Proceedings of the Special Senate Committee on the
Charitable Sector
Issue No. 2 - Evidence - April 23, 2018
OTTAWA, Monday, April 23, 2018
The Special Senate Committee on the Charitable Sector met this day at 6:30 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: I welcome you to this meeting of the Special Senate Committee on the Charitable Sector. I’m Senator Terry Mercer from Nova Scotia, chair of the committee. I would like to start by asking senators to introduce themselves, beginning with the deputy chair.
Senator Omidvar: Ratna Omidvar from Ontario.
Senator R. Black: Robert Black from Ontario.
Senator Duffy: Michael Duffy from P.E.I.
The Chair: Today, the committee will continue its study to examine the impact of federal and provincial laws and policies governing charities and non-profit organizations, foundations and other similar groups and to examine the impact of the voluntary sector in Canada.
For our first panel of witnesses, we welcome Pierre Leblanc, Director General, Personal Income Tax Division, Tax Policy Branch, Department of Finance Canada; and Blaine Langdon, Director, Charities, Personal Income Tax Division, Tax Policy Branch, Department of Finance Canada.
Thank you for accepting our invitation to appear. I understand that Mr. Leblanc will do the presentation. I would like to remind our witnesses that as per instructions previously given, the presentation should not exceed 10 minutes in length.
Following the presentations made by the witnesses, a question and answer session will take place. Each senator will be given five minutes to ask questions before the chair recognizes another senator. There will be as many rounds of questions as time will allow so that senators do not need to feel required to ask all their questions at once. During the question and answer session I would ask senators to be succinct and to the point when asking their questions, and I would ask the witnesses to do the same when answering.
Pierre Leblanc, Director General, Personal Income Tax Division, Tax Policy Branch, Department of Finance Canada: Thank you for the invitation to appear and, more importantly, thank you for having this committee and for the time you’re spending on this important subject.
I think you all have a copy of the deck that we’re using, and given the time limit you talked about, Mr. Chair, I think we’ll go through this quickly. We would be very happy to answer any questions you have.
If you look at slide 2, it will give you a quick overview. We’ll spend time on both tax incentives and tax advantages for registered charities. The second part will be the set of rules we have for registered charities and the Income Tax Act requirements. For us there is an important link between the two. In many cases we have these rules because of what is pretty generous tax assistance for registered charities.
There are a range of tax incentives for charitable donations. In terms of tax assistance, charities aren’t taxed on their income, and they receive favourable sales tax treatment. Third there are significant tax incentives for charitable donations, and that’s what I’ll focus on for the next few slides.
For individuals, the main measure is the Charitable Donation Tax Credit. At the federal level it has different rates. It starts at 15 per cent on the first $200, and then for most people it’s 29 per cent on anything above $200, with the exception of those who face the new top 33 per cent rate, which is essentially the rate they get on donations above $200.
Then, all provinces have their own charitable donation tax credits. On the corporate side, it’s a deduction.
This next slide talks about how for most people the maximum limit on donations is 75 per cent of your net income. In a few cases it’s 100 per cent, in the year of death and in the preceding year. You can carry forward donations for up to five years, so that makes it more likely that people will be in a position to use those.
Also, spouses can pool their donations, so if you have two spouses in a couple who are both donating, one spouse can claim all the donations. That’s basically to make better use of the credit, given that rate structure we just went over.
The next slide goes over additional incentives. Here we are focusing on donations of different types of capital property, and it’s basically not being taxed on the capital gains on the disposition of those types of properties. So here we have publicly listed securities; we have ecologically sensitive land; we also have certified cultural property. Those are the three main types. For those, there is actually a higher net income limit that applies; you can basically deduct up to all of your net income.
If you put these incentives together for charitable donations, it turns out to be a pretty generous set. Some have said we have among the most generous tax incentives for such giving when you look at different countries. On average, if you consider both federal and provincial assistance, it gets close to 50 cents on a dollar. It’s about 46 cents on average, and for many donors it’s more. So, that’s a good amount.
These are just some stats on slide 8. For individuals in the most recent tax year, it’s just about $10 billion of donations. You have about a fifth of individuals claiming, but in many cases, again, we talked about pooling, so you could have one spouse claiming for both what are actually two spouses making donations. Then we have some stats towards the bottom on corporate donations, so about $2.5 billion deducted in charitable donations by about 93,000 corporations.
You can think of different types of charities. At the right on this slide you have hospitals, universities and colleges, and at the left you have basically everyone else, in what you might consider the core non-profit sector. This just goes over different sources of revenue. Donations are one source, but there are certainly others, whether it’s government transfers, the sale of goods and services and other types.
