitable donations on their income tax forms. The median donation was $220. From the perspective of the health charities, our average donation is between $20 and $40. We have a lot of donors giving small amounts. We would like to explore the opportunities to provide enhanced tax measures to encourage increased giving from those who are making modest gifts. That would be extremely important to us. This could include waiving the requirement to submit a charitable donation receipt when claiming gifts of $250 or less.
There are two sides to that coin. We are hoping that it would encourage donors to give, but also that it would take a real burden off some of the smaller charities that have to give receipts for $10 to $15 to $20 because that is the source of their funds.
Finally, corporate giving in Canada provides 3 per cent of the total revenues to charities and non-profit organizations. For health charities, it is not a large amount, but certainly for other foundations it is. In 2000, this was equivalent to 1.03 per cent of the corporate donations as a percentage of corporate pre-tax profits.
Corporations in Canada have provided strong financial support to local, regional and national charities and have evolved significantly in developing a strong sense of corporate social responsibility. We would ask that the government explore opportunities to enhance corporate tax credits to enhance opportunities for corporate giving.
To close, the government has taken a strong leadership role in these areas. We are very pleased that the Senate committee is looking at all of these issues. We hope that you will do so in partnership with the health charities and the sector as a whole. We believe that many ideas should be explored, and we would like to be involved in a real and tangible way in the discussions.
We believe that the role of charities in providing services in Canada is fundamentally important, and that it is in the government's interest, as well as in the interest of all our donors, to take another look at our tax policy and see where it can be made more nimble, more beneficial, to strengthen the health of Canadians.
The Chairman: Next is Ms. Pearson, who comes to Parliament Hill with a most distinguished name. Her grandfather was one of my first mentors. We welcome her. She is a granddaughter of the Right Honourable Lester Bowles Pearson. Is that so?
Ms. Pearson: Yes it is.
The Chairman: Welcome. You have everyone's attention. Senator Pearson is not here with us but we are very mindful of her presence as well.
Ms. Hilary Pearson, President, Philanthropic Foundations Canada: Thank you. It is quite a heritage to live up to, daunting but also something to be proud of. Let me say as well that I am glad that in the Greatest Canadian competition at least my grandfather beat out Don Cherry!
I am here to speak to you on behalf of Philanthropic Foundations Canada, which is an umbrella organization for Canada's independent foundations and includes family, private and public foundations. We represent over 80 of these foundations across Canada and together they hold about 40 per cent of the assets of the foundations sector, which total about $11 billion.
I have given some information on the foundation sector and our organization to the clerk to distribute to you, so I will not spend time on the association itself but I am happy to answer questions about the sector.
Our case for you today is about a change in tax policy that would provide an incentive for individual Canadians to create and grow charitable private foundations. Specifically, we are asking that the 50 per cent reduction in the capital gains applied to gifts of publicly traded securities to public foundations be made fully and equally available for gifts of such securities to private foundations. I will focus in my remarks only on this recommendation.
In my brief comments, I would like to address the reasons that public policy through tax assistance should support the growth of private foundations. Foundations of all kinds — family, independent, community or corporate — make a unique and important contribution to the quality of Canadian life. Government expenditures in many areas are rendered more effective and given more impact by the partnership contributions of private funders. Private funders promote research, extend the reach of social service agencies, expand the benefits of the education system, complement the investments made in our health system and undertake many community projects that otherwise would be left unfunded.
The reduction in the capital gains tax on gifts to charities, including foundations, has had significant positive impact on Canadian charities. I want to underline again that we are talking about the treatment of public and private foundations, not the capital gains tax overall.
As you know, by law, Canadian private foundations must disburse only to qualified Canadian charities. Every gift that goes into foundation endowments ultimately benefits the public through the support that is given to the work of charities. In our view, private foundations are charitable structures that should be treated no differently than public foundations for purposes of tax incentives.
How much will equal treatment of gifts of listed securities to private and public foundations cost? We are mindful, Senator Grafstein, of your injunction that we be careful in thinking about ways in which the government could spend more money. We know that there are not unlimited amounts of money to go around. Therefore, we have thought about this. We have an estimate from the Department of Finance in which it noted that in a report released in October 2002, the capital gains tax reduction introduced in 1997 had led by 2000 to about $15 million in foregone capital gains tax revenues in return for $200 million in gifts of securities. I know you heard something about this last night from the Association of Gift Planners and also the Council for Business and the Arts.
These gifts were made to public charities, including public foundations. Obviously, the amount of gifts would be larger if the full half inclusion rate on capital gains tax were available to donors to private foundations. The important point is that the gifts of securities almost tripled and the number of donors of securities rose five times over the four years analyzed by Finance officials. This is an incentive that clearly works to achieve a public purpose.
The C. D. Howe Institute, in its study of tax incentives for charitable giving published in February 2003, concluded that the capital gains tax extension is a doable change that would provide appreciable benefits at modest costs and within a supportable public policy framework.
The incentive has been criticized as being directed primarily to those wealthy enough to own securities and to be able to donate them to charities. While it is true we do not know who all of those donors are who have been encouraged to give to charities, it is fair to say that ownership of securities is by no means restricted to the wealthy. In the case of private foundations, it is also a myth that they are only created by wealthy families. Most private foundations in this country have assets under $10 million and many are less than $1 million. The key issue is not how wealthy the donors are, but more importantly, how much impact private foundations can have on their communities.
I want to conclude by giving a few examples of the recent contributions of private foundations in Canada in some areas of critical importance to communities everywhere in this country.
A great many, if not most Canadians now live in large cities or urban areas. Foundations are directly addressing the issues that affect the quality of life in these communities. In Toronto, for example, the Maytree Foundation, a small foundation, is contributing to the development of innovative and effective programs for immigrant and refugee integration. This includes the recertification of immigrant professionals so that they can work in their fields and avoid a descent into urban poverty. Across Canada, the J. W. McConnell Family Foundation, which is based in Montreal but grants nationally, is investing in Vibrant Communities, a multi-sectoral community-driven effort linking up to 15 communities, from British Columbia to Newfoundland, in a collective effort to test the most effective ways to reduce poverty at the grassroots level. Incidentally, this effort is also supported by the Maytree Foundation and by community foundations. It is truly an example of funder collaborations. Private foundations work in collaboration with other foundations.
In Montreal, the Lucie and André Chagnon Foundation, created in 2000, and which is the largest foundation in this country with $1.5 billion in assets, is seeking original solutions in the domains of the promotion of health, the prevention of sickness and the prevention of poverty. It is a very strategic and ambitious foundation in its undertakings but works in collaboration with others and with government.
The Walter and Duncan Gordon Foundation of Toronto has been working for years in the area of water resource management and protection. It has funded a three-year project by the Canada West Foundation, a research foundation, to conduct a study of urban water management in the West through its Western Cities Project. The Max Bell Foundation of Calgary also supports this effort, which provides funding for interns in research organizations that conduct projects to educate Canadians about public policy alternatives. This is an example of a foundation that works to develop better public policy. The Max Bell Foundation supports many innovative policy research projects in the areas of health, education and communications, working with leading research organizations such as the Canada West Foundation, the Fraser Institute and the Canadian Institute for Advanced Research.
Would any of these projects be funded by governments? Probably not, at least not in the initial stages. Does it make a difference to public policy that they are funded? Yes, because they bring new ideas to the table. They highlight avenues for further exploration and they signal to public funders that there is something to investigate. Is this important to the public? Absolutely, because there is a constant need for original thinking about community issues in a local and global context.
