Proceedings of the Special Senate Committee on the
Charitable Sector
Issue No. 8 - Evidence - October 22, 2018
OTTAWA, Monday, October 22, 2018
The Special Senate Committee on the Charitable Sector met this day at 6:31 p.m. to examine the impact of federal and provincial laws and policies governing charities, nonprofit organizations, foundations, and other similar groups; and to examine the impact of the voluntary sector in Canada.
Senator Terry M. Mercer (Chair) in the chair.
[English]
The Chair: Good evening, everyone. I welcome you to this meeting of the Special Senate Committee on the Charitable Sector. I’m Senator Terry Mercer from Nova Scotia, the chair of the committee, and I would like to start by asking my colleagues to introduce themselves, starting with the deputy chair.
Senator Omidvar: Thank you, chair. I’m Ratna Omidvar from Ontario.
Senator Seidman: Judith Seidman from Montreal, Quebec.
Senator Martin: Yonah Martin from British Columbia.
The Chair: Thank you, colleagues. Today the committee will continue its study to examine the impact of federal and provincial laws and policies governing charities, non-profit organizations, foundations and other similar groups and to examine the impact of the voluntary sector in Canada. For this meeting, we will focus on clients and diversity in charities and non-profit organizations.
For the panel this evening we have Dr. Kathryn Chan, Assistant Professor, Faculty of Law, University of Victoria. And from the Mowat Centre we have Lisa Lalande, Executive Lead, Not-for-Profit Research Hub; and Ms. Joanne Cave, Social Policy Researcher. Thank you for accepting our invitation. The process is very simple. You were all told in advance that the presentation would be five to seven minutes long, and following the presentations we’ll go to questions from colleagues around the table. I would ask that the questions be succinct and the answers the same so that we can have as many exchanges as possible. We’re going to start with Dr. Chan.
Kathryn Chan, Assistant Professor, Faculty of Law, University of Victoria, as an individual: Thank you for the invitation to appear before the Special Senate Committee on the Charitable Sector. I do so in my personal and professional capacity, as a person who has spent about 15 years learning, practising and now teaching the law of charities.
The committee has asked me to comment on a paper that I published in 2016 on the role of equity in the charity law of Canada’s federal courts. I’ve taken the liberty of inferring from this request that the committee is interested in addressing the following question: Why has the legal definition of charity failed to develop in the Federal Court of Appeal? It’s a difficult question to answer in seven minutes, but I’m going to do my best.
Let me first speak briefly to the Federal Court of Appeal record on registered charity appeals. Under the Income Tax Act, of course, where an organization objects to a decision of the Minister of National Revenue to refuse to register that person as a charity, it can, after filing a written notice of objection, appeal the minister’s decision to the Federal Court of Appeal. In theory, this procedure provides an opportunity for a superior court of record to incrementally develop the meaning of the statutory terms “charitable purpose” and “charitable activity” by reference to the common law. Historically, within the common law tradition, it was the courts that kept the law of charities moving by declaring new projects to be charitable on the basis that their purposes were a reasonable extension of or analogous to purposes that had already been recognized as charitable at law.
However, parties that have sought to rely on this common law methodology at the Federal Court of Appeal have had very little success. To put the matter briefly, no not-for-profit organization has won a charitable registration appeal in Canada in over 20 years.
The not-for-profit sector has lost some significant battles during this period. The Federal Court of Appeal has held, for example, that the prevention of poverty is not a charitable purpose and neither is the production of in-depth news programming on a not-for-profit basis. The long list of losses appears to have worn down the sector. Increasingly, organizations have simply stopped appealing charities directorate decisions. And from a doctrinal standpoint, I think the result of the dramatic record of losses has arguably been the near eradication in Canada of the common law method of developing the legal definition of charity by judicial analogy.
So why has the legal definition of charity failed to develop within the registered charity jurisprudence of the Federal Court of Appeal? This is a complicated question, but I would identify at least three major factors. The first is that the Federal Court of Appeal has not incorporated into its decisions the equitable principles that historically oriented the common law courts towards validating charitable gifts.
To explain a bit, the common law of charities evolved in the English Court of Chancery. A central feature of this tradition was that it recognized and protected the public interest in charity property. In recognition of this public interest, the Court of Chancery developed a number of curative principles that oriented the court towards the validation of charitable gifts. I go into these more in my paper, but the equitable rule of widest application is that the court leans in favour of charity.
The Federal Court of Appeal has not adopted a practice of applying the equitable doctrines of the law of charities in charitable registration appeals. Some not-for-profit organizations have lost their appeals on narrow technical grounds, and others have lost because the court refused to presume that the charities’ directors would exercise their powers in a legal or charitable way.
In my opinion, however, the court has the authority to apply equitable principles to favour charity and registered charity appeals, and Parliament could signal its intention that it do so.
Because certain witnesses before this committee have recommended shifting jurisdiction over registered charity appeals to the Tax Court of Canada, I would briefly note that that court is not constituted as a court of equity, but it does recognize and apply equitable principles when considering appeals of income tax assessments. So I don’t think shifting jurisdiction to that court would necessarily preclude the operation of the curative principles of the law of charities in registered charity appeals.
A second reason why the definition of charity has failed to develop in the Federal Court of Appeal is that registered charity appeals are governed by administrative law review, not judicial appellate review principles. This is a fairly technical legal point, and I would direct the committee towards my written submission and that of the Muttart Foundation. I would simply note that both the judicial deference that is currently accorded to charities directorate decisions and the limited evidentiary record before the Federal Court of Appeal both create a disincentive for not-for-profit organizations to appeal.
A third reason, and the final one I’ll speak about today, for why the definition of charity has failed to develop in the Federal Court of Appeal relates, in my opinion, to the absence of any public officer representing the public interest in charity property. Historically, in the English common law tradition, it was common for the Attorney General to intervene in legal proceedings involving charities. The Crown’s chief legal officer did not advocate for either party to the dispute. Rather, she appeared because the common law recognized that every member of the public has an interest in the use of charity property and because the Attorney General was the most appropriate figure to act on the public’s behalf.
The English Attorney General’s role in charity litigation is not carried out by any of her Canadian counterparts under the registered charity regime. The Attorney General of Canada acts as advocate in these appeals for the Minister of National Revenue, while the provincial Attorneys General, who are the constitutional heirs of the English Crown’s protective prerogative powers over charities, do not appear at all.
Given its role as the advocate for our federal tax authority, it is not surprising to find that the Crown in right of Canada often takes aggressively anti-charity positions in registered charity appeals, and I give a few examples of this in my written submission. However, I don’t think we should underestimate the impact that this advocacy has had on the shape of Canada’s charitable sector, especially in light of the judiciary’s traditional respect for the judgment and experience of the chief law officer of the Crown.
If we are going to keep relying on the judiciary to develop the legal meaning of charity in Canada, therefore, I think we may need to institutionalize the participation of another public actor in registered charity appeals who can represent the broader public interest in effective and properly administered charity property. Thank you.
The Chair: Thank you very much, Dr. Chan.
Next we’ll hear from Ms. Lalande, please.
Lisa Lalande, Executive Lead, Not-for-Profit Research Hub, The Mowat Centre: Good evening, everyone. Thank you very much for the invitation to appear this evening.
The brief we have submitted outlines our research findings and recommendations in greater detail. Our research focuses on creating an enabling environment for the social sector in Canada. The existing legislative regulatory framework is preventing the sector from reaching its full potential, and our recommendations focus on how the federal government can modernize and innovate in its approach.
For decades, sector leaders have argued that the relationship needs to be modernized. The core issue, in our view, is not the government-sector relationship itself; it is how the government supports or detracts from the sector’s ability to fulfill its mandate and achieve the best outcomes possible. Focusing on the relationship keeps the conversation about how change should be achieved as opposed to why the change is needed and why it matters to Canadians.
Traditionally, the sector’s value has been conceived in terms of its contribution to a healthy democracy and to community life, providing relief to people in vulnerable positions and volunteerism. In today’s reality, this conception is proving to be too narrow. We encourage the federal government to conceive of the social sector in a different way: as a partner and ally in addressing some of Canada’s most complex and intractable social, economic and environmental challenges.