Moving to slide 11, we talked about these different types of tax assistance, and if you think of the constitutional framework, it only refers to provinces as having charities under their responsibility in terms of the division of powers. But we just talked about a pretty significant set of tax benefits, and it’s a link between the two that we think is important. Given that we have those tax benefits, the Income Tax Act contains a number of requirements and, in some cases, restrictions, and their focus is on ensuring that tax-assisted donations are used for the purposes intended by policy.
Blaine and I, as Department of Finance officials, are advising our minister, given he is responsible for the Income Tax Act. During the second hour, in terms of administering the ITA, you’ll hear more from our colleagues from the Canada Revenue Agency.
We mentioned that there are certain provinces that are more active than others in the regulation of charities, so we just refer to a couple of either offices or acts.
So what does registration mean under the Income Tax Act? We talked about the three principal benefits in terms of not being taxed on your income, in terms of having access to tax-receipted, tax-assisted charitable donations and favourable sales tax treatment.
Another consideration is the ability to give gifts to other registered charities. You’ll hear both from us and from colleagues that the Income Tax Act doesn’t have a definition of charity, so it relies on the common-law meaning as defined by the courts, a meaning that has evolved over time as society has evolved. What sometimes are referred to as “heads of charity” are the relief of poverty, the advancement of education, the advancement of religion, and then a fourth general category, for other purposes recognized as charitable.
Again, just going over the general legislative framework, slide 13, we have three main types of organizations. We have charitable organizations. They are basically carrying out their own activities with an arm’s-length board of directors. We have public foundations, which are generally funders of other charities’ activities. They too must have an arm’s-length board of directors. And, finally, we have private foundations. Again, they are typically funding the activities of other organizations, but here the board of directors isn’t necessarily arm’s length.
The income tax rules can differ depending on the designation and on which of those three types the organization is.
We have been focusing on registered charities, but there are also other types of qualified donees who have the ability to issue official tax-assisted donation receipts. Examples include governments, registered Canadian amateur athletic associations and a few others, such as the United Nations and its related organizations.
Again, the Income Tax Act rules can differ depending on the type of qualified donee at hand. Next, slides 15 and 16, we’ll go over key Income Tax Act requirements for charities. Again, we talked about the policy motivation underlying this general set of rules; it’s about ensuring proper functioning of the tax system, but also that donations are used for the purpose intended by policy. Here we have that charities have to operate for exclusively charitable purposes. Naturally, they are going to spend other resources, fundraising, administration, but those expenditures have to be reasonable.
They can only provide gifts to qualified donees. Some organizations — for example, an NGO working in another country — may use intermediaries, perhaps contractors. But in those cases, they have to exercise direction and control over those resources. They may conduct political activities within certain limits, so this is basically a “substantially all” test, which works out to 90 per cent on charitable purposes. And then those activities have to be non-partisan.
Moving on to slide 16, registered charities may carry on related business activities. Charitable organizations and public foundations can carry on business activities that relate to the fulfillment of their charitable purposes. Private foundations, on the other hand, under the current rules, may not carry on businesses. And the fifth on this list of income tax requirements is the requirement to submit to the CRA detailed annual reports, and these reports are made publicly available.
Slide 17 is one of the three main types of tax assistance. I can go over this quickly. Under the Goods and Services Tax, there are certain favourable kinds of treatment as well. There are two main types. If you look at the second bullet, when charities are supplying goods and services, they generally don’t have to charge GST on those, in most cases. And second, in terms of their inputs, in terms of what they are using to produce those goods and services, they are eligible for a rebate of 50 per cent of the GST paid.
You had also asked about non-profit organizations. We have a couple of slides here. Non-profit organizations have to be organized and operated exclusively for social welfare, civic improvement. It’s basically for any purpose except profit, and in one way they are like charities. They are exempt from paying income tax, but there are several important differences. They are not able to issue donations receipts and the tax assistance that goes along.
The non-profit sector is pretty diverse. Sometimes it’s small community associations. Sometimes it can be pretty big, national organizations, so there is quite a bit of diversity here.
Moving on to slide 19, generally, we talked about the set of requirements on charities that aligns with the tax assistance they receive. There are fewer requirements for non-profits, so there is no registration process through the Canada Revenue Agency. It’s more of a self-assessment system. They only have to file an annual return if they meet certain criteria. There is no spending requirement. The key rule is that they can’t distribute income to members, so they have to be non-profit-distributing, and they can’t operate for the purpose of profit.
That’s our presentation, and we would be very happy to answer questions you may have.
The Chair: Before we go to questions, I want to introduce Senators Nancy Greene Raine and Yonah Martin, both from British Columbia, who came in at the beginning of your presentation. We’ll now move to the first questioner, Senator Omidvar.
Senator Omidvar: Thank you very much to both of you for being here, and Mr. Leblanc for your presentation. We are very new at this study. This is only our second panel, but even in the first panel we began to get a sense of how dense the scope and scale of the study can be, given the scope and scale of charities and the not-for-profit sector.