It is not just these foundations that are doing this work. There are a hundred examples of important grant making going on across the country. It must start somewhere. The more private foundations that can be encouraged to start in Canada, the better off many communities will be.
In conclusion, we ask for your support in urging the government to provide a signal of public support for the work of private foundations by putting donors of listed public securities to private foundations on an equal footing with donors to all charities. The change in tax policy we are suggesting is not expensive, nor is it new. The tax incentive is already there, just not equally and fully utilized. Foundations are charitable organizations. They are subject to public regulation and accountability, as all registered charities should be. We ask, let private foundations be treated equally and fairly by public policy.
I would be happy to answer questions that I am sure you will have about why donors to private foundations have been treated in this way until now. Thank you so much for your consideration of this issue.
The Chairman: Thank you. Our next witness is Darrell Louise Gregersen, Chief Executive Officer of the National Arts Centre Foundation. She comes to us with a distinguished record of work in the charitable field. We are most anxious to listen to your evidence.
Ms. Darrell Louise Gregersen, Chief Executive Officer, National Arts Centre Foundation: Good morning and thank you. All I can say about my grandfather is that he was a banker. Perhaps that has some relevance for the committee.
I am the CEO of the foundation of the National Arts Centre. I find it very inspiring to know that this committee is looking at ways to stimulate charitable giving, to the benefit of Canadian society. I do fully agree that we cannot overestimate the importance of charitable giving in Canada.
I do bring a 20-year perspective and some examples from a few recent vantage points. First of all, our foundation receives gifts from across the country. Therefore, I do have a national perspective. Also, we receive gifts from the United States. I am the former senior director of philanthropic gifts at the Hospital for Sick Children in Toronto. I am a board member of the Ottawa chapter of the Association for Fundraising Professionals. I have had the pleasure at the National Arts Centre of organizing three round tables that brought more than 60 national and international leaders together to provide advice on improving philanthropy in the arts in Canada. At every one of these three national round tables participants spoke of the need for the first of my three recommendations this morning, which is the full elimination of capital gains tax on gifts of listed securities.
The National Arts Centre Foundation is only four years old, but already we have received 24 gifts of stock, which is a direct result of government's initiative to reduce capital gains tax on gifts of listed securities. I would like to see this double again through the full elimination of the tax.
I want to give you a sense of the impact of the amount contributed through gifts of stock because it is already equivalent to the cost of more than 150 educational events, master classes and clinics that are provided to literally thousands of schoolchildren and young artists, most recently in 13 British Columbia communities right through to communities in all four Atlantic provinces, as well as 12,500 teachers' resource kits with lesson plans, CDs and interactive web activities distributed to every elementary school in Canada twice. This is not money we would have received any other way.
I would like you to note that not all of these gifts were large. In fact, 14 of them were under $5,000. One specific example is the National Arts Centre's chief financial officer. With two teenage children, he was not in a position to give substantial amounts of cash, but he did receive a tremendous amount of pleasure from making a stock gift that was four or five times the amount of his annual contribution and equivalent to the cost of teachers' resource kits in 200 of those schools or musicians conducting classes in 10 of them.
I am in discussions right now with a man who is well known to several of you, an administrator and an academic leader, who never dreamt he could afford to make a six-figure gift to the National Arts Centre, or anyone else. He has now discovered he can do that and hopes to benefit not only the National Arts Centre, but another national arts institution as well.
At the Hospital for Sick Children, almost all of our $85-million research campaign was funded through gifts of stock. Many donors gave their entire pledge in one instalment, which is something they could never have done with cash. That meant that the full impact of a $1-million gift or a $5-million gift was received right away rather than over a period of years, and went to work for children's health right away.
My favourite memory is the day that I was discussing how stock and stock options worked with one of our donors. This was a man who is very quick with numbers. Once he grasped the mechanics of this, he looked up at me and said, ``I can afford to give you $350,000 instead of $250,000.'' It is not often that somebody asks to give you $100, 000 more than he meant to. I can tell you it is very powerful.
On the question of costs, looking at this through the veil of lost tax on the gifts is a little misguided in my view. The real value can be best assessed by looking at the increased vitality, as has been expressed by my colleagues this morning, from having a vibrant, healthy and working society.
My second recommendation is to extend this benefit to other appreciated assets, such as real estate. We are all aware that an immense transfer of wealth is beginning to take place between generations. I believe that extending the tax benefit to appreciated assets such as real estate will extend the value to society by an even greater measure in future. Our new foundation has already been given an entire personal estate, including real estate, antiques and art, and I know that we would see more, except that assets that attract tax cannot be contributed directly because the proceeds of their sale are needed to help pay the tax.
My third recommendation is to improve access to tax receipts for corporations providing sponsorship support to charities. The Canada Revenue Agency currently does not permit such sponsorships to be receipted on the basis that companies involved are receiving valuable recognition. However, those companies know they would receive far more value from a commercial sponsorship or an advertising program, and though they may agree to sponsor anyway because of the project's value to society, they do not receive a receipt.
The arts are an area where we receive substantial support from companies. At the National Arts Centre, it is worth $2.5 million of our $5 million total fundraising effort. It is a deterrent for those companies who wish to exercise their responsibility totally through the arts.
In summary, improving the tax environment really does underscore this committee's intentions to inspire more giving and, in turn, make substantial gains for Canadian society. It is true that people do not give for a tax receipt, but they are enabled to give by a tax receipt. Anything that we can do to enable more giving is tremendously powerful for this country.
Senator Angus: If I may address the first question to Ms. Pearson and Ms. Gregersen. If the government was only willing to give you one of the following two breaks, which one would you prefer: (A) reducing to zero the capital gains tax, or (B) extending what we have now, the 50 per cent reduction, to private foundations?
Ms. Pearson: That is not an unfamiliar question. I have been asked this before.
Senator Angus: I thought it was an original question.
Ms. Pearson: It is probably in the set of options that are being considered by the government, one or the other. My answer has been, of course, that I would never want to suggest that it should be one or the other. My view is that the government will have to consider this choice on the basis of the potential long-term benefit for charities.
I do not see any reason you could not do both, frankly, but if one had to choose, it might be that the changes could be introduced on a gradual basis. In fact, in 1997 they said, ``We are introducing this measure on an interim basis, we will see what happens.'' They decided to make it permanent in 2000 because the donation patterns were indeed very promising. They could probably continue in that vein. They have been saying that for some time. In fact, every time they comment on this publicly — ``they'' being tax policy officials or, indeed, the minister — they will say, ``We are still considering what else we can include in this measure.'' My suggestion would be that they continue to explore including as much as possible in this measure, and if it must be phased in over time, that is fine as long as the direction is positive, that is, in the direction of a more generous incentive for donors of securities.
The Chairman: Spoken like a granddaughter of a great diplomat and in the family tradition.
Senator Angus: What is your answer on that, Ms. Gregersen?
Ms. Gregersen: I am not convinced that people would necessarily be selling their stock if they were not were making gifts. I do not think that looking at the lost tax is really the best way to measure the impact. We have far more to gain by eliminating the tax and releasing the benefit.
Senator Angus: Going the whole hog.
Ms. Gregersen: Yes, the measure in how we look at that needs to be carefully thought through. It is too short term to look at lost tax on a sale that might not have otherwise happened.