You’ve heard many sector leaders talk about the need for an enabling environment. We define an enabling environment as one where the government safeguards the public interest, supports the sustainability of non-profits and charities, and optimizes the policy landscape for innovation and experimentation.
But what does an enabling environment look like in practice? An enabling environment focuses on a principles-based rather than a risk-fearing approach to regulating charities. It values and encourages the sector’s contribution to public policy. It integrates and streamlines funding models to reduce red tape for organizations and bureaucrats. It shares data on community outcomes to better direct resources towards the programs and services that are making a difference. It also focuses on a strategic partnership with the sector rather than on a funder-recipient relationship.
Our research brief identifies several key roles for how the federal government can relate to the sector. These include regulating the tax-exempt status of registered charities; adjudicating disputes about charitable registration; and facilitating or enabling the social sector broadly by convening key stakeholders, identifying policy gaps, collaborating with other levels of government, for example, in the promotion of data sharing, creating space for innovation and disseminating best practices.
Historically, we have focused on the regulating role — how the Canada Revenue Agency Charities Directorate, as the tax regulator, makes decisions about charitable status and monitors compliance. We encourage the committee to focus on the facilitating and enabling role that has, for too long, been ignored.
It is important to situate these roles as very separate functions. In other countries, the tax regulator is not expected to address broader sector issues like funding reform or social finance. These issues are dealt with by a separate government entity that is more appropriately situated to act as an advocate, partner and convenor.
Much attention has been paid to the U.K. model as one that Canada should emulate. The U.K. uses an arm’s-length charity commission that reports to Parliament but sits independently to regulate the charitable sector, with an office for civil society embedded within the government as the enabling body. The separation of these functions has proven to be very successful, but the U.K. model is difficult to replicate entirely because of Canada’s federalist context.
In addition, our research indicates that the location of the regulator — within or external to government — has less of a direct impact on outcomes. Siloing sector issues in one department or ministry is often less effective at changing the culture of government to think differently about the sector’s role and contribution for achieving outcomes for Canadians. It is also vulnerable to changes in government. This is why we are not recommending a dedicated minister for the voluntary, social or third sector.
The issues are incredibly complex, and there is very little consensus in the sector on what model or mechanism would be most appropriate. Our recommendations are meant to focus and integrate how the federal government currently works with the social sector to achieve meaningful change. Our research has indicated that separating the regulating and enabling functions would help to address some of the most significant issues currently facing the sector.
My colleague Joanne Cave will talk about our recommendations to move forward.
Joanne Cave, Social Policy Researcher, The Mowat Centre: First, we recommend retaining the Canada Revenue Agency Charities Directorate’s role in regulating charities under the Income Tax Act. This regulatory function is narrow but important, and would benefit from further sector input. We recommend reinstating and re-empowering the sector advisory committee that reported to the Minister of National Revenue on regulatory issues. This committee would have an important role in leading change through the forthcoming amendments to the Income Tax Act.
Second, we recommend that the Government of Canada also explore the use of regulatory sandboxes to test further changes to the regulatory framework. In a regulatory sandbox, the regulator applies a different set of rules to a small number of organizations for a limited period. The regulator observes its sample and learns by lived experience how the regulated use the new rules. A regulatory sandbox would let the government test proposals like the destination-of-funds test, for example, without difficult-to-reverse and sector-wide changes.
Third, we propose that the Tax Court of Canada be designated as the first point of appeal for Canada Revenue Agency decisions rather than the Federal Court of Appeal, as Dr. Chan discussed. Many sector leaders agree this approach would improve access to justice for non-profit and charitable organizations, and increase the number of appeals, which would provide more legal cases for the Canada Revenue Agency to use as guidance on compliance issues.
Fourth, we propose the creation of a permanent enabling body within the Privy Council Office that aligns with the recommendation for an office for social innovation that was put forward by the Social Innovation and Social Finance Strategy. This office would assist with policy coordination and meaningful engagement with the sector, and advance an outcomes-driven approach across all of government, rather than aligning with the policy priorities of a specific department.
The national Social Innovation and Social Finance Strategy also recommended a social innovation council to advise the office on its direction and strategic priorities. We think this council would be the ideal table for the sector to advise the federal government in its role as an enabler. We propose this as our fifth recommendation. We recommend that the office’s and council’s roles be defined in legislation to make them less vulnerable to changes in political priorities.
Our final recommendation focuses on investing in sector infrastructure. The sector’s many umbrella organizations have an important role in self-regulating, in addition to the regulatory function we discussed; facilitating collaboration; and leading change. We propose that the federal government reinstate funding for sector capacity building, research, technology, training and collaboration.
We encourage you to consider the study as an opportunity to help the sector fulfill its enormous potential, rather than focusing only on the deficits, shortcomings and legislative and regulatory gaps.
Thank you for your time and attention. Lisa and I would be pleased to answer any questions you might have.
The Chair: Thank you, both. We will begin our questions.
Senator Omidvar: Thank you all for our presentations. We really appreciate them.
My first question is to Dr. Chan and is around your use of the words “equitable principles.” You have observed that the Federal Court of Appeal has not traditionally incorporated equitable principles into its decision making. Could you unpack and define what you mean by “equity” a little bit more?
Ms. Chan: Sure. By “equitable principles” in this context, I don’t mean a kind of loose sense of equity; I mean the principles that were developed and applied by the Court of Chancery in the 19th century. That’s actually the sense in which that term has been used when the Federal Court has discussed the court being a court of equity. Specific legal, equitable principles were developed in the Court of Chancery in the 19th century that said, for example, that if you read a kind of ambiguous document and you’re not sure whether it’s a proper charity, you err on the side of charity; you give the charity the benefit of the doubt. If there are technical legal little problems with it, then you try to find a way to solve them so that the resources stay within the charitable sector.
Senator Omidvar: Thank you. That’s helpful. My next question is to the Mowat Institute. Of course, around this table we’re very familiar with the language of an enabling environment, but I will make an observation that the machinery of government lends itself best to silos. And your paper and other witnesses also have made the recommendation that we need a seat at the table, which would actually invoke a horizontal approach to the myriad of policy issues that the sector deals with.
In your brief, you’ve unpacked and coloured in the picture a lot more, and I thank you for that. I’m wondering what you would say to a proposal that would basically see the House of Commons have a standing committee on civil society or the third sector, or the Senate have a standing committee on civil society or the third sector, or even a joint committee. Because the sector is so big, it goes to almost every facet of — I could pick a place for your sector in every bill that’s before the Senate, but how do we get your perspectives on this? What would you say to that?
Ms. Lalande: That’s a good question. Thank you very much for asking it.
I want to first begin by saying that our research suggested that there is no consensus on the ideal location for an enabling body, and its success will be based on its political influence, its leadership and the interests of the government of the day.
We attempted through our analysis to look at the options through a couple of different lenses. We looked at the issue of permanency and to what extent the model is insulated from political changes. We looked at what options we could propose that would reduce silos and not create another silo, and to what extent a new model or mechanism can deliver on the enabling functions that we proposed in our submission. We argued that the opportunity for the sector goes beyond a seat at the table and beyond regulating, that the enabling function includes meaningful integration and meaningful engagement. We recognize that it is a challenge, given the machinery of government.
I’m going to try to ground it in a short, quick example, if that’s helpful. I’ve heard Dale McFee, the Deputy Minister of Corrections and Policing in Saskatchewan, tell this story a number of times, and I’ve found it really helpful. He has a story about Hannah and her family. They are four generations of Canadians in that province. The family members have never worked; they’re on social assistance. They access multiple government services as well as services from six different community-based organizations. There are issues related to sexual abuse and gang-related activity. They’ve been in the criminal justice system, and they are actually costing the province annually between approximately $5 million and $7 million. With predictive analytics, they’re thinking this particular family is going to cost the province between $17 million and $19 million annually going forward.
This family operates in a system that’s complex, and they’re impacted by multiple levels of government. The interventions that have been introduced are very siloed, and they’re not working, so we’re suggesting that the government needs to take a systems-level view. There needs to be an owner, someone responsible for supporting the mandate of the sector. And it could be argued that the mandate of the sector, regardless of the sector’s diversity, is to contribute to thriving communities as well as to improve overall well-being. Without someone really responsible for that, it’s difficult to identify goals and then the right structures, systems, practices and processes to deliver that.