We also heard very compelling witness testimony that the not-for-profit sector and the charities sector need a central place in government that is an enabler, a capacity builder, a place in government that supports these institutions.
The CRA is an enforcer. You’re protecting the taxpayer. Do you see a conflict in these two ideas? Is there a balance? Can you give me a sense of how you engage with the sector in enabling them to do their work in a more modern, efficient way?
Mr. Leblanc: Thank you; those are very good questions.
You asked about engagement with the sector. It’s interesting, because I’m involved in different areas of personal income tax. What I find impressive about work on tax issues dealing with charities is the extent of engagement with different sector representatives. It certainly goes beyond what I see in other areas. We probably have something to learn from the dialogue. Our colleagues at the CRA can talk about theirs, and I think what they do is impressive too. But there is quite a bit of dialogue, and different forums. It can be with specific groups. I think that’s something I would note.
I would make two points in terms of the central. One is that we set the policies. You can talk about this more during the second half, but our impression is that CRA is enabling, in many ways, with their approach to engaging with the sector, to helping charities, to having an education-first approach, to all the information they provide. I’ll make that general comment.
It’s a good amount of tax assistance, so our general way of working is that the Canada Revenue Agency administers this set of rules. It’s the way we’re used to doing things across a range of tax issues. We think it works pretty well. We welcome ideas for improvement. I think that’s one of the reasons why your committee discussions will be valuable to us as officials who work on these issues.
Senator Omidvar: I’m not quite sure I got the answer that I was looking for. Let me try to repeat my question in more precise terms. Perhaps I was not clear myself in my question.
Can you both support the sector and mitigate risk to the taxpayers? Is that a role that you can encompass in your institution?
Mr. Leblanc: Yes, I think so. We try to strike that balance, but in terms of a policy perspective, we see those two components as quite important. That’s why we see, in terms of the types of tax assistance we have, from a policy perspective, that it’s a very important part of the tax system.
Blaine Langdon, Director, Charities, Personal Income Tax Division, Tax Policy Branch, Department of Finance Canada: If I can just add quickly to that, I’m at Department of Finance now. I have many years of CRA under my belt. I think CRA, in the last couple of decades, has come quite a distance from where they were as a regulator in the late 1990s to where they are now.
Certainly if you look at their website, there is a wealth of different information for charities. They are very helpful. They have had programs, some of which have come and gone, to educate the sector, very proactive, getting out there and working with charities. I’ll let CRA speak to this issue, but even if you look at their approach to compliance, I think they take a very good education-first approach to compliance, a voluntary compliance approach. The numbers that come out of the audit program by and large speak for themselves as most charities that are audited end up with an education letter or a compliance agreement as opposed to some form of aggressive compliance action. Again, I’ll leave my colleagues to speak about that. Particularly over the last two decades, they have come to a place where they are striking a nice balance between being the regulator and being a more helpful, progressive, modern regulator, if I can use those terms.
The Chair: I remind everyone that CRA will be our next witnesses.
Senator Omidvar: I am going to reach back into my own memory; I have worked in charities all my life. I led a private foundation. I ran not-for-profits and charities. About 15 years ago, I created a new not-for-profit to help underemployed immigrants find work in their sector, common kind of thing. Good work to do.
We applied for charitable status, and we were rejected. This is a story worth telling because the “because” is interesting. We were rejected because CRA felt that the people who were benefiting were in fact the employers. That was an interesting way to come at a rejection.
My question is on appeals. We were able to overturn that decision because we hired a very high-priced lawyer who explained charity law to me. We came to Ottawa and met with the people, which is apparently not easy to do.
I want to know, if charities are rejected, is there now an appeals process that is transparent and fair?
Mr. Langdon: To respond as directly as I can, following the Joint Regulatory Table, which was established through the Voluntary Sector Initiative, one of the things that occurred was, in recognition of some of the high price of organizations having to go to the Federal Court of Appeal, they established within the Canada Revenue Agency a separate objections and appeals process for charities. It is not independent of the CRA, but it is a self-managed unit within the CRA that works at arm’s length from the Charities Directorate. That’s the current process.
To the extent that an organization either is rejected at an application stage or there is a proposed revocation, that moves over to the objections and appeals division or directorate. They take an arm’s-length, brand new review of that based on their own determination of the facts.
Senator Omidvar: Do you know what percentage of appeals are —
Mr. Langdon: I don’t. I’m confident my CRA colleagues can at least point to that or get you that information.
The Chair: We look forward to hearing from them shortly.
Senator R. Black: Following up on your presentation slides, at slide 8, 20.2 per cent of Canadians filed a tax return claiming that tax credit. Is that going up or down or is it static? We hear that donations are going down or there is fluctuation. Are those numbers going up or down, or are they fairly static, both individual and corporate donation giving?