Senator Angus: Ms. Brown, you raised the issue of receipts and you are the CEO of the Heart and Stroke Foundation. Average gifts are between $1 and $50, which I understand well. You have about 25 direct mailing solicitations a year. When do you send out the receipts? We were inundated when we announced that we were doing this study with people who wanted to know when they would get their receipts. There is much hassle in administering it from the charity's side.
From the representations made to us as representatives of the citizenry, there is much administrative hassle for them in following up in the month of February on the tax receipt from XYZ. Can you help me on that?
Ms. Brown: We have to approach it from a risk-management perspective. I think this is the thrust of your question, senator. It is really a trust mechanism of the Canadian public. You already do that to a certain extent with e-reporting. People do not have to send in their receipts if they are emailing their income tax return. There has already been acceptance of the principle that, by and large, Canadians are very honest about whether they have made a small donation. All you need to do is put in place a periodic audit such as you have for other aspects of the tax system. It would reduce the burden on the health charities and provide the donor with ease of reporting as well.
I would suggest it is a small thing that you could do that could have amazing implications. Did I understand your question?
Senator Angus: That is a good answer, but that was not my question. The thrust was the following — this is the representation — the major public health charities in the country send much direct mail, whether it is the Red Cross or diabetes association or this and that. I have done a little fundraising in my life. People are busy. They do not remember whether they sent $40. You usually give them a choice — send $10, $20, $30 or even more.
They give, and then they do not get the receipt. Then they are wondering if they gave to the Heart and Stroke Foundation. Where is the darn receipt? I am getting many complaints about that. When do you send the receipts, as a rule?
Ms. Brown: We send it as soon as we can after receipt of the gift. I agree with you. There are some difficulties in that, depending on the health charity. The request goes out before the individual has received the receipt, partly because many of the health charities wait until the end of the year to fulfil their receipt mailing responsibilities, as opposed to doing it on an interim basis, because it is done by volunteers. It is not done by staff.
Health charities are very much restricted in how much they can use for administrative purposes. Sending out receipts is administration. You have to get volunteers into the office to send out receipts. It is actually a big deal.
It is true. It is a legitimate complaint that at times, when donors have asked a second time, they have not yet received their receipt. I will take that back through the Health Charities Coalition.
Senator Angus: I will make a suggestion. I heard you say that there is a tendency to save it until the end of the year. When you do a January direct appeal with the intention of sending the receipt in December or even the following January, you could just state on the little card that the policy of the Heart and Stroke Foundation is to send a charitable receipt at the end of the year. Many people are quite happy to give, especially if it is $20, $30 or $40, as opposed to $500, $600 or $700. It might suit their budget to give in instalments like that. It is key that you do that. I have had many complaints about that.
Ms. Brown: Thank you, senator. I will certainly take that back. That is helpful.
Senator Massicotte: I want you to help me get a conceptual sense of where gift giving lies in the world of providing services. Different countries have different perceptions. In many countries, giving is not a major issue. Rather, people expect the government to provide the service. I have heard many comments that people have already paid taxes, why give additionally. It is the responsibility of the government to make sure they prioritize needs.
You could make the argument that perhaps charitable giving and these organizations are complementary, or are more efficient, which is probably, from an overall perspective, what we want to hear in allocating to needs. However, if we accept some of your recommendations not to tax capital gains on listed securities or maybe real estate, effectively, the public, not the individual, would say that is their money. Will people trust that those organizations will spend the money properly?
If you make it such that private foundations, which are more controlled by individuals, can benefit from this, are we serving the public interest, in that 50 per cent of that tax is being managed by those private foundations? How is the public best served? How do you see this scheme working and how do we make sure that the public's long-term interest is best served by these mechanisms?
The Chairman: We would be interested in a response from each of you, because that is an important question on which we will be labouring.
Ms. Pearson: Those are very important questions. The foundation community is very conscious of their obligation as private organizations that have received public support to be accountable to the public in some way.
I often say to my members that being a private foundation does not mean that you can be private. Once you have taken the step of registering as a foundation, you have taken the step towards public accountability. In a minimal form, that accountability is accomplished through the reporting form that each foundation must send to the Canada Revenue Agency every year. Every charity in Canada must send the completed form to the Canada Revenue Agency. That form contains a considerable amount of information about what the foundation is doing.
The disbursement quota also acts to ensure that foundations do not just sit on the money and that it is being disbursed regularly to charities. The government has imposed a regulatory framework that is important and necessary to ensure that private foundations are not indeed just hiving off private money even though they have received a public benefit for it.
There is the question of public priorities versus private, and could the money be better spent by a government funder than a private funder. The amount of money that is given every year by private foundations across the country is about $1 billion. When you compare that to what governments are spending at all levels every year, it is clearly a much smaller amount. We would like it to be bigger, but it will not rival public expenditures. I do not think that private foundations would want to do that. They cannot rival public expenditures.
I was describing earlier the complementary role that private funders can play. It is a very important one. Private funders can operate much like angel investors in the venture capital context. They are the people who come in at the beginning, when there is no proof of concept, only an idea that perhaps could lead to a significant benefit for a large number of people down the road. When it is still only an approach or possibility, the funding that will make that idea real is not coming from the government. It will come more easily from a private funder.
Private funders have a higher risk tolerance and, possibly, a longer time commitment. They can make that commitment over a longer period of time than many government funders. It is complementary funding, and I would argue that it is also very necessary funding to support public priorities. Ultimately, reducing poverty, which is a public priority, can be done in a number of ways. Private funders can test some of those ways so that government can do it better. When it gets to the point where you are taking it to a larger scale, government can do it better because these new ideas have been fed into the system.
Senator Massicotte: Please appreciate that if you give a full credit on capital gains, as opposed to full taxation, approximately half the money that is being contributed is actually deferred income tax. In other words, it is Mr. and Mrs. Canada's money. If you give it to foundations, or, even worse, private foundations, how do we ensure that the money, which is a 50/50 deal, is spent in the interests of all Canadians and not on the individual private foundation's pet interest? Also appreciate that if you allow private foundations to qualify, then public charity organizations will obviously receive less money. The public has greater trust in the large organizations, and I assume that is why the government did not allow private foundations to benefit. You will receive less money.
Could you answer in that light? Not everybody wins in this; some people lose.
The Chairman: Yesterday, we heard testimony that it was not a 50/50 split. The figure was 53 per cent that the taxpayer would pay. It is more than 50 per cent, to emphasize Senator Massicotte's point.
Ms. Pearson: I want to go back to a point that I made earlier. Foundations must give and they must give to charity. A private individual is not allowed to put this money away and receive a tax benefit for it.
Senator Massicotte: We appreciate that, but how do we make sure, when the organizations are large, that it truly relates to people's needs, because 53 per cent of the money is Canadian money; it is not the individual's money. The other organizations will get less money. Who is in the best position to decide the best interests of Canadians?
Ms. Gregersen: At the most recent National Arts Centre round table, Ambassador Gordon Giffin was one of the participants. We heard his view that Canadians seem to think that government is supposed to do everything and that anything that we can do in partnership that encourages giving will strengthen our country, as it has dramatically strengthened the United States.
Many charities are not private foundations. They are organizations like ours, which is already in partnership with the Government of Canada. Outcome reporting, as Ms. Pearson said earlier, is one of the important things that our organizations must do for our donors. That is why they continue to support us and to give us a vote of confidence in what we have accomplished with their contributions to date. Outcome reporting and stewardship of the money is extremely important.