So in a very simple way, if you think about the health care system, there are countries that do not have, for example, someone who’s responsible for reducing infant mortality. What they find is when they do actually identify someone who is responsible for that, they have a positive impact on those outcomes.
What we’re saying is that although it’s complicated, we believe that there is a social call as well as a financial call for some central agency, some function, to act on behalf of the sector.
We also feel it aligns well with the recommendations from the Social Innovation and Social Finance Strategy.
Senator Omidvar: Thank you. Dr. Chan, you, too, referred to this in your paper. You talked about the need to institutionalize the participation of another public actor in registered public charity appeals. Are you limiting yourself there, or are you willing to stray a little into the territory that Ms. Lalande has described?
Ms. Chan: Well, I think that if it’s possible to have kind of a horizontal government structure that makes everyone happy, then that’s fantastic, but an option that I would take as better than the current situation is to have multiple government actors who represent different perspectives. The most obvious candidate to play that public interest role that I was talking about is the Crown in right of the province. I think we need provincial participation in order for that to occur, but I’m not opposed to the kind of structure she’s talking about.
Senator Seidman: Thank you both very much for your presentations.
If I might start with you, Dr. Chan, trying to understand some of the terminology and concepts that you’ve put forward, you say that the legal definition of charity failed to develop within the registered charity jurisprudence of the Federal Court of Appeal. You talked a lot about these processes. What is the benefit of a legal definition?
Ms. Chan: A statutory definition, do you mean?
Senator Seidman: Well, I’m using your language here.
Ms. Chan: Okay.
Senator Seidman: I’m not a lawyer.
Ms. Chan: I probably wasn’t entirely clear. So there are really two big options, perhaps a third, in terms of how you can have a legal definition develop. One is to have a statutory definition of charity, and that is the way most of the Commonwealth world has now gone. The U.K., England, Wales, Scotland, Ireland, Australia and New Zealand have all gone the way of debating in Parliament what things should be charitable. I’ve kind of come to the view that perhaps that’s the best way forward.
The other option, which is what we have had, is to just put the word “charitable” in your statute and then draw on the private common law tradition to give meaning to that word. So it’s not obvious to the ordinary person who looks at the Income Tax Act — that’s one drawback — but the courts and the CRA can look at this long common law tradition that dates back to the 19th century or even earlier and look at how the courts have defined charity, and that becomes your standard.
The problem is that we arguably don’t have either of those things happening properly in Canada because the courts have largely stopped developing the legal definition by analogy, which is that option, and we don’t have a statutory definition. What we have instead is basically a de facto policy regime where charity means what the courts said it was in England in the 1950s and what the CRA has said since that time. That, I would say, is not an ideal state of affairs. I hope that answers your question.
Senator Seidman: So you’re saying we should have a statutory definition?
Ms. Chan: I didn’t address that in my paper, but I think that either we need to fix the court system so that charities have at least a shot of expanding or developing, getting some forward movement in the legal definition, or we need to take it to Parliament, which I think is maybe an even better solution, and talk about as a matter of public debate what things we think should be charitable.
Senator Seidman: Thank you for helping me understand that. That was quite good.
If I might ask you, Ms. Lalande, specifically in reference to the point you made in your paper, your third point, on page 3, “We propose that the Tax Court of Canada be designated as the first point of appeal for Canada Revenue Agency decisions rather than the Federal Court of Appeal.” My question to you is why?
Ms. Cave: I’ll respond to that.
As I mentioned in outlining the recommendations, and I think it aligns strongly with Dr. Chan’s arguments, as we have seen, the appeal process is murky, at best, for charities. It is quite resource-intensive, time-intensive and complex. For resource-constrained organizations, the ability to litigate an issue like that and to see progress in adding clarity in that direction is quite involved.
So the proposal for using the tax court as an alternative to the Federal Court of Appeal has been discussed extensively in the sector, and I think there is a good degree of consensus that that would be a more suitable approach. One of the benefits of that as well, and Dr. Chan can expand on this, is that the tax court would be able to hear evidence, have expert witnesses testify, conduct a full fact-finding trial, instead of just working with the limited base of common law that we have to work with.
Our argument is that it would improve access to justice and allow non-profits and charities struggling with the regulatory regime to see those issues clarified in a more cost-effective and faster way.
Ms. Chan: I agree with most of that, but I would note that I think the position, and I can’t speak for the Canadian Bar Association, but my sense is that the bar has come to that position over time as a result of this growing dissatisfaction with the Federal Court of Appeal. It is probably, in most cases, preferable to be in tax court where you can hear evidence and cross-examine the charities directorate officials who have made these decisions. Sometimes part of the problem is that the record is just the file, and the file sometimes just includes a few paragraphs from what one charities directorate official has said, and that can be frustrating for a charitable organization.
That being said, I have never been completely convinced it solves the access-to-justice problem, to the extent that there is one. The main reason is if you start introducing evidence, your legal fees can go way up. The Federal Court of Appeal is at least a pretty restrained legal record, and I think that point needs a little more thought.
The Chair: You’ve talked about a standard definition of charity. That sounds like a logical thing to do, but then you introduce government sticking its nose into things like the newspaper business is in trouble, so let’s make newspapers a charity.
I have been in the business of working for charities for over 40 years and, for the life of me, I can’t figure out how the Toronto Star will become a charity or the Halifax Chronicle Herald will become a charity. I already write a cheque for the Halifax Chronicle Herald for my subscription, and I don’t have access to it unless I subscribe. Even if I read it online, I can’t get it unless I subscribe.
Several of you mentioned Parliament or politicians getting involved in the definition. Then a problem like newspapers being in trouble comes along and the government says, “Let’s make them a charity.” Don’t you think there needs to be some limit to the whim of the politician of the day saying, “Oh, well, let’s make this and that a charity”?
Ms. Chan: It’s a great question. I think I would say two things. One is that most jurisdictions that have enacted statutory definitions of charity have based themselves and their common law jurisdictions — and there is a whole separate set of questions that arise with regard to Quebec and the civil law jurisdiction that I have not gotten into — have done so basing themselves on the common law tradition.
In England, they have looked at what things were charitable at common law, and then they took a hard look and said, “Are there other things that we should add to the list?” And they added a few things, but it was modest. I think the vision, if we go with a statutory definition of charity, should be to have a long-term vision, to have a set of categories that are pretty stable, and then to have a residuary category at the end — like most jurisdictions do — that allows the court to keep a role in developing the law by analogy, and perhaps that would be by analogy to the statutory category. If you look at the English Charities Act 2011, that is basically what they do. So I think that addresses part the problem.
The other thing is there are lots of tax statutes in other jurisdictions where not every category of charity gets the same charitable tax deduction or tax credit. We have a very flat system right now, but it’s not the only way to proceed. So there is no reason why you can’t provide some tax assistance to not-for-profit journalism. Of course, the Toronto Star, as far as I know, is not a not-for-profit. So we are not talking about remodelling the entire journalism sector but carving out a space for not-for-profit journalism. You could create a specialized tax incentive for that kind of activity that was either separate from or nuanced within a general statutory definition of charity.
The Chair: Thank you. I particularly chose the Toronto Star and the Halifax Chronicle Herald because I knew they were both profitable in one form or another.
Senator McCallum: Thank you for your presentations.
This is my first time sitting on this committee, so you’ll have to excuse me if I’ve made some conclusions that aren’t correct.
When I listen to your presentation, it is such a close parallel to what Indigenous people are going through with the government. It’s almost like it’s such a big struggle to get people to the table to deal effectively with this. When I look at charity, I see it as a determinant of health, life and support for certain populations. A lot of the charities provide access to food, security, a place to eat, sleep, safety, social connectivity, and any time there is a decrease in access, that is oppression. I’m looking at how First Nations are treated and how there are public, political policies. Sometimes this is the first contact for people into social and political arenas, such as for the people on the street, and that determines so much of their lives. It’s the first chance to give them a voice and to ask them to become engaged with Canadian politics. I have notes all over. Sorry.
Charity has become such a complex and convoluted process through the social determinants of health. That’s why the silos aren’t working. Charity provides so much benefit to children in care, of which there will be 11,000 coming out of Manitoba alone in the next four years, and the homeless, and it’s a provision of a much-needed service.