Mr. Leblanc: I’ll say that I know the individual numbers better than the corporate numbers. The individual is pretty static. If you look at a share of GDP or share of income, if you take a longer time period, it has been fairly steady. One number has been going down a bit, and it’s that 20 per cent, the share of individuals who file a tax return who claim the Charitable Donation Tax Credit.
Different things could be going on there. I talked about the ability of spouses to pool their donations — I don’t think this is the only explanation — but I think as more and more individuals have a tax-preparer or use a program online basically to prepare their own taxes, you’re prompted that only one of you should be claiming this. As we have a significant move away from paper filing toward electronic filing, that has pushed the needle a bit.
If you look over the last, I would say, 15 years, there has been a pretty considerable decrease in the number of individuals who pay tax. That’s partly related to the increase in some pretty basic non-refundable credits, whether it’s the basic personal amount or the age amount, to give a couple of examples. Because of that, you might have some people in the margin — it is a non-refundable credit — who don’t pay tax anymore, so they don’t claim it. Again, that’s certainly not a huge driver of those numbers, but probably a few factors have contributed to that.
My sense is that charitable donations for corporations have been fairly steady, but they fluctuate more from year to year, which could be a reflection of one of two things. One is just some pretty big donations that are made in certain years and not others, and some might just track the business cycle, and also how it varies across regions.
Senator R. Black: On page 11, you talked about, under the constitutional framework, the provinces also exercising their powers to regulate charities, and you noted Ontario and Alberta. Is there regular, ongoing, positive talk back and forth between your department and the provincial governments that are involved in charities?
Mr. Langdon: The short answer is not as much as we would like. Certainly at the federal level, we’re much more actively involved in the charitable sector than the provinces are. In fact, it’s Ontario that really has the most significant activity. So, again, not as much we would like.
Maybe you can ask this question to the CRA, but I know for a time there was a mechanism where we did consult with the provinces on a regular basis with respect to ongoing issues of common concern and policy changes. I don’t know whether that still exists, but it was in place while I was there.
Senator R. Black: Thank you. I say that somewhat personally because I know there is information that isn’t shared back and forth between the organization I used to be involved in. The information is up to date here, the same information is not up to date there, and yet we have submitted the same things to both. That’s unfortunate.
Finally, on page 12, the charitable purposes. There are four bullet points. Are these still current, appropriate, up to date, or are there better ones?
Mr. Langdon: This would be reflective of the common-law purposes. Certainly it’s the framework that we use here in Canada. We feel, by and large, that it is an appropriate set of charitable purposes. Certainly what we have put down here on the paper does not encapsulate everything, and if you look to the CRA’s guidance, in addition to capturing new charitable purposes that have been recognized through the Canadian courts, and oftentimes internationally, there has been quite a bit of innovation in the Charities Directorate in terms of what they recognize as charitable purposes.
Senator R. Black: They may fall under that bullet point number 4, which is a general catch-all.
Mr. Langdon: That’s right. To give a couple of examples, CRA recognizes community development activities, upholding human rights, the promotion of volunteerism, the promotion of racial equality, promotion of the arts, activities that benefit youth. The fourth catch-all category tends not to be exhaustive, but it’s much bigger than one might think.
Senator Raine: Thank you very much. As we start the study, it’s important that we learn a lot about how this sector is regulated. I’m going to follow along from Senator Black’s question because I’m a little confused about how the Department of Finance determines, under the fourth bullet, protection of the environment. The reason I’m concerned is that over the last 20 years or more we have seen a rising number of non-profits active in British Columbia who appear to have an agenda about basically anti-resource development and pro-environmental protection to the point where we’re now at with Kinder Morgan. How does that get determined? We have also seen evidence that money is coming from outside Canada to fund activism. I’m not sure if they’re applying for charitable status, if they’re a non-profit, or how it is set up.
I’m wondering if you could clarify some of these areas. I know that most Canadians really want to protect the environment, but I think we want to do it our way, not influenced by outside donors.
Mr. Langdon: Thank you for the question. I’ll try to answer as best I can. I don’t want to sound like I’m passing the buck too much to the Canada Revenue Agency, but I do think it’s a fine question for them.
Generally speaking, the Income Tax Act just states that an organization has to be a charity. We rely on the common law. The CRA is responsible for developing administrative guidance. So in terms of what qualifies under the protection of the environment, that would be something CRA would establish the parameters around based on the common law.
I do understand it runs a range from cleaning up lakes and streams, obviously, to organizations that are involved in policy issues. When you get into those discussions, you start bringing in other aspects of the regulation of charities. So you would then not necessarily be looking at the definition of the protection of the environment, but you might be looking at, for example, the restrictions on political activities. And I think that’s a bit of a different discussion. Organizations can be established for the protection of the environment. They can carry out those purposes. They can devote a certain amount of their resources to political activities, but there are restrictions in the Income Tax Act around that.