As to how Canadians make valid choices for the country, I would say that private and public foundations need to state their intended outcomes when they make application to receive charitable status in the first place. That is the point at which the Canada Revenue Agency determines whether the outcomes are important for Canadians, and if so, the foundation receives its charitable registration.
The Chairman: Could you give us a short policy response to the question? Senator Massicotte raises a fundamental question that we will deliberate further. We would like to see it in writing. He has raised an important policy question for the committee to grapple with in considering its recommendations.
Senator Massicotte, we will come back to that in round two.
[Translation]
Senator Plamondon: Ms. Pearson, you stated in your presentation that your foundation only disburses funds to Canadian charities. Do you know if these charities use the donations they receive for their charitable works in Canada or if they can direct this money to other countries? If so, which countries are the recipients of these funds? What percentage of the funds donated go to cover administrative costs?
Ms. Pearson: To answer your first question, charities can direct the funds collected to other countries. I am speaking for charitable foundations rather than for Canadian donors. However, the same would also hold true for individual donors. A foundation can donate to a charitable organization such as Oxfam Québec which is involved in charitable work abroad. Federal government regulations stipulate that a foundation cannot disburse money to an unregistered charity. Oxfam Québec qualifies because it is registered with the federal government. It can accept donations and it certainly can use the money to do charitable work abroad.
Senator Plamondon: What percentage of all donations to charitable foundations stays in Canada as opposed to the percentage directed to works abroad? I would like to know which countries are on the receiving end of donations.
Ms. Pearson: In the information package that I distributed, you will find a chart showing these percentages for private foundations only. Also listed is the proportion of donations that go to certain sectors such as education, health and social services. You also have a list of international projects and you can see that about four or five per cent of all donations are directed to such initiatives. The proportion is not that high.
Senator Plamondon: This ties in with Senator Massicotte's question. This assistance is provided by the Government of Canada and not because of the tax credit. The government's share is fifty per cent.
Ms. Pearson: That is correct.
Senator Plamondon: What percentage of overall donations do you keep to cover administrative costs?
Ms. Pearson: Are you talking about our organization in particular, or about a typical foundation?
Senator Plamondon: About both. Is there a standard percentage?
Ms. Pearson: We have an endowment fund and we finance returns on endowment fund investments. Typically, our administrative costs represent about one per cent of the endowment fund assets.
Senator Plamondon: And is the percentage the same in the case of charities to which you disburse funds?
Ms. Pearson: No. As a rule — and my colleague is more of an expert on the subject than I am — the proportion is around 80/20, in keeping with federal government rules whereby 80 per cent of all donations for which a receipt is issued must be disbursed for charitable works, with the remaining 20 per cent reserved for administrative purposes.
[English]
Senator Oliver: I have three short questions, one for each of the presenters, beginning with Ms. Brown. I will put the three questions and then take the responses.
Senator Angus raised a question arising from what you said about charitable receipts, and I hope I understood. Ms. Brown, you said that the average receipted donation on a Canadian tax return is around $220. You also said that some donations are quite small and that it is a nuisance to have to send a receipt for $10, $15 or $25. You said that you know many taxpayers e-file their returns and so do not require a receipt unless it is requested by the CRA.
When I was taught about fundraising by Senator Angus, he said that after you ask for the money, it is extremely important to say thank you in a note. If you are preparing a handwritten note to say thank you, why could you not put a receipt in the envelope with it? It would seem to me that that is what should be done.
Even though audits can be done, what other proof would there be? What other proof did you have in mind?
What would be the effect if the proposals you have made are not accepted? What would be the effect on the private foundations if they could not transfer to the charities?
It has been proposed that charitable giving might increase with the establishment of something called a ``registered savings plan for charitable donations,'' which would be much like our RRSPs. What is your opinion on the creation of a registered savings plan for donations to charities, whereby individuals would be allowed to transfer tax-sheltered funds to charities?
Ms. Brown: I will throw in a couple of quick answers to Senator Massicotte's question as well. Many of the donations of $10, $20 and $15 are given at events. People are given informal receipts as soon they give the money. Why is it that those receipts cannot be used as official tax receipts? We would suggest that many donations come to us from such events and that there is an informal receipting process that the donor might be able to use.
Senator Oliver: At those informal events, you could have the charitable tax number on the receipts.
Ms. Brown: I am not a fundraiser, but I believe there are reasons why that cannot happen. I will certainly make inquiries and provide the committee with more information.
The Chairman: Senator Oliver and I attended an important meeting on e-governance at Microsoft headquarters. At that meeting, there were government leaders from around the world. They gave us some documents that indicate the effectiveness of e-governments and Canada stands very high on that. There was an analysis of the cost to government of an inquiry and a response. They compared a response letter from the government for about $25 to $30 to an email response of about $1. The devil is in the detail. It would be important to have answers to our questions, which relate to Senator Massicotte's question. How can we make the receipt process cost-effective while being fair to both the taxpayer and the charity?
Ms. Brown: That is a good question. You should also know that more and more people are donating online, for example to the Heart and Stroke Foundation of Canada. That adds the e-dimension that you are speaking of. I should also mention that we thank all our volunteers. This pertains to Senator Massicotte's question as well. The philosophy is that many people simply begin by donating, then they become volunteers and then they become part of the process. When you ask them about charitable work, it is not so much the giving of money, but the feeling of ownership of the activities and of the mission of that charity. It is a complex process that goes from sending in a cheque to becoming a volunteer. It works its way up and is an important process.
The Chairman: We have all done that.
Ms. Brown: I know you have. That does have implications for encouraging people to give money. It is the start of the process that makes these organizations truly dynamic.
The Chairman: Senator Oliver, are you satisfied with those answers?
Senator Oliver: That was the first question only.
Ms. Pearson: Your question was what would happen if our recommendation was not accepted?
Senator Oliver: I would like to know the effect of that on the private foundations.
Ms. Pearson: Our recommendation is such that if it were not accepted, then we would have the status quo. We can only give you anecdotal evidence to suggest that fewer donors are giving less-substantial amounts to private foundations because the incentive is not as great. The Asper Foundation, for example, is a member of my association. Mr. Asper, the founder, might be prepared to give a significant donation of securities to the Asper Foundation but did not because the incentive was not as great as that for donating to a public foundation. That goes to the issue of why should there be private foundations. What is wrong with giving it to a private foundation? There is an inherent suspicion around the word ``private.'' It is certainly clear in the Department of Finance, for example, that the notion of ``private'' means that it is out of the public view, public supervision and public control.
As a private foundation community, we are trying to demonstrate in every way possible that we take our responsibility to be accountable to the public seriously. As I said earlier, the private designation does not mean that we are private. We have an obligation to report, to communicate and to be transparent, to use a word that is overused these days. It is important for foundations to take on their role as public actors, even though the vehicle may be denoted by the words ``private foundation.'' The vehicle is treated, in essence, in the same way as any charity is treated when it comes to the imposition of accountability requirements.
Senator Oliver: Except that the source of funds is private.
Ms. Pearson: That is right. The funds come from one donor or family as opposed to from many. We have obligations to the public and we acknowledge those obligations.
Senator Oliver: What about the registered savings plan?
Ms. Gregersen: That is a new idea and I have not heard about it before. It is interesting in that it is an intriguing idea with positioning and public relations value.