When I look at what is happening and when you look at oppression, at when people’s lives end prematurely, or if their quality of life starts to go down. That is now being termed “social murder.” And we see supervised neglect that continues to happen because, I believe, there is a conflict of interest in people saying, “Is it the tax court or Revenue Canada?” They decide what is charitable, and then they also take the money; is that true?
The Chair: Who would like to try and answer that very complicated question?
Senator McCallum: I’ll finish here. With the time spent fighting for social and political justice issues — and that it provides so much service — if the charity status disappeared, would the poor not be worse off and would crime not increase? People need to get a foothold in society somehow. I toured some of the homeless places in Winnipeg and met with people who are looking after children in care, and they provide a much-needed service. It seems to me it’s like a gradual decrease in the ability of charity to function.
Ms. Chan: With what I take from your comments, my response would be that this stuff matters; it matters when the Federal Court of Appeal says that the prevention of poverty, for example, is not a charitable purpose. It matters to a number of diverse populations in Canada. I have been saying that for a long time in my little corner in my classes, but we have way under-resourced the time and energy we have put into regulating the sector, and I am glad things seem to be turning a little bit. But these are difficult legal issues, and the answers are not easy either.
I have read that the English Parliament spent a record amount of time enacting the Charities Act 2011, the longest time they debated any act of Parliament for many years. They are not easy answers, but they affect particularly marginalized populations, as you pointed out.
Ms. Lalande: One of the points we were trying to make is that communities know what they need. I think the committee previously heard testimony about the Winnipeg Boldness Project, an initiative you are very familiar with, I’m sure. It’s an example of a program where government and funders got out of the way and went right to the community and asked, “What do you need?”
How can we create space for this experimentation and innovation to find solutions to complex problems for people operating within the system? What can we learn from that? One example is that they tested how children from a particular community could access the Canada Learning Bond, the federal program. And the learnings from that could perhaps be enhanced and scaled out to more communities across the countries. That’s an example of an enabling function that the federal government can play.
I appreciate the comments that you made, and I thank you again for allowing us to come and testify.
Senator Duffy: Thank you for coming tonight.
There are so many issues that regulation is critically important because it affects such a broad spectrum. Ms. Lalande, did I understand you correctly to say that you do not believe there should be a minister for charities in Canada?
Ms. Lalande: Yes.
Senator Duffy: Why is that?
Ms. Lalande: Two reasons: We felt it would potentially silo sector issues and that it would ultimately be at greater risk with any political changes.
Senator Duffy: Can I make a suggestion? Other testimony we have heard here from charities suggests that the number of donors is decreasing as the donor population ages. And there is real concern that not far down the road — we’re talking five, seven, 10 years — charities, which are already running very close to empty, will be in real difficulty in providing essential services as the population of the homeless and those in need and who are vulnerable grows and donations fall off. Surely the other side of the argument on a minister would be that the sector needs an advocate, someone to go coast to coast, someone with a large public persona to try and encourage a new generation to get involved, and someone who could lead in specific areas related to breaking down some of the barriers to which you are referring.
Ms. Lalande: It is a good point. In our recommendations, we tried to put forward seven recommendations that we feel would get it done, build a system that could last over time. And we feel that aligning our recommendation to the recommendation from the Social Innovation and Social Finance Strategy on the creation of an office for social innovation and civil society, alongside the other recommendations, could allow opportunities for sector engagement, consultation, awareness building, integration. We believe the issues that the sector faces definitely are related to funding but go well beyond that, and there needs to be some kind of system in place that could survive over the long term.
Senator Duffy: Dr. Chan, charity is a provincial responsibility in terms of Canada’s Constitution and the legislation. Except for Ontario and Quebec or B.C., that has —
Ms. Chan: Just Ontario, I think.
Senator Duffy: Most of the other provinces are laissez-faire about charities.
When provincial governments and the Parliamentary Budget Officer tell us that they are near bankrupt, most of the provinces, how do we expect provincial governments to deal with these issues of poverty, of homelessness, of all of the many social ills that need to be treated if they don’t have the cash? Isn’t part of the problem trying to leverage money from the federal government, which at least has a larger borrowing base than the provinces, to make sure that these charities don’t run out of money?
Obviously, we can’t change the Constitution to make charity a national or federal responsibility; that’s mission impossible. How do we get around that so that the federal government will be able to ensure? I look at what has happened in Ontario with the guaranteed annual income pilot project. Ms. Lalande talked about sandboxes. In P.E.I., we have prided ourselves, going back to Lester Pearson through Pierre Trudeau and on, of being a laboratory for social innovation for the federal government. We are 150,000 people; they can do things and study them and see how it works. We had hoped, frankly, that we would see a GAI tried in P.E.I., but instead Ontario took the lead, and now we are in a situation where this most futuristic program, which is long overdue, appears to be in peril. We are at the whim of the politicians, so we need something to overarch the politicians.
Ms. Lalande: I definitely think, living in the sector, we need more funding, but funding is not the only answer. There is interesting work happening in Alberta and Saskatchewan where they are dealing with the issue of running out of money; we have families that are costing $5 million to $7 million a year to support. So we need to be different about how we are actually aligning all the services and the supports, how they are leveraging the social sector to support long-term outcomes for those families, which, at the same time, means ideally that the interventions are more successful and that ultimately that reduces costs.
I think it’s both finding money but also using it better. I think some great lessons will be coming out of some of those programs in those provinces that we can learn from going forward.
Senator Duffy: But you’re talking about a particular family that has particular problems. While Saskatchewan is wrestling with that one family, think of the thousands and thousands of senior citizens across the country who are having to choose between their medication and meals. The problem is so big. We have got to treat it as a crisis.
Ms. Chan: I would jump in to say that in terms of the provincial role and funding, I think the provinces could actually go a long way with very small offices, two or three lawyers and four or five staff to at least be overseeing the administration of charity property within the jurisdiction, because getting your charities working properly and having them on board with the provincial government has got to be cheaper than having the province have to fund everything itself. I think there are things that could be done with relatively small numbers of staff to at least get a little bit of a provincial foothold everywhere looking at these issues. Right now there is not even that in some jurisdictions.
Senator Martin: Thank you for your presentations. Very informative, and obviously you have really important insights and expertise for us to consider for our report.
Dr. Chan, as a fellow British Columbian, you’ve come a long way to be here. I was thinking how complex this entire charitable sector, including the paperwork, the regulations, is for Canadians, and when you look at some of the ethnic communities, I know how hard they work to be self-sufficient and to have organizations that really meet the needs of the community. I’m thinking of one organization that lost its status, quite some time, and they didn’t even bother trying to find a way. I think they just saw it as an insurmountable mountain or obstacle to overcome, but I don’t know how to begin to help them because I know it is very costly.
Do you have research or have you come across research on the challenges that some of these ethnic charities face especially when it comes to revocation of their status and what steps they need to take to appeal?
Ms. Chan: Yes, thanks. There may be research on that. I haven’t written it. I worked with some of those communities and organizations when I was still practising, and, yes, I would say all the problems that I think most registered charities or sometimes registered charities face in terms of regulatory requirements are only exacerbated when there are also language barriers, lack of understanding. And some of that I think is perhaps impossible to avoid entirely, but there are things that we could do both to make the regulatory requirements easier and also to hem in the discretion exercised by the CRA a little bit, by statutory means, so that organizations don’t face so much uncertainty as to what the consequences are going to be, up to revocation and losing all their property, if they make a little mistake. Right now they don’t know, and so it’s very scary for a lot of organizations.
Senator Martin: In the past decades, have we made it somewhat easier for such smaller and/or ethnic organizations in this sector? If they don’t have financial means, how would they bridge that gap? What are some things that we need to be doing from the government standpoint?