The Chair: I note that the next set of witnesses who are from the Canada Revenue Agency are making notes in the audience. We may anticipate hearing from them on this subject.
Senator Raine: I’m aware that only 10 per cent of their activity or resources can be spent on political purposes and that those activities must be non-partisan. When I’m seeing the 10 per cent, how is that determined? Is that by the amount of time their staff spend on it or the actual expenditures that can be targeted to a very specific campaign of some kind? How is the 10 per cent determined? It’s 10 per cent of what?
Mr. Langdon: Thank you for the question. That would be 10 per cent of the resources. The CRA’s interpretation of that is all of their resources, so it’s financial, physical and human resources. Staff and volunteers would also be included in that. At least for the purposes of applying the Income Tax Act test, it would be looking at the totality of their resources devoted to political activities.
You also mentioned time. I’ll leave this to the CRA to explain in terms of political purposes, but I think the amount of time spent on political activities may lead you down that discussion of when something becomes a political purpose. Certainly that’s a question more for CRA.
Senator Raine: To clarify, from Finance’s policy purpose, is the intent of this policy to allow Canadian charities and non-profits to be in those fields, or is it for the Canadian organizations to be donees of recipients of outside-Canada funds? I think it’s the policy question.
Mr. Langdon: I’m not sure I understand the question. Certainly the Income Tax Act rules apply to Canadian registered charities, and so to the extent that we are facilitating the activities of charities and encouraging Canadians to donate to those organizations, it would be for Canadian charities and equally, in terms of political activities, that the Income Tax Act restrictions apply to Canadian charities. I’m not certain if I’m answering your question exactly; sorry.
Senator Duffy: Mr. Leblanc, we’re all very concerned. And we’ve heard from a number of our witnesses in the last couple of weeks about this decline in the number of individual donors. You mentioned the 20.2 per cent, that it was trending down, and you gave us some examples of why.
I wonder how much of the downtrend is due to the law or the Income Tax Act making it less advantageous, making it less attractive for people to donate. I’m now at the age when I can’t remember exactly what year it was, but I remember Jim Flaherty was the Minister of Finance and changes were made to the charitable giving provisions. If I remember correctly, they were supposed to generate an additional $400 million for the federal government.
Do you remember those? Did it generate $400 million? And in return from that, how much was that line of 20.6 bent down as a result of the Government of Canada being less generous to those who would donate?
Mr. Leblanc: Thank you very much for the question. Towards the beginning of my presentation, I talked about the exemption of tax on capital gains on the disposition of certain types of property when those are donated. You have publicly listed securities as one example. In Budget 2015, the proposal was to extend such treatment to the disposition of private shares in real estate, again, when the proceeds were donated. That measure was proposed in Budget 2015. It was never legislated. We had an election. In Budget 2016, the current government announced that it didn’t intend to proceed with the measure.
The measure was never in effect, if you will. So with any modest decline you have in the number of donors, that measure was never in and taken out. It never took effect.
I guess there are questions about exactly the extent to which it would have encouraged incremental donations. Likely it would have, to some extent, although one can think about how large that effect would be. I would say that since it was never in effect, one can think about the policy for sure, but I wouldn’t link it to the decline just because of the specific set of circumstances that involved that measure, if you will.
Senator Duffy: Thank you.
One other question was about gifts from other registered charities. I think this goes back to Senator Raine’s question, where you have Canadian foundations receiving gifts from offshore foundations, and then the Canadian foundation makes a gift to a Canadian charity.
Do we have any way of tracking how much of that is going on?
Mr. Langdon: In terms of gifts coming in from foreign organizations?
I’m drawing a bit of a blank. It’s probably a better question for the CRA. I know that donors that make donations or foreign donors that make donations above $10,000, that is an item that is tracked. I believe that they do some tracking of money from outside of the country on the T3010 in the financial section, but I’m not positive about that. I think that would be a good question for CRA.
Senator Martin: Following up on Senator Duffy’s question, when it comes to non-profit organizations, reading the rules and requirements, it’s quite open in terms of what a non-profit’s activities can be, and there are few legislative requirements, et cetera.
I was curious about whether there are limits to foreign donations that could be given to non-profits. I can cite certain examples that happened in the last federal election. I think we’re all aware of non-profits that were quite active. I’m wondering about some of the restrictions, limits and monitoring of outside sources to non-profits.
Mr. Leblanc: It’s not something that’s either tracked or restricted from a tax system perspective. This is really getting into another sphere, but I think it was a spokesperson for the Minister of Democratic Institutions who said that the rules around political fundraising from foreign actors would receive some attention. So I guess that’s less in a tax system context and more in the rules around election financing and the election period, if you will.
Senator Martin: Receive attention from whom?