In relation to the tax, I would have to give this more thought, but I believe that it would simply defer the problem. When the registered plan is liquidated, the tax would then have to be paid. It does not have the benefit on the ground to Canadians that I think eliminating the tax would have.
Senator Moore: Senator Oliver, were you thinking about the system just set up by the TD Bank, whereby a trust is set up and they manage it? The owner of the trust is able to designate which charities he or she wishes to benefit and, on the owner's death, the trust amount is forwarded. Was that the plan you spoke about?
Senator Oliver: No, that is not the one.
Senator Moore: I am interested in post-secondary education and in the institutions that provide same. I see that 29 per cent of the foundations' donations go to education. We had a study in the Senate on cumulative deferred maintenance in our post-secondary institutions in Canada. There is a need for about $3.5 million for the fix-up of buildings, not necessarily high-tech work, but just basic fixing up in order to meet the code. Most of the foundations are more likely and more willing to give so that they can have their names attached to new buildings. How do we encourage foundations to give in order to fix buildings up?
Ms. Pearson: That is a fair question.
Senator Moore: There is a huge need.
Ms. Pearson: Absolutely there is. I would extend that question to all the sub-sectors of the voluntary sector, the charitable sector. This issue arises time and time again. Health organizations may receive a major contribution from a foundation and start a building and development program. Down the road, they do not have the money to run the program or to renovate the building. Foundations should begin to talk more about these issues with their grantees, and certainly with people in the charitable communities. Foundations are increasingly conscious of this. I would like to send you an article that I wrote about a year ago in Policy Options magazine. It speaks to the university community, foundations and education. The title of the article is ``From Bricks to Brain Cells.''
What foundations are increasingly doing in this country — and I am talking about private foundations — is supporting programs at universities. They are not building buildings any more. They are tending to say no to capital.
Senator Moore: I notice that happening.
Ms. Pearson: It still leaves the universities with the maintenance problem, no question. The McConnell Foundation that endowed many buildings at McGill is now faced with many requests from that university to maintain those buildings that are called McConnell this and that. It is a concern. Certainly, a foundation does not want to see its gift deteriorate. However, what the foundations are doing to avoid this problem in the future is to say ``No, we will not contribute to capital projects.''
Where we can help most is in supporting the development of new approaches that ultimately, the university, in this case, might then bring into a permanent part of its operations. The foundation will not be there long term, however. This is an important point about foundations. Most of them cannot be sustaining funders because of their means — the resources in the foundation sector in this country are not big.
Senator Moore: Yes, it is not like a government process, where the department will be there for ever. I realize that.
You cannot tell a foundation they must spend X dollars on these sorts of things. You can tell them that if they are to receive all these other benefits that you are talking about here, only so much is to be spent on administration. I suppose it is their own choice as to where they put their money in the free and democratic society that we live in, but I find it frustrating because there is a huge need there.
I just finished 10 years on the board of St. Mary's University, and I know what our school went through and what other universities in the Atlantic region and across the country are going through. We heard all the stories here. If you could put a plug in for that with your organization, we would appreciate that.
Ms. Pearson: We do.
The Chairman: I will not strike that off the record, but he has come mightily close.
The complaint that I have heard — and this is directed to private foundations and this creative partnership, which we think is useful — is about the allocation of designations. This goes back to my first principle, about is it more blessed to give than to receive? It is, certainly, if you can get your name attached to something. That is the new modality, which all of your organizations are pushing: How do you entice more donors to give more money?
One complaint that has been made in my city is about the allocation of private giving to public institutions or public foundations, where the name is given as a feather in the cap and it represents a small proportion of the total capital. I am always mindful of the argument that has been made in New York, that when the Guggenheims wanted to build their foundation, they built it and maintained it and kept it, as they do to this day to a large measure, I believe.
I asked you that question because it is a complaint that I received from a number of people — not just in Toronto, but in other places. What is a fair way of allocating a name that utilizes a highly leveraged amount of public funding and other charitable funding for one particular person or one particular family? How do you deal with that as a question of public policy, having in mind, I understand, the deep need for increasingly larger chunks of money?
Ms. Pearson: I think it does come back to Senator Massicotte's question. It is an important one with which we are trying to grapple. As a voluntary association, we can set out standards and principles of grant making and principles of behaviour in a private foundation context that will help to raise the bar for all of our members. We do think it important that as a member association we do that; namely, that we set out what we believe are appropriate values and principles of grant making.
One of those principles would be to communicate and to be open about mission and objectives, which means being systematic in articulating that mission and those objectives for the public good. There is a sense, in our association and in our network of foundations, that private money for the public good is something that we have to keep in mind. What is public benefit, what is public good and how do we serve that good?
There are no easy answers to it. The naming issue, among my membership of 80 or so foundations, the question of a named donation, does not come up very often because many of them — and these are most of the large foundations in the country — are steering away from naming things. They are steering away from buildings, from things that will have the name on it for ever and ever, because the sense is that that is not necessarily the appropriate mission for a private foundation if it is operating for the public good.
The important issue — and charities are pointing this out to foundations — is to find ways of sustaining the core programs of many of those charities. That means both administrative support and programming support. Increasingly, foundations are having that conversation. Forget about our name. What can we do to help you, charity X or Y, stay alive for the next 5 to 10 years and sustain yourselves? That is what we want to do.
The Chairman: I want to get a brief comment from the other two on that point.
Ms. Gregersen: I think that donors learn over a lifetime of contributing. That is why it is important that this committee inspire more giving, because they progress in their thinking about how society changes. As they get reports on what has happened with their money, they change their ideas.
At the second National Arts Centre Foundation round table, we had 20 philanthropists who had contributed $1 million or more to the arts from one end of the country to the other. They did discuss the naming issue, and they felt that naming of programs, which is now more common than naming of the building, was important. However, the more experienced donors there definitely did look at support for the infrastructure, for the operations, for the things that are the pots in the kitchen, and which are not out in front of the building. That was something that they learned over time; they grew in their experience as donors. That is a very important part of it.
Senator Oliver: Maybe because they already had their name on something.
The Chairman: I should correct the record. I said the Guggenheims continue to support the Guggenheim Foundation. That was not correct. They did start it and supported it for several iterations, and then it moved into the public sector. For the initial period, however, they built the collection and the building practically by themselves. Ms. Brown, would you like to comment on that?
Ms. Brown: I think it is an excellent point. While it is not a major issue for the health charities at this point because our donations are so modest, it will be an increasing issue. As door-to-door canvassing decreases and donations are not coming in that way, we are moving toward planned giving and capital campaigns. However, we do not own buildings, so our ability to name something in return for a large gift is limited. That might impact our success in that entire area. It is something that we will have to give some attention to, and I welcome that question.
The Chairman: This is a technical question. In your brief, you have said that more than $8 billion is given to charities. The figure we heard yesterday from the government was not $8 billion; it was $6.4 billion. That is a huge difference. Can you tell us where you got your statistics from so that we can compare them with the statistics we received from the government?
Senator Angus: A year later.
The Chairman: Is it a year later?
Ms. Brown: Ours is for a specific year, 2004.
The Chairman: We have Statistics Canada 2004 as well. We will ask the government about that.
Ms. Brown: We will try to find out as well. We generally base it on StatsCan data. I am not sure why it would be different.
The Chairman: We do not want $1.5 billion or more to be missing.
Ms. Brown: That is a big difference.
Senator Moore: Ms. Pearson, I would like to receive a copy of the paper that you wrote.
Ms. Pearson: I will send it.