Ms. Chan: I think one of the things CRA has done well is to make its website more navigable to make plain language interpretations for things. I don’t know about the availability of translation. But certainly more streamlining could be done. There might be other people who are better to speak to that than I am, but the problem I have seen and could speak to is that once these organizations reach the point of having entered into some kind of relationship with CRA in the sense of being audited or getting into trouble for not filing on time or their receipts aren’t correct, at that point it really becomes very nerve-racking and very expensive for those organizations. And part of it is that CRA has the discretion under the Income Tax Act to basically apply any penalty up to and including revocation for any violation of the Income Tax Act. It has a policy on how it does it incrementally, but these organizations are relying on CRA’s regulatory benevolence. They don’t have any guarantee that if their receipts are wrong it will just be a suspension or a compliance letter or whatever. Usually CRA tries to operate that way, but there isn’t within the statute itself any certainty on what the consequences are going to be.
Senator Omidvar: I’m going to try and be really efficient and ask one question that I hope all of you can answer very briefly because you both have a common recommendation. And that is around proposing that the Tax Court of Canada be designated as the first point of appeal. It makes more sense; you could get more equitable decision making; you’d get a greater vibrancy in common law, et cetera. I have been a senator for only two years and a bit, and I’ve learned to ask about unintended outcomes. There are always unintended outcomes, and we as legislators have to be aware of these unintended outcomes. Can you argue the other side? What are the unintended outcomes of this? Are we going to get a backlog in the tax court, and it will be terribly expensive?
Ms. Chan: I think it’s possible that the unintended consequence is that it becomes more expensive rather than less expensive.
Ms. Cave: One unintended consequence is that it might create some more disruption in the short term as these issues are litigated in the common law, more uncertainty and more examination of these issues, but it’s also about time they are explored.
Ms. Lalande: I would agree with them.
The Chair: On behalf of the committee I would like to thank you for appearing here this evening, all three of you. You have added a good deal to our discussion, and you have traded some thoughts around here that we may not have paid enough attention to in the past. Thank you for being here. We appreciate it.
Colleagues, the committee will now hear from our next witnesses. We welcome from, the Muttart Foundation, Mr. Bob Wyatt, Executive Director; and from the Pemsel Foundation, Mr. Laird Hunter, President. Thank you for accepting our invitation to appear. I think you know the drill: You both have five to seven minutes for your presentations, and we’ll go to questions from my colleagues. We’ll try to keep the questions short and the answers short, so we get as much of an exchange as possible.
Mr. Wyatt, you’re first.
Bob Wyatt, Executive Director, Muttart Foundation: Thank you, Mr. Chair and senators, for inviting the Muttart Foundation to appear before you this evening. I am delighted to represent our board of directors.
The question of the regulation of charities has been a central focus of our Strengthening the Charitable Sector program for more than two decades. We have convened gatherings of government and the sector, along with international experts and allied professionals, to help create a common understanding of regulatory issues and to work together on solutions. We have supported and continue to support charitable sector infrastructure organizations. We helped fund interventions in the last two charity law cases heard by the Supreme Court of Canada, because they dealt with issues that are critical to the sector. Also, we have spent a number of years advocating for the creation of a committee just like this, because of the Senate’s reputation for well-considered, non-partisan reports that can set a road map for future government action.
I believe you have all been given access to our full submission. Only the recommendations have been translated and posted to the committee’s website, but the full text is also available on our website. I know there are many demands on your time, but I would encourage you to review the full submission. There are several areas where we offer commentary but not necessarily recommendations on matters that have been raised before you.
We have addressed some of the larger-picture items that the committee has heard about, but our submission seeks to concentrate on those areas where we believe immediate change can and should be made. In an attempt to stay within my time limit, I want to focus on only three points, but that is not to detract from the other parts of the submission. I will, of course, be happy to comment on any of them, either tonight or through follow-up correspondence.
It may have come as a surprise to some that our first priority for a regulatory change asks that you recommend the Tax Court of Canada be the first court to consider charity law cases. This may not exactly be a headline-making change, but it’s one we believe could be fundamental in moving the law of charities forward. As we argue in our submission, we believe it makes no sense that virtually every other dispute involving the CRA goes to the tax court, an inexpensive, accessible appeal mechanism, but organizations that are refused charitable status must try to come up with tens of thousands of dollars in order to take their case to the Federal Court of Appeal.
I would remind senators that it is only through appeals that we find out what organizations have been denied charitable status and the reasons for those denials. There is no listing of applications that have been refused by CRA. Yet without an accessible avenue of appeal, we lose that possibility of greater transparency, and we lose the potential to advance the common law.
We argue in our submission that issues such as definition, political activities and business activities could have a more thorough examination, with possible progress, if we had more case law. The costs of this change are negligible. The possibilities for benefits are significant.
The second point we want to emphasize is a caution to the committee. During the hearings and in written submissions, you’ve heard about a number of possible avenues of exploration, including things like social enterprise, social finance and social innovation. Some of them may, as their proponents argue, have the potential to benefit Canadians, including some charities.
The caution we issue is to be careful about layering these ideas on top of the laws related to charities. Some of those concepts involve charities and some may not. If the committee feels that some of them deserve special tax advantages, there is lots of room within the Income Tax Act to make such a provision.
We believe it would be problematic to combine concepts without serious thought. Allowing a private sector business to declare itself to be a tax-assisted social enterprise is one thing; charity is another. They should be kept separate. The alternative is to create even greater confusion in what is often an already confusing situation.
The final point I’d like to address tonight looks to the future, with hope that we will learn from the past. It has taken us more than 50 years to get to this point, where we are having the first comprehensive review of the laws related to charities. The world has changed a lot in that half-century; charity laws have not. There is no reason to believe that the pace of societal change will slow.
As we state in our submission, benign neglect has not served us well, and we shouldn’t allow it to be repeated. Accordingly, we would ask the committee to recommend a mechanism for a regular, formal review of the laws related to charities. We should not have had to wait 50 years to have this review. We cannot afford to wait 50 years for the next.
Our submission addresses far more topics than I could discuss tonight, and I would be pleased to speak to any of them. Again, I thank you for the invitation to be with you, and I wish you well as you tackle issues that are complex, the resolution of which is essential to Canadians and others served by Canada’s voluntary sector.
The Chair: Thank you very much, Mr. Wyatt. I draw my colleagues’ attention to the fact that the submission that Mr. Wyatt has mentioned is available. It’s 55 pages long and covers a lot of topics. Now we will move on to Mr. Hunter.
Laird Hunter, President, The Pemsel Foundation: Thank you, Senator Mercer and Senator Omidvar.
Senators, good evening and thank you, as my colleague has said, for inviting the Pemsel Foundation to appear before your committee this evening. I am honoured as the president to represent the foundation.
The Pemsel Case Foundation fosters knowledge and understanding about charity law and regulation through research, education and, where appropriate, court appearance. The foundation was established in 2010 and is itself a charity.
The foundation is named in honour of an 1891 case in the English House of Lords, Commissioners for Special Purposes of the Income Tax Act v. Pemsel. That case established the four principal heads of charity in the current legal classification. Its findings set, and continue to set, many features of our charity law around the world. I would commend to you our website for a brief look at the history and nature of this fascinating and essential area of law and society.
Pemsel’s board and its authors have considerable experience in charity and tax law. The directors have long and wide experience in Canada, the United States, England and Australia as practising lawyers in government registration of charities and as academics.
Looking at the remit that your committee has, I want to focus only on the rules under the federal Income Tax Act.
The foundation’s purpose is concerned with charity law, which is significantly dominated by the role played by the provisions under the Income Tax Act. For a wide range of reasons, the pre-eminence of those rules under the Income Tax Act dominates the charitable sector in Canada.
Our suggestions are twofold, an immediate set of suggestions and a longer-term set of suggestions. We think both would enhance the impact that the federal presence has in shaping the operations of the charitable sector in Canada. But I wanted to pick up on a point alluded to first by Dr. Chan and by my colleague Mr. Wyatt.
Our view is that the statutory and administrative update of the federal Income Tax Act in its treatment of charities is essential if measures to enhance donating and volunteering are to be made effective. The ITA rules, the Income Tax Act rules, are central. They’re key. They are not a competing priority or an independent consideration; they are the framework on which all else sits. To the degree that they’re integrated, efficient and effective, the capacity of the sector and of government, donators and philanthropic institutions generally are set in the context of how those rules are integrated and operate.
Pemsel’s view is that the existing ITA regulatory regime is overly and unnecessarily complex and, as a result, burdensome and uncertain. The quest is for clarity and certainty. The provisions limit innovative approaches to address contemporary, social, economic and cultural issues.