Mr. Leblanc: I think it was the Minister of Democratic Institutions. It was a spokesperson. So it might be something around Elections Canada rules.
Senator Martin: Right now you’re saying that there is no tracking or information regarding how much has potentially been poured into such NGOs?
Mr. Langdon: Thank you for the question. I would say particularly from the perspective of non-profit organizations, the tax system doesn’t necessarily track that. To the extent that there were rules around this, I think the tax system would pay more attention to this, but as we said there really isn’t much in the requirements for the exemption in the Income Tax Act for non-profit organizations. There are not a lot of rules they have to follow. By consequence, there’s not a lot of information which is captured by the Canada Revenue Agency in terms of those organizations.
Senator Martin: Knowing what we know today in terms of what happened last election, the kind of activities that are happening in Canada, is there discussion in your department or elsewhere about putting in some greater rules and restrictions and doing some monitoring? I know there’s already a lot of work to be done, but it seems to be a growing concern in terms of these activities.
Mr. Langdon: It’s a difficult question to answer. Certainly we’re aware of the concerns that have been expressed. In terms of a particular blogger and some news articles, we’ve been following this story. I can’t really go further than that, other than to point to the fact that there is a statement that the Minister of Democratic Institutions is potentially looking at the issue of political fundraising from the perspective of foreign actors funding Canadian organizations. But I don’t know that I can provide you more information.
The Chair: I know that one of our colleagues has proposed some legislation to that effect.
Senator Martin: Yes.
The Chair: Thank you very much. I’m going to take my crack at the questions. I’m going to change the subject a little bit. You did speak about Elections Canada rules. I anticipate we will hear in presentations, not from you or from the CRA but from Canadians and from charitable groups, the suggestion that the tax rules be changed to bring personal donations to charities in line with the same rules as individual donations to political parties, where we move away from tax deductions to tax credits. Those of us who have made political contributions over the years see the benefit of that every time we fill out our income tax, which I encourage Canadians to do, and it’s directly off the bottom line of your taxes.
Has the Department of Finance analyzed the potential cost to the treasury if this were indeed a recommendation that was implemented by the government?
Mr. Leblanc: It is a good question. Towards the beginning of my presentation, I talked about the basic set-up, the rate structure of the Charitable Donation Tax Credit. If you think of it, it starts off at 15 per cent on the first $200, and on the rest, an unlimited amount except for the net income limits, either 29 per cent or 33 per cent if you’re someone who faces the new top 33 per cent rate. The idea there is really to encourage as much giving as possible, to encourage people to give large amounts for the benefit of the charitable sector. Then you have the Political Contribution Tax Credit, which is different, which starts quite high at 75 per cent and then goes to 50 per cent and then 33 per cent, but on a fairly limited amount. It would be quite a change in the incentives that people give.
There was the private member’s bill that discussed it. I don’t have the estimate with me. Do you have it? Otherwise we can follow up.
Mr. Langdon: I don’t have it with me. I do recall it was quite expensive. I think it was somewhere to the tune of about $1 billion, although I reserve the right to correct myself. I do also believe that the Parliamentary Budget Officer took a look at that as well and did a costing, but we can follow up.
The Chair: I’d appreciate it if you would. I will be asking the same question of the CRA when they appear before the committee.
You also mentioned earlier in your presentation about the decline in corporate donations and not understanding. I suspect the confusion in corporate donations may be in how corporations view the tax system differently from the way personal donors do, because the tax system may be more beneficial to corporate donors if they qualify the money they give to charities as sponsoring events, et cetera, as opposed to as a charitable donation. Or some may even try to qualify it as advertising, as a business expense. I don’t know that that’s measured by either Finance or CRA, but that could be an explanation for that.
Senator Omidvar: First, I would like to apologize to the witnesses. I thought I was speaking to the CRA, and of course I cottoned on a little later that I was not. So those questions will get asked. But you were extremely elegant, and I thank you for that.
Before I ask my question, I want to ask you whether it is in your scope to answer this question. This is not about charitable donations and charitable giving and income tax measures but, rather, about the treatment of not-for-profits and charities by the federal government in terms of grants and contributions and the complex relationship, which is worth millions of dollars, billions of dollars, I would suggest, between a large charitable not-for-profit sector and a federal government.
Is it in your scope to answer that question?
Mr. Leblanc: Unfortunately not. Those other departments would be better positioned to answer that.
Senator Omidvar: Then I’ll move on to another question, and the question has been raised by our colleagues at the last witness panel and today, and I imagine it will get raised again.
Is it possible for us to get the facts on whether charitable dollars have been flowed to political activities? I’d like to know the facts on that. The CRA and Finance did a number of audits. Where do we find out whether it is true or not true that in fact foreign donations given to Canadian charities were funnelled to support or not support political activities? I think we need to get the evidence on that.
Senator Duffy: Clear the air.