The Chairman: I want to thank all the witnesses again for accepting the inconvenience of coming here on short notice. As you can see, each senator who is active in his or her own region is here, and we are trying to grapple with this important question that affects not only the private sector, but public and private policy.
I wish to thank the witnesses for their patience. Again, I want to admonish the witnesses that we are on a very tight time frame, as you can appreciate. There is a window of opportunity for us to make a report here and we thank you very much for coming here and suiting our particular timetable. We know it has been a great inconvenience to you and we deeply appreciate it, but it is really the difficulty of us getting ourselves focused when involved in the very tight parliamentary agenda.
I want to welcome both witnesses, Mr. Darryl Peck, Chief Executive Officer of Change Canada Charitable Foundation; and Mr. John Pellowe, Chief Executive Officer of the Canadian Council of Christian Charities. Please restrict your comments because we have a limited amount of time and senators will be focused in their questions.
Mr. Darryl R. Peck, Chief Executive Officer, Change Canada Charitable Foundation: First, I want to apologize to the committee. Unfortunately, I am a unilingual English person; among my many flaws, I am not bilingual. For those of you whose mother tongue is French, I ask for your indulgence.
The Chairman: We have translation services. There will be instantaneous translation for you.
Mr. Peck: I worked in the charitable sector for well over 20 years and have helped raise over $60 million in gifts. At Change Canada Charitable Foundation I realized there was a need for additional capacity within the charitable sector. It is not unlike a community foundation, although our focus is national and international. We focus on small and medium charities, especially in a context of rural and new rural needs.
In thinking about this, I will cast my mind back to Charles Dickens. I quote from the last act of the Ghost of Christmas Present:
``They are Man's,'' said the Spirit, looking down upon them. ``And they cling to me, appealing from their fathers. This boy is Ignorance. This girl is Want. Beware of them both, and all of their degree, but most of all beware of this boy, for on his brow I see written which is Doom, unless the writing be erased. ``Deny it!'' cried the Spirit, stretching out its hand toward the city. ``Slander those who tell it ye. Admit it for your factious purposes, and make it worse. And abide the end.''
``Have they no refuge or resources?'' cried Scrooge. ``Are there no prisons?'' said the Spirit, turning to him at the last time with his own words. ``Are there no workhouses?''
The bell struck twelve.
In thinking about this presentation, senators, I thought, what a fitting time to talk about generosity, opportunity, leadership and second chances juxtaposed against humankind's children, sheltered by the Ghost of Christmas Present, representing Ignorance and Want. At the beginning of this Christmas season and Hanukkah, I want to thank you on behalf of the members of C-PREG, the Coalition on Poverty Relief and Effective Giving, for the opportunity to present to you today. My focus is on Canadian philanthropy in the 21st century in an attempt to help you understand that innovation and effectiveness cannot be a continuation of the status quo carried forward from the last century.
In Canada, if we are to meet our national and international commitments to children at the beginning of this millennium, if we are to generate new sources of charitable dollars that can be used to address critical national and international challenges, we need to think outside the charitable giving box. We can all agree that hunger and poverty would fall into this category. Indeed, both the Prime Minister and Minister of Finance Goodale stood in his place in the House of Commons and stated ``We have made a commitment to the world's poor and we will honour it.''
My colleagues and I assumed that when Mr. Goodale made that statement, he included the over 2 million impoverished children that live right here in our own country.
It is well past time for the federal government to make a major policy and philosophical shift in thinking about 21st century philanthropy in Canada. A critical aspect of this shift would be embracing the idea of allowing small, but capped amounts of profit to be part of charitable investing.
Currently, the key objection from senior Finance officials to the five-year GIK food pilot is the concept that philanthropy should not result in profit, no matter how small. This thinking must change if Canada and Canadians are to produce the quantum surge in charitable giving that individuals are capable of and which Canada must encourage to alleviate hunger, poverty and disease, among other things.
The C-PREG food pilot uses a strictly controlled tax shelter model to generate enough revenue to potentially add 1 billion highly nutritious meals for hungry Canadian schoolchildren as well as for children in Africa. By allowing individuals to make a modest, capped profit on certain kinds of charitable giving, the federal government would see a tremendous upsurge in donations and investments in the sector at little or no cost to the treasury.
As I mentioned, federal Finance officials have agreed with all the controls and checks that we have designed for the concept that we are proposing except the main one — profit.
The Manley amendments of last year effectively killed the food program we were using, which turned off, among other things, an additional 60,000 nutritional snacks and lunches in school meal programs across this country. Similarly, highly nutritious food donations to Africa were cut off, but not before we were able to generate 326 metric tons of rice and 42 metric tons of barley grass, which is a food supplement that World Vision, one of our partners, always includes in their overseas food aid because it is a critical element in ensuring that there is no blindness or other effects of malnutrition.
In fact, last year, if the program had been allowed to continue, we would have generated 220 additional 40-foot containers of highly nutritious food, mostly directed towards a region in stress this year, Darfur.
Since April, members of C-PREG have been meeting with ministers and senior Finance officials on our five-year food pilot. We have complete agreement on the merits of the innovative initiative, except for the concept of profit. This pilot is completely financially self-sufficient, requiring no investments by the charities to make it successful. In fact, one of its strongest points is using a tax shelter as a way to generate critical material, that is, food, but it also is accompanied by the money used to package and ship it and ensure that charities can move it.
I am the co-founder. I can tell you that this year, John Page, who is the founder, received a $2.5 million in-kind donation. One condition was that it could not be used in North America, because the donor's market is here. Second, no money was to be used to ship the food overseas.
The cost of shipping food aid in Canada as well as oversees is one the charity has to bear. Our pilot enables the money to come along with the gift.
C-PREG has designed a five-year pilot that is expected to deliver a billion meals to hungry and starving people in Africa as well as hungry Canadian schoolchildren by the year 2007. That pilot will increase cost-effective donations of food aid and food distribution grants internationally as part of Canada's aid promise, as well as provide more than 80,000 nutritional snacks and meals annually to hungry Canadian schoolchildren. It will be significantly more tax efficient than existing individual GIKs — gifts in kind — and will contain 10 internal controls that will provide transparency and accountability as well as eliminate abuses of the GIK tax rules by including profit constraints on tax advisers and limited tax benefits to donors.
To accomplish this kind of transformational investment possible through pilots like C-PREG requires leadership, courage and resolve. I can only imagine what course of action Charles Dickens would advise upon you if he were appearing before you today. One thing I am sure that he would remind you of is the image of the boy and girl clinging to the legs of the Ghost of Christmas Present. Perhaps, too, he would remind you that in 1843, unbeknownst to him, the name of A Christmas Carol's major character, Scrooge, would become for all time, at least in English-speaking countries, synonymous with greed, cruelty, selfishness and cheapness.
The play itself is about transformation, philanthropic leadership, selflessness and the joy that comes from generosity and kindness. Senators, more than ever, I believe that this country and individuals like you, who are entrusted with sacred positions of influence and authority, must seize opportunities that will again place Canada firmly in the lead as a country that not only talks the talk, but walks the walk in addressing the conditions that children face not only in our country, but also overseas.
I conclude: The boy is Ignorance, the girl is Want. We have a billion meals to deliver. What will you choose, and what will the federal government choose?
The Chairman: Thank you for those challenging remarks. You have raised many questions, but we will hang on to our thoughts until we hear from our next witness.