Several changes to the key provisions would significantly reduce the compliance burden of charities and free them to better contribute to Canadians’ quality of life. This, we believe, could be done without sacrificing the necessary oversight role of government where tax preferences are available.
Pemsel thinks these changes could be made without compromising the existing safeguards to tax expenditures. A streamlined statutory framework would help to simplify the compliance process as well for the charities directorate of CRA.
Our submission speaks, as I said, to immediate reforms and about matters that require further study. As to immediate reforms, we recommend the following four approaches, which would result, in our view, in the immediate improvement of the regulatory framework governing registered charities.
First, we believe that the three statutory categories of registered charity — which are the charitable organization, the public foundation and the private foundation — should be consolidated and classed into two, on whether the charity is closely held or widely and more publicly held, with the appropriate degree of regulation turning primarily on the closely or widely held nature of those criteria.
Second, there must be an attempt to resolve the current purposes and activities conundrum that is distinct in the Income Tax Act and where, for policy tax considerations, conduct is to be prohibited and should be, such as certain business activities or partisan or other political activities. Those prohibitions should be explicitly and clearly defined as to what is acceptable and unacceptable, and reliance should not be had on the confusing application of an inappropriate history at common law.
The third has already been pointed out by witnesses and my colleague Mr. Wyatt. We believe that the appeals of registration and revocation decisions, as well as other matters, should be given to the tax court. The presence of the court on an ongoing basis is the refreshment on a daily basis, in some cases, so that the 50 years that Mr. Wyatt speaks of does not happen. The classification system in our charity law is a way of thinking about what has been held to be charitable. We cannot simply update that by revisiting it every so many years.
The fourth immediate task would be to eliminate the own-activities language, which is an inappropriate introduction into the ITA of charitable organizations, and consequently replacing the charity directorate’s direction-and-control requirements. This problem of activities and purposes and own activities can be replaced with a due diligence and risk management method that is more akin to best practices in all areas when managing contracting relationships. I would add that it’s a system that’s quite successful in the United States and well understood by charity partners around the world.
In summary, then, I would suggest that these four measures introduce much-needed clarity and thereby certainty for charities and the regulator with, we think, little risk to the quality of government’s oversight function. Not having access to the tax court is particularly problematic, as I say. The fact is that the ITA does not define the common law. Some of my lawyer colleagues would say that that’s impossible, that Pemsel, at best, created a classification and a way of thinking about what is charitable. In that common law conception, the courts played the regular role of the engine of the train of charity; they constantly pull it in different directions.
Without an easily available mechanism to move the law forward, stagnation sets in and has set in.
It is not the role nor the mandate of the regulator to decide administratively whether new purposes should be recognized.
There are three other areas that should be studied further, changes that will ensure that Canada is well positioned to meet the challenges ahead and keep pace with other jurisdictions and evolving societal needs.
One, the common law meaning method of charity should be reviewed to determine whether legislation ought to be enacted to broaden the meaning. If legislation is introduced, how should it be formulated? As a prior witness, Dr. Chan, suggested, there is a necessity of thinking about how the statute should be structured so that there would be a residual category that would empower the courts to make ongoing adjustments to what is considered appropriate as charitable. That needs to be well thought through.
For example, it is worth considering whether some types of currently registered charities, for example, organizations that are heavily regulated, like hospitals and post-secondary education institutions, ought to be moved to some other category. And what is the appropriate tax treatment for them and for emerging groups, like the social businesses that my colleague Mr. Wyatt talked about? Is there no preference, a sliding preference, as Dr. Chan suggested, a qualified donee status, or some other approach unthought of?
The fourth one is the appropriate treatment and regulation of what is currently described as paragraph 149(1)(l) or not-for-profit organizations under the Income Tax Act, and the differentiation between those groups and registered charities ought to be comprehensively studied. As Mr. Wyatt has said, continue to emphasize the need to keep the distinctions between different kinds of non-commercial actors quite separate. A study in this area should take recent discussions of social enterprise into account and consider how these entities potentially relate to NPOs and registered charities.
Our submission provides details on all our recommendations. Together, they speak both for the immediate term and for the longer consideration to make the law responsive to what one distinguished British judge aptly noted, “The law of charity is a moving subject.”
Making the provisions of the Income Tax Act more efficient and effective is, in our view, critical to the complex task before you. As I noted at the outset, the Income Tax Act rules for charities are key and central. They are in many ways the independent variable in the formula. They are not a competing priority or an independent concern. They are the framework, as I say, on which all else relies. Their effective development is critical for all those so ably served by Canada’s volunteer sector.
Again, I thank you for the opportunity to appear before you. I hope I’m able to answer your questions. Thank you.
The Chair: Thank you. The first question goes to Senator Omidvar.
Senator Omidvar: Thank you both. I want to thank both of you for your written submissions. It’s a complex, dense subject, so it makes it so much easier to have things in writing.
Mr. Wyatt, members of this panel may know how deeply involved your foundation has been over 20-plus years in this field, and the fact that we’re sitting here today discussing this, I’m sure, is not an accident but an outcome of some of the work you have done. So thank you for your dedication to this important sector.
You have made 16 recommendations in your brief, and I’m surprised there are not 36. I would like to ask you, from your 20-plus years of experience, what were some of the principles that you applied in developing these 16 very specific and somewhat granular recommendations?
Mr. Wyatt: Thank you, senator. In the full submission we quote one of my colleagues, who happens to be sitting beside me, whose long-standing expression is, “It shouldn’t be this hard to do good.” And many charities find that it is for a variety of reasons, some of their own making and some of the regulators’ making. Our recommendations are meant to help create an environment within which charities can provide the benefits they intend to make, while protecting the taxpayer and the fisc. There is no question that there are scam artists out there who will take advantage of charities. We saw it in the scandal around tax shelters. I don’t want to live through that again.
I think that a number of the recommendations, while not dramatic in the sense of introducing a brand new idea, will simply allow charities to do the things that they’ve always wanted to do and that they’ve always done. The idea that charities have not been innovative in the last 150 years is, frankly, insulting. There are other things that we can do, that we want to do and that we should try doing. So our recommendations move to that.
I last spoke in front of a different group of senators 18 months ago on a different topic and a need for a committee like this, and I was asked by one of your colleagues whether we should go back to the past. You will see in our submission several references to the report of the Joint Regulatory Table, references to the Blue Ribbon Panel, references to the accord and references to the codes of good conduct on funding and advocacy. These are things that were well thought out, they are as relevant today as they were then, and we could do a lot worse than to adopt a number of those things.
Senator Omidvar: Thank you, Mr. Hunter, for being with us today.
We’ve heard a lot in this committee about the patchwork of regulations that the CRA seems to have developed over time, resulting in a very heavy hand in micromanaging charities. But there is a surprise in all of this. This is a committee focusing on charities and not-for-profits, and we now know that while charities are not-for-profit, not all not-for-profits are charities. We also know that not-for-profits can be registered either federally or provincially and that there are provincial laws that are very different based on the province, and there are federal laws. You’ve actually pointed out something interesting, which is that we should consider parsing not-for-profits out by looking at them through the lens of public benefit versus member benefits.
I understand B.C. already has legislation around this, and I’m wondering if we come up with a proposal, and British Columbia has legislation, Ontario has legislation, will we get some clarity, or will we only get more confusion?
Mr. Hunter: I make the distinction between tax treatment and corporate status, and some of the provinces have made some adjustments of their tax rates, but the constitution of what is charitable is by and large a federal responsibility. The question of public broadly held or narrowly held is a corporate consideration, and you might be thinking of the community benefit corporation in British Columbia. I see no reason why those rules couldn’t and shouldn’t be aligned, and it would, in my view, facilitate things if the distinction between public and private foundations fell along that continuum. Yes, I believe that would introduce clarity.
Senator Omidvar: Would you support the committee looking at the information that is required for not-for-profits to file in their annual returns, expanding the questions? Because it’s very minimal at this point, as compared to what we ask charities.
Mr. Hunter: Well, as senators have no doubt heard regarding the size of the non-profit sector in contradistinction to the charitable sector, there are about 85,000 registered charities. We’re not entirely sure how many non-profits there are; it may be 200,000, it may be 250,000. When our Australian colleagues did an analysis, they found it was close to 800,000.