Senator Omidvar: Clear the air. Let’s get it. Can we get the facts?
Mr. Langdon: Certainly from the perspective of the Department of Finance, we’re responsible for the tax rules. So it wouldn’t be something that we would have access to. I think it’s a question that you can ask to the CRA.
Unfortunately, except perhaps in a broad sense, the CRA is going to have difficulty answering that question because it would ultimately require them to think about what’s in a taxpayer’s file and what can be pulled out, and I’m not confident that they’re going to be able to provide that information, but I’ll leave that to them.
The Chair: Elections Canada may also need to be asked that question, because it’s a complicated trail to follow the dots.
Senator Omidvar: I have a question that I’m confident you can answer. It is about donor-advised funds and the incredible rise in the amount of charitable money that is now resident in donor-advised funds.
Criticisms have been levelled against this regime because there’s a lack of clear payout rules and a lack of transparency. Most of these donor-advised funds are no longer managed by charities but by financial institutions, which have other agendas, let’s say. There is a paper here, and I don’t want to cite it, but what it says is that some experts claim that these donor-advised funds move capital away from the charitable sector and have little understanding of public benefit.
So you’re charged with evaluating tax measures, I imagine. Have you evaluated the rise of donor-advised funds and their payout? Do you see some weaknesses or some issues that need to be addressed, researched and corrected?
Mr. Langdon: I think the short answer is in recent years, no, we haven’t looked at the issue of donor-advised funds. I think it’s absolutely a good issue to look at. Generally speaking, of course, charities have a 3.5 per cent disbursement quota that applies to public foundations, private foundations and, to an extent, charitable organizations. It would be interesting to look at the rise of donor-advised funds to see whether they’re meeting the 3.5 per cent.
I think another issue to look at would be whether the 3.5 per cent continues to be the appropriate amount for charities to pay out on an annual basis. Absolutely, you will hear different perspectives from the charitable sector, particularly in terms of what they’re able to receive back in interest and return on investments.
Whether a separate set of rules could be applied to donor-advised funds, that’s absolutely an interesting issue that could be explored, but I think the short answer to your question is no, we haven’t looked at that in a recently.
Senator Raine: I know there’s tax assistance for charities when people donate the sale of securities and other kinds of donations, but it doesn’t apply to the sale of real estate. So if a person wants to donate real estate to a charity, can that be done? And if it can’t be done, if you can donate other forms of investments or property, why is the restriction on real estate?
My understanding is that if a charity could receive real estate as a donation, it could be very beneficial to them and could unlock more charitable giving, especially in the larger estates.
Mr. Leblanc: Thank you for the question. It relates to the one Senator Duffy posed. This was the measure that the current government decided not to proceed with.
There are questions about the extent to which it would be effective in encouraging incremental donations, and I think the goal of all these policies is to try to increase the amount of resources charities have to do their important work. I think that was a concern, and I think another one was, looking only from the donor perspective, some sense that the income distribution of those donating would be pretty skewed towards the higher end. That was a concern for the government. Anyhow, at this time the government has decided not to proceed with the measure.
One of the things about publicly listed securities is that they’re quite liquid, so they can be sold immediately, and the charity — the recipient organization — can use them to basically use those funds in the way it wants. In real estate, it probably depends on the market, but it could be difficult to access those funds.
Mr. Langdon: The only thing I’d add is that under the existing rules and existing tax incentives, you absolutely can donate real estate. It doesn’t qualify for the capital gains exemption; there are only certain types of property that do. Because the capital gain on the disposition of the property is only taxed at about half the rate, the charitable donation tax incentive on that — which is 29 per cent and about 46 per cent when you add in the provincial credit — will eliminate any taxes owing on the donation in all but the most extreme cases. So anybody donating a piece of real estate to a charity wouldn’t have to pay any taxes because the credit would offset that.
Senator Raine: That would be a good incentive to donate.
Mr. Langdon: Yes.
The Chair: Mr. Leblanc, Mr. Langdon, thank you very much for being here.
Many people, when they looked at our agenda, which said we’re having people from the Department of Finance and the Canada Revenue Agency, felt that this would be a boring meeting. It’s been anything but. Thank you very much for your presentations.
I’m sure that you will be monitoring our process as we go through the study. I would encourage you to do that, and as we go through it, if you see something that comes up that you would like to comment on, we’d appreciate that. I do reserve the right of the committee to ask you to come back at some future date before we file our report to get your opinion on some recommendations that we might have. Again, Mr. Leblanc and Mr. Langdon, thank you very much.
The committee will now hear witnesses from the Canada Revenue Agency: Antonio Manconi, Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch; Sharmila Khare, Director, Charities Directorate, Legislative Policy and Regulatory Affairs Branch; and Roxane Brazeau-Leblond, Director, Income Tax Rulings Directorate, Legislative Policy and Regulatory Affairs Branch. Thank you for accepting our invitation to appear.