Mr. John Pellowe, Chief Executive Officer, Canadian Council of Christian Charities: Thank you for the invitation to appear here today. I have been told that you are diligent readers, so I do not need to read the presentation that I had submitted to you. I would like to talk about it a little.
The previous panel had quite a discussion on accountability and standards. That is actually the primary function of the four Cs — Canadian Council of Christian Charities. We do have standards and compliance reviews. We have been doing that for 20 years. We are the only Canadian organization that is a member of the International Council on Fundraising Organizations, which is a worldwide network of people who monitor charities and the use of charitable funds. That is something that we could discuss, if you are at all interested.
The spirit in which we bring this forward is that people should be giving because they believe in the cause and are committed to the good works that will be done, and not driven by tax incentives. On the other hand, tax incentives can help to bring new givers into the charitable sector. For that reason, we think there are some recommendations here that are worthwhile.
The first recommendation, regarding the capital gains on gifts of publicly listed securities, was dealt with in the previous panel. It is there because we believe that that could be an incentive to bring new donors to the table.
The second recommendation is regarding the use of charitable receipts. Low income Canadians, below $20,000 in income, give the highest percentage of their income to charity of any group in Canada. However, if they have no tax to pay, they are being doubly generous. Our recommendation is that they be treated on the same basis as wealthier donors. One way to achieve that is to allow charitable donations to enjoy the same framework as is available for capital gains and losses, which is typically used for wealthier people.
The current five-year carry forward of unused charity receipts could then be carried back three years and be carried forward indefinitely. This would be a relief to low income Canadians. It would not address the issue of chronically low income people, but it would help those who believe themselves in a temporary situation, where charitable receipts could be carried back a couple of years to when they had some income to use it against. If they expect to find employment in the future, there would be the hope that they could do that. This would allow for more consistency in donations. It is a social value that we help each other out. This would be something that would help this segment.
The third recommendation, dealing with allowing charitable donations up to 60 days beyond year end, would not have any actual tax expenditure implications. It is simply shifting the time period when those charitable receipts are used. We believe it could lead to higher giving, as the connection between when the gift is given and when there is some relief is shortened. Allowing people who are not on a fixed income the opportunity to determine their incomes and other income needs would be like allowing 60 days for people to invest in RRSPs. If we were to extend that to charitable donations, people may find that they can give more money sooner. We think that would be a benefit.
The fourth recommendation is on total tax exemption for charities on the basis of public interest. This is not dealing with donors, but with the efficiency with which the donated funds are used. Just as a reminder, the significant contributions that charities make to society have been recognized by the Canadian income tax system, which provides for exemption from tax on any income earned by a charity. The federal and provincial governments have already recognized and accepted the principle that it is inappropriate to tax charities and thereby impair their ability to serve the public. This principle, of not taxing charities, is not observed in connection with the purchase of supplies by charities for their charitable programs.
Some public service bodies are also charities that receive rebates as high at 83 per cent. The federal government recently increased the rebates for municipalities to 100 per cent, recognizing the principle that municipalities exist to meet public needs and therefore should not be subject to GST on their purchases of supplies.
We would recommend following the same principle, 100 per cent rebate for GST paid by registered charities. That would assist the charities to use those funds for the purposes for which they were donated. The full recommendations are in the report, which you have read. I will end my presentation there.
Senator Massicotte: Mr. Peck, I read your submission and I listened to your presentation. You have to make it simple for me. Maybe it is because I am intellectually not as sharp as my colleagues. You object to the fact that the current rules do not permit charities to make a small profit. Explain that, but explain it in language that I can understand.
Mr. Peck: We are using a tax shelter, and the specific one we used enabled us to purchase barley grass and rice last year. The people who invested in those units of tax shelters got a charitable tax receipt from us for the lowest fair- market value we could assign to it.
The day that Finance Minister Manley amended the rules on that, we had $12 million more from people who were willing to invest in this, even though their return on investment was lower, because they liked the fact that their money was used to do some social good.
Senator Massicotte: Explain the tax shelter to me. All these words are nice, but tell me what it means to me if you come to me and encourage me to get involved. What does it mean to me and why would I say yes?
Mr. Peck: If you are looking for a tax shelter, your financial adviser will tell you that he wants to move some of your income so that you do not pay tax on it. In other words, the Treasury of Canada does not get any of that. We provide an opportunity for you to invest in our unit, which shelters that income. Instead of it being lost to the treasury completely, we use it to reinvest in good works.
Senator Massicotte: What do have I to do? If I need to shelter $10, what do I need to do?
Mr. Peck: You would buy one unit for $10. A colleague of mine takes the money. We use it to buy material, in this case, food, on the open market. You still own that food. You then donate it to Change Canada. I have a valuation on that food that says it is worth $12. You get a tax receipt for $12. I then work with people like World Vision, who take the food and also some of the money that I have received to pay for the shipping. They direct that to their projects, in this case, overseas in Africa. Also, I am left with enough grant money that I can then pay for, in this case, school meal programs across the country. You get a tax receipt and Canada gets more food.
Senator Massicotte: I get a tax receipt for how much?
Mr. Peck: Twelve dollars.
Senator Massicotte: So I gave you $10 and I get a tax receipt for $12.
Mr. Peck: Right, you are able to shelter $12.
Senator Massicotte: I save $6, effectively, if the marginal tax is 50 per cent. That is your tax shelter. I gather the objection is why did I get a receipt for $12 when I only gave you $10?
Mr. Peck: The objection is you are not supposed to make a profit on philanthropy. Our position is that in the 21st century, we need to be creative in how we can encourage more people to get involved in philanthropy. If part of that is allowing a small profit to get it going, then I think it is worth it.
Senator Massicotte: What you call ``profit'' is the deduction I get off my taxes and it is not equivalent to the amount I paid.
Mr. Peck: Right. It is higher. Basically, it is put against your tax owing.
Senator Massicotte: Could that be $14, $16?
Mr. Peck: Actually, it could. In fact, we were using this last year. I am sure all of you are familiar with the infamous comic book deals and art deals that use tax shelters not to enrich the charity, but mostly to enrich some tax advisers and other people. We object to that.
We then looked at the tax shelter model and said it could be used to do some real good, because people do use them. We are providing them with an opportunity to invest in something where part of it remained in Canada and part went overseas to do some very important charitable good. Otherwise, they would move the money offshore to another tax shelter with no social-good outcomes.
Senator Massicotte: Mr. Pellowe, you are also supporting the reduction in capital gains on publicly listed securities. You argue that this will increase the contributions that people will make, because obviously it is more tax effective. The net cost after-tax burden to the contributor is obviously lessened by it.
Let me take that further. Is it not just a deferral, because currently, approximately a third of the contribution is given back through a tax credit? If the government agreed with what you were proposing, it would probably come to 53 per cent. Eventually, that person will pass away and there may be a tax rollover to the spouse, but that spouse will also pass away. The person has to decide, do I give 50 cents to the government or do I give 17 cents to the government, being the 50 cents minus the 33 cents. Would they not give it anyway to save 33 cents, and if they would not, they are not convinced adequately of the cause? I can appreciate the increased amount of the contribution, but is it simply not a deferral and therefore the government loses because the charities would get the money anyway?
Mr. Pellowe: I do not see it as a deferral at all. I am not sure we are talking about the same thing. I am talking about an outright gift to a charity. I am not talking about putting it into a foundation.