Do I think that they should have more information? I’ll give you the lawyers’ answer: maybe. The problem is, answering that question is the tail wagging the dog. I think you have to answer the question before that: Where do non-profits sit in contradistinction from charities? And from a public policy point of view, what do they do that’s different, and should it be supported or not supported in tax preference provided that is different from charities? As Dr. Chan said, depending on the full panoply of tax-preferred entities, one possibility is that some would have different tax rates. But that means there are lines, and you have to first decide what the line is between charities, non-profits, social benefit organizations, newspapers that seek non-profit status to receive some preference. And once that’s done, you’ll be fully equipped to answer the question of how much questioning should be on some of the returns.
The Chair: I want to go back to a statement one of you made in your presentation, the view that there has been no innovation in the sector for 50 years or more. Innovation is happening today. Innovation will be happening tomorrow. No matter what we recommend in our report, it will be difficult for governments to keep up with it because innovation will continue to happen and is happening so rapidly.
How do you see that being managed? If we want government to make some changes, recognize the innovation and make sure we can keep up with innovation — and either stay out of the way without putting in regulations or putting in regulations to protect Canadian taxpayers — how do we do that?
Mr. Wyatt: If I knew that, I would probably be sitting as a member of the committee.
The Chair: We have lots of chairs left, and I understand all you have to do is apply.
Mr. Wyatt: The second part is the problem.
Part of it is to regulate where necessary, but not necessarily regulate. There was a history, not only in this field, but certainly in this field, where we go to the worst-case scenario and try to protect against the 1 per cent of the population that would seek to do harm or commit fraud. And we burdened the 99 per cent with all of that administrative burden.
I think we need to flip that around. I fully understand when the Department of Finance worries about how someone will get around a provision in the Income Tax Act. That’s what they are supposed to do. Where I think we would disagree is the extent to which you have to legislate against it. A number of things can be done through administrative guidance. The suggestion of the previous panel from the Mowat Centre about regulatory sandboxing, and adopting that from the Social Innovation and Social Finance Strategy Co-Creation Steering Group, is an interesting concept in the field of charity and has some potential. It has been tried in some other places in different ways.
There are things that can be done there. In part, I think we go to my colleague Mr. Hunter’s view of figuring out what you want to absolutely prohibit and describe it clearly. And then don’t let people do that. Otherwise, stay out of the way and let charities do what they need to do.
Some of the suggestions that involve charitable funds for which a donor receives a tax credit being given to non-charities — and we argued this in our submission — has the potential to create harm. We need to be careful about how far you go down that road, but certainly the rules that now apply, even when a charity is working with a non-profit or a charity in another country, are unnecessarily burdensome. And we suggest that those rules can be changed.
The Chair: How do you do that without jeopardizing other charities, in saying that you are allowing a charity to work with a for-profit organization or another non-profit organization? A myriad of complications can enter into it and be, to a certain extent, by some people, manipulated not for the common good.
Mr. Wyatt: I don’t want to practise law — the Law Society of Alberta has a real problem with that — but I would suggest to you that charities work with private sector organizations every day. We have contracts for service with any number of private sector providers. We exercise the due diligence that Mr. Hunter has spoken of. We don’t need to go to the extent of the direction-and-control rules that now exist. We don’t need to say to that private sector business, “You need to keep our money in a separate bank account and send us the statements every month. You need to send us cancelled cheques.” I’m not sure about you, but I don’t see cancelled cheques anymore; I get a picture of them in a statement, but actually getting the cancelled cheque is something you have to pay extra for now. But a charity under audit is expected to produce those.
A charity working with an organization overseas is expected to get those from the overseas partner notwithstanding that Global Affairs Canada has said we have to get out of paternalism in dealing with charities in other countries.
I think we have some rules that, at one time, may have been prudent or were a reaction to a fraud or a scam or a scandal. When I teach public policy, the one thing I tell students is that when there is a scandal, government never reacts, government always overreacts. Some of the things we have in the Income Tax Act dealing with charities are a result of things that went wrong.
In our submission, one of the things we talk about is the rules on ineligible individuals as they relate to tax shelter operators. This is one place where we got it wrong, and we have suggested to the committee that you make recommendations to change it.
An 18-year-old who stole a chocolate bar and was caught can never, for life, serve as a director or a senior manager of a charity without getting a pardon or record suspension. Somebody who operated a tax shelter and led to some of the billions of dollars in lost revenue and the hundreds of thousands of audits the CRA had to conduct of taxpayers is banned for a maximum of five years. Somewhere, we’ve gotten things backwards.
The Chair: Thank you. That’s a good point.
Senator Duffy: Thank you both for coming.
One of my hobby horses, as you heard earlier, is to find someone to advocate for charities in the government, whether it’s a cabinet minister or a parliamentary officer. A retired senior public servant told me what we really need is to turn this project from one of tax collection and guarding the pennies to create a special operating agency with a mandate not only to administer the rules but also basically to try and clear away the brush on a daily basis to make this a dynamic, vibrant and constantly changing sector.
As you have alluded in your presentation, get out of the way. Charities will innovate. We are seeing that throughout our society. And it seems to me that we need some overarching person who can embody that and go coast to coast, encourage people to donate and get involved and bring back feedback — the kind you are giving us tonight — so that we can make this a continuing process, not something we do every 20 years.
How would that sit with you?
Mr. Hunter: I will give you another answer — another lawyer’s answer, maybe.
I think you’re onto something when you talk about innovation, but I often say to people there are actually two kinds of innovation. Interestingly enough, the innovation speaks to the relationship between government and public service.
There is an innovation that is often called entrepreneurship, which is the big innovation. What we don’t recognize as being as important as entrepreneur innovation, setting the big details and pictures, is carry-through innovation. We need at some point the advocates, but we also need well-inspired grinders who work every day with the details, because the devil is in the details. So is the salvation. We don’t innovate in allowing organizations to put the entrepreneur innovation into full effect.
It’s the charities on the ground, Senator Mercer, that you’ve worked at that have to confront the details. What they need is a space in which to do that. That’s the refreshing of the legislation that you have a significant role in looking at, but once that’s done, the innovation of how to implement what is permitted becomes very important.
Dr. Chan has written a very interesting set of articles around her conception of equity and the role of that function in the charitable sector. She makes the very interesting point that lawyers have often talked about public law and private law. When I was going to law school, private law said that unless it was prohibited, it’s permitted. Public law deals with just the reverse: Unless it’s positively provided, it doesn’t exist.
Charity law is the overlay of both of those. We have to figure out the public law function and the private law function. I would suggest the public law function is prohibiting things on a public policy basis when they need to be prohibited, and the private law function is “get out of the way.” Say what can’t be done, authorize a set of rules that delineate that, and provide remedies and sanctions where things are done that shouldn’t be done; and then facilitate the follow-through change.
Allow the charities not through direction, control and close-knit handcuffs to send in their non-existent cheques, but do what our American friends have done: introduce a role of positive risk management that scales to the circumstance. That way, a $5,000 grant has a much lighter touch of oversight than a $50 million donation. It’s the same as what you do in your families. If you are replacing one chair in the living room, you spend a little time investigating it in Consumer Reports. If you are off, you are off by $100. You put much more effort into designing your new house and buying your new car. You expend a risk-management approach proportionate to the problem.
Allow that to happen so that the charities can innovate on a daily basis.
The last point I would make is that a really key effort, as the senator has said, is advocating, but that advocating must be done both inside and outside government. It also has to be done inside the legal system. Dr. Chan has said that you need to introduce an ongoing feature of equity in the consideration of the law. The system of equity as involved in the Court of Chancery, as she said, had a default position. The default was charitably. We have a system that is perfectly sensible within a public law system that prohibits, because it’s not permitting, that forces the little charity to comply with the utmost granular rules. We should flip that. We should recognize that the innovation that those charities encounter and advance are to the benefit of all Canadians, and the risk of not allowing them to do things is far outweighed by the risk of allowing them to try. That’s a perfectly sensible system, consistent with the equity provisions.
The Chair: I will allow Senator Duffy a small question, but this whole discussion confirms, Senator Duffy, why you and I did not go to law school.
Senator Duffy: For those of us who didn’t go to law school, may I recommend Ted Gaebler’s book Reinventing Government from 1992. Almost everything you’ve told us tonight is in that book. Let people manage, scalability. It is not rocket surgery, as Don Cherry would say. That book came out in 1992. It was a big thing. Al Gore was all excited. Now we are still here, and government still operates in the same way.
This gets back to the agent of change: How do we convince people to cut away some of that?
Mr. Wyatt: Again, I will go back to the future. You heard from Senator Lankin that, as a result of the report of the Independent Blue Ribbon Panel on Grants and Contributions, a centre for excellence was created within Treasury Board. It was exploring a number of areas related to the payments of grants and contributions and the relationship between departments and sector organizations. There was great promise. Then interest in it fell off, and it disappeared.
In my view, whether it’s a minister or a secretariat, it needs to be within a central agency. We have argued it should be in PCO, because it needs to have the gravitas of the Office of the Prime Minister of the day.
What I wanted to emphasize was that this cannot be an excuse for departments not to have relationships with their stakeholders in the voluntary and non-profit sector. This is not a default. It doesn’t mean they can ignore those organizations. There are very few departments, if any, in government that do not have ongoing relationships with charities or non-profit organizations. Those things need to be strengthened on an ongoing basis, but a central agency will help.
I have some issues about a cabinet minister going out and encouraging donations across the country. I’m not sure the Ethics Officer won’t have a problem there. And if there’s a change in government, will they be suggesting donations to different kinds of charities?
There are things the sector could do with government in terms of public awareness and public campaigns. We didn’t get it right with the First-Time Donors Super Credit. With a little more work, we could get it right.
Senator Seidman: Thank you for your presentations.
If I might, Mr. Wyatt, in your submission’s summary of recommendations, there are several that jump out at me. I’d like to ask about one that some might think would be fairly concerning. You may already know what I’m going to ask you. You recommended that we recommend inclusion within the Income Tax Act of a provision that would allow a charity to have a political purpose.
Could you help me with that? Why would you recommend that, and what does it mean?
Mr. Wyatt: Again, I will try not to practise law. I will give you my layman’s understanding, and Mr. Hunter can tell me where I was wrong.
Right now, any evidence that a charity has a political purpose of any kind, whether in support of an otherwise charitable purpose or not, is an absolute bar to becoming a charity. As was pointed out in the Canada Without Poverty case, in some cases, the very nature of the charitable good that is to be done requires advocacy. Now, this is another one where language matters. Not all advocacy is political activity for the purposes of charity law. You have heard that from a number of people. There are lots of people, including some courts, that don’t seem to have cottoned on to the difference yet.
We have suggested that in New Zealand they have gotten around the problem by saying if you have a charitable purpose but you sometimes have to do advocacy work or political activity but it’s incidental to that charitable purpose, that’s going to be okay.
The reason we’re recommending it is that the current rule, which says activities can never get to the level of a purpose, is, at best, vague. So at what point, if the Muttart Foundation is encouraging changes in the law in another country, have our activities become of such an extent that they become a purpose? We will end up with all sorts of litigation on that issue, which we don’t really need.
So what we have said is that if you have a small amount of political activity — understanding what political activity is and always non-partisan — then the world is not going to come to a crashing end. It is what charities have done. We have always been engaged in public policy work, and we should be.
The Chair: I related the story to the committee a number of meetings ago about when I was Executive Director of the Kidney Foundation in Nova Scotia. At the time, we did not have organ donor cards attached to our driver’s licence in Nova Scotia. Through the volunteers at the Kidney Foundation, we conducted what I guess would be considered a political campaign; we went about convincing the government of the day to change that, and they did. As I related, it was a Conservative colleague of mine in the Senate who was a minister in Nova Scotia at the time who made the change. It comes around.
Mr. Wyatt: And the reality, senator — if I can interrupt for just a moment — is that that is not political activity.
The Chair: One would not think, but some people would interpret that as political activity.
Mr. Wyatt: Agreed.
Senator Seidman: Some would say that allowing a charity to have a political purpose, that kind of language, which is the language you use here, would be concerning because this would provide an opening, perhaps, for foreign sources of involvement.
Mr. Wyatt: And the answer to that, senator, which we’ve given in our submission, is twofold. First of all, the receipt of money from outside Canada by charities and non-profits goes back to the beginning of Canada and predates Canada. In fact, there is some $2 billion a year that is coming in just to registered charities.
The concern I’ve heard expressed at this committee and elsewhere is the concern that this will somehow involve becoming engaged in affecting elections. It’s our view that that is a matter for electoral law, not charity law.
Most of what the concern seems to be is stuff that would get any charity revoked now because it would be partisan. It’s dealing with non-profits, and as we said in our full submission, if you decide to take on the whole field of non-profits, all we can do is wish you luck and ask that you issue the rest of your report first. We have never been able to do it in Canada for a variety of reasons, and the rest of us can’t wait for you to find out how to do it.
Senator Seidman: I’m sure it’s very clear right now. Of course.
Senator Omidvar: I have two questions, one from the earlier panel and one arising from the comments that you just made right now, Mr. Wyatt, around language.
I think a great part of this obfuscation around political activities arises from the use of the word “political.” Should the committee recommend changing the act and the regulations, which is low-hanging fruit, from political to non-partisan public advocacy?
Mr. Wyatt: If you’re going to allow that, but what is it you’re going to prohibit?
Senator Omidvar: Partisan political activities.
Mr. Wyatt: But then you’re still back to using the words “political activity,” and what is political activity? If I spend a day with you talking to you about the work of this committee, I’ve engaged in a charitable activity, not a political activity.
Senator Omidvar: I understand, yes.
Mr. Wyatt: Arguably, I may have engaged in lobbying, but that’s another can of worms that I would just as soon not open right now.
If I do a demonstration on the Hill, I’m engaged in a political activity. If you can find language that will be easier to understand, yes, I agree with you, senator, the terms “advocacy” and “political activity” and “lobbying” have all been lumped together and nobody understands what they are. Part of that goes to CRA needing to provide better guidance. Part of it is the sector needs to educate itself. This is not only an issue for government. The sector working with CRA and on its own could do a much better job of letting charities know what the rules are, what is permitted and what needs to be reported.
We point out in our submission that the talk about an advocacy chill can’t be demonstrated by any objective evidence. Throughout the period since 2000, the number of charities that have reported any engagement in political activities has never exceeded 1 per cent of the population of charities. There are not a whole lot of people doing things there. They are doing charitable activities that may involve them being engaged with politicians. That’s different from political activity.
Senator Omidvar: We understand that. My final question again goes back to the previous panel. I wonder if either of you or both of you have a comment on the potential for a standing committee of the House of Commons or a standing Senate committee on the third sector. I think the genesis of this committee comes from a report where Roger Gibbins of the Canada West Foundation tasked the Senate to undertake this work.
Do you have a comment on taking it beyond government to the political structures on the Hill?
Mr. Wyatt: With all due respect to Roger Gibbins, he was about 15 years late to the party. You’ll remember Gordon Floyd and I first raised the issue of a Senate committee in 1996. We are grateful that we now got here.
I think there needs to be a regular remit, whether it’s to an existing committee or to a standing committee. We’ve recommended in our report that there should be a review every 5 to 10 years. The Bank Act is statutorily reviewed every 10 years. There is absolutely no reason for the charity provisions not to be reviewed on at least the same basis.
The Chair: Thank you, gentlemen, to you both. I joked with Senator Duffy about he and I not going to law school, but we’ve learned a couple of very important law tricks today, and that a lawyer’s favourite answer is “maybe.” But then, Mr. Wyatt, you introduced another: Regulation if necessary but not necessarily regulation. We’ve tried to get our heads wrapped around some of the clichés here.
Gentlemen, thank you very much. As you can tell from the exchange, it has been very interesting. We appreciate it. I want to say that I appreciate the work that the foundations do in the community and in the sector. I know that the Muttart Foundation does extraordinary work in the sector and is supportive of the sector. I know that many of my former colleagues, when I was active in the sector, always appreciated your support and continue to do so. Thank you, colleagues.
(The committee adjourned.)