Senator Massicotte: I appreciate that. If you gave it outright today, you would save 33 cents on the dollar. Under your proposal, you save 53 cents on the dollar. Maybe then he would decide to give it today. I presume you have to argue he would not make that contribution if the legislation is not changed, because if he did your argument falls apart. Let us say he defers making a contribution and says the incentive of 33 cents is not adequate because it still costs him 67 cents. When he dies, all assets are taxed at fair market value, unless there is a tax-free transfer to a spouse, but eventually, she will pass away. You have to decide, do I give 50 cents to the government or do I give 13 cents, being the 50 cents minus the subsidy. I suspect if he believes in the cause he will give it then. Therefore, you would get the donation eventually. You may just get it later.
Mr. Pellowe: Yes, so there is a delay in doing good there.
Senator Massicotte: The argument, therefore, is you get the money faster under the tax incentive, but I would presume you would get it anyway. Eventually, over the lifetimes of many people, the annual contribution will be the same.
Mr. Pellowe: I would like to go back to my opening comments, which were, we want people to give because they are committed to a cause, to the good that will be done, not because there is a tax incentive to do it. The committee's mandate, as I understood it, was how can we increase charitable giving? How could we help people to give new-found money?
I am suggesting that, yes, there are lots of people who are quite happy to give the way things are now. The question here is, would this possibly result in some new money that would not otherwise be donated? For those who are driven more by the financial aspects of it, I think it would, but it is not the basis on which, ultimately, we think donations should be made.
Senator Massicotte: I understand that, and I totally agree with you. Let us hope it is not the real reason. However, to incite people to give, the after-tax contribution will go up, if we agree with your recommendation. If you also agree that they will give anyway, one can make the argument, just be patient, because people die every year, and the government will not have to subsidize the contribution.
Mr. Pellowe: That is your decision.
Mr. Peck: The research shows that only 7 per cent of Canadians have bequests of any kind in their will, and only one-third of us have a will. Encouraging people to put bequests in their wills would be great, but in this case, I do not think you would see a large uptake, because a lot of people do not have charitable donations written into their wills.
The Chairman: I have two questions: First, to the Canadian Council of Christian Charities, can you give us an idea of the total amount that has been raised by your charities, and some indication of the allocation of the donated monies? We received a model from the government that gave us at least a sense of where the money was being allocated. This raises the question of objectivity, and public objectives and private objectives. Could you give us that in writing, the total amount raised in the last few years and, roughly, how that money has been allocated by the respective charities?
Mr. Pellowe: Yes.
The Chairman: You gave us your definitions, but give us a good insight into that.
Mr. Pellowe: Yes, we have that information.
The Chairman: Have either of you looked at the cost impact on the Canadian government of your recommendations? We should have asked this of the last group of witnesses. We did not. We might send them a letter.
Have you done a cost-impact study?
Mr. Pellowe: Yes, it is in the submission that we made.
The Chairman: Could you highlight that for us?
Mr. Pellowe: At the end of the first suggestion, we said that the current tax expenditure estimate is $8 million for 2004. I have the source cited for that: the Department of Finance.
On the second suggestion, we really do not know what that is for the low income people. That is very hard to determine from public records.
On the third, we do not believe there would be any cost impact because it is merely shifting the donation from one year to another.
The fourth one, right at the bottom, the Department of Finance has said, for 2004, the annual tax expenditure on the 50 per cent portion of GST not paid by registered charities is $280 million. We are talking about the part that they still are paying, so presumably that is also $280 million.
The Chairman: The same question for Mr. Peck. Do you have an idea of the impact on the taxpayer, whether it is 20 per cent more than the cost?
Mr. Peck: We have been meeting since April with Finance officials on our model. They do not agree with us, but our figure is based on the wholesale valuation of a unit of 1,763 kilograms of rice and 24.4 kilograms of barley grass, which is $7,692. The tax refund for someone in our program is $2,249.
The Chairman: I understand that. I have that number, but I am asking about the universe. What would be the total impact of your program on the taxpayer?
Mr. Peck: It would be, from our figures, zero.
The Chairman: Except the taxpayer would be paying for a portion of the impact.
Mr. Peck: Compared with straight GIK, I cannot give you the answer. If this program is successful, which is why we proposed a pilot, so we can actually, over five years, with Finance and CRA, monitor the program and —
The Chairman: So that is a projection, but can you take us back? You said that the Manley recommendations effectively cut out your previous donations. Could you give us an insight into what the total was, what the impact was on the taxpayer, so we see whether or not we share Mr. Manley's views about your recommendations?
Mr. Peck: I cannot respond to that, but I will get it to you by the end of the week.
The Chairman: We have heard this from a number of witnesses, that the greatest givers in the country are not the wealthy, but the poor. When I say the poor, I mean people in middle or low income segments. You have, in effect, said the same thing. We have heard the argument that the low income or middle income people are the largest net contributors to overall charity — are you shaking your head or are you agreeing with me?
Mr. Pellowe: The low income donors give the highest percentage of their income. They are not the largest contributors.
The Chairman: What percentage of the total giving, to your charity, for instance, would that be?
Mr. Pellowe: We do not raise money.
The Chairman: I am sorry, for the charities that you are representing, your members? What percentage does the lowest segment give of the total?
Mr. Pellowe: The Canadian Centre for Philanthropy has done a study on that, which is where I would go for the answer. I can pull that number out for you. They do not give more than all the other groups, but they give the greatest percentage of their income.
The Chairman: When they give the greatest percentage of their income, are they being treated fairly under the tax system?
Mr. Pellowe: Yes, as it currently is.
The Chairman: If they get their receipts on time.
Mr. Pellowe: Our point here is a lot of them will not have taxable income. The way it is now, the credit for a donation goes against tax that is owing. In a low income situation, it is not unusual that you could end up with a scenario where someone is giving and is unable to get any credit for it. We are saying that we would like those people, just to honour them as people, ultimately to be able to get a similar benefit. If we could treat it like a capital gain or loss, which can be carried forward or backwards, it would create more flexibility and they could benefit.
Senator Massicotte: While this committee, probably typically for a banking committee, concentrates on monetary sums, I read recently that the greatest contribution to charity is time. I also read a report that said the greatest contribution of time is actually, contrary to what I thought, by the younger adults and not the elderly. In fact, a very large percentage of time is contributed by young families. I think it is the case, from what I read; it is factual.
How do you deal with the fact that in 20 years from now, a very large portion of our population will be older and, therefore, charity giving, in the sense of giving time, will be significantly lower? How will our charities deal with that issue?
Mr. Pellowe: I would have to research that a little because we are talking finances as opposed to time. We are a Christian organization and we do represent the broad spectrum. It is lifelong volunteering. It may be different in the secular charities.
Senator Oliver: Educate those aging baby boomers so they will keep on giving.
Mr. Pellowe: Yes.
Mr. Peck: The Centre for Philanthropy, in cooperation with Robert Barnard, the owner of a company called D- Code, has just published a report on youth involvement, both giving and volunteering. It might be worth the committee's time to get a copy on that question.
One finding of the research was that young people get involved if they are clear about what the objective is. They are not interested in fuzzy logic. They are interested in, if I do this, it will help that and I am prepared to make that commitment of time, but also money. Young people gave $1 billion last year, but it was specifically targeted giving, with a very clear objective.
The Chairman: I want to thank the witnesses for observing the time restraints that we put on them. We will now go to an in camera session of our hearing.
The committee continued in camera.