I would like to invite the witnesses to make their presentation, but I would also like to remind them, as per previous instructions that have been given, that presentations should not exceed 10 minutes in length. Following the presentations made by the witnesses, a question and answer session will take place. There will be as many rounds of questions as time will allow, so senators do not have to feel required to ask all their questions at once. During the question and answer session, I would ask senators to be succinct and to the point.
I know that the witnesses were here in the audience when the witnesses from the Department of Finance were here. A number of questions were asked; a number of answers were deferred. Perhaps you’ll take those into account, either in your presentation or in your answers.
Mr. Manconi, I understand you will make the presentation.
Antonio Manconi, Director General, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency: We will do our best.
Good evening, Mr. Chair, and thank you all for the invitation to appear before you today. While the role of the Department of Finance is to develop and draft the rules to support the government’s tax policy agenda, it is the CRA’s responsibility to administer these rules.
I will provide an overview of the role and responsibilities of the Charities Directorate at the CRA and explain important distinctions to be made between registered charities and non-profits. The Charities Directorate within the CRA is responsible for the regulation of registered charities. Under section 92.7 of the Constitution Act of 1867, the provinces have jurisdiction over charities; however, because of the tax privileges available to them through the Income Tax Act, the CRA has been regulating registered charities since 1967.
There are three types of registered charities: charitable organizations, which primarily engage in activities; public foundations, which primarily give to other qualified donees; and private foundations, where generally most of their directors do not operate at arm’s length or most of their funding comes from people who control the charity.
To qualify for registration, an applicant must be exclusively charitable. It must also be resident in Canada, deliver a public benefit and comply with public policy.
As the Income Tax Act does not define the term “charity,” the Charities Directorate uses the common-law definition to determine charitable status. Under the common law, charitable purposes and activities must fall under one or more of the four heads of categories of charity: relief of poverty, advancement of education, advancement of religion, and other purposes beneficial to the community, such as promoting health and protecting the environment.
There are now approximately 86,000 registered charities in Canada.
The CRA not only registers charities, but through education and outreach activities also helps them to understand the rules so that they can remain compliant and maintain their status as a registered charity.
The CRA also engages in compliance activities and contributes to the Government of Canada’s efforts to ensure charities’ resources do not support terrorism.
To promote voluntary compliance by charities, the Charities Directorate has developed an extensive suite of educational and guidance products, including interpretations, videos, graphic educational tools and webinars, which are posted on the Canada.ca website. It also responds to telephone and written inquiries.
An important part of the Charities Directorate is monitoring charities. Wherever possible, the directorate uses an education-first approach to address non-compliance. For example, we recently introduced the Charities Education Program to help new charities be aware of and understand their regulatory obligations by conducting in-person visits.
The Charities Directorate also consults extensively with stakeholders. For example, it meets twice a year with the Technical Issues Working Group to discuss both policy and program issues. This group includes Imagine Canada and other representatives of charities, as well as lawyers, accountants, the Department of Justice and the Department of Finance.
The terms “non-profits” and “charities” are sometimes used interchangeably. I will now highlight the differences between charities and non-profit organizations.
Under the Income Tax Act, a non-profit organization or NPO is not the same as a charity. The act describes an NPO as a club, society, or association that’s organized and operated solely for the purposes or social welfare, civic improvement, pleasure or recreation, or any other purpose except profit.
While the term “non-profits” is sometimes used to refer to both registered charities and non-profit organizations, there are some important differences between the two.
While it is true that both charities and NPOs are tax exempt, only charities are registered by the CRA. Only registered charities can issue official donation receipts. Registered charities must file an annual return, also known as a T3010, and most of the information contained is posted on the Canada.ca website.
Some NPOs must file a different annual information return, the Non-Profit Organization Information Return, known as a T1044. This information is not made public.
Charities and NPOs are also subject to different rules regarding their activities. For example, charities have more latitude than NPOs to engage in fundraising and related business activities. There is no separate organization within the CRA that oversees NPOs. They are handled through the CRA’s processing and inquiries and compliance systems.
In closing, registered charities play an active role in addressing pressing social problems as service delivery agents, funders and investors. The Charities Directorate regularly scans the changing charitable sector environment and continues to seek out ways to ensure our program reflects sector needs.
At this time we would be happy to answer your questions.
Senator Omidvar: You are well prepared for the questions because we asked them of the preceding panel.
Let me get to the whole issue of charitable dollars being used or deployed in a manner that is not intended in the law, that is, for funding political activities.
As far as I know, the Government of Canada, three or four years ago, made a public statement that it was auditing a specific number of charities that were under suspicion of having broken the laws of the charitable law. Have those audits been completed? Are they public? As a result, have any specific charities been deregistered?
Mr. Manconi: Yes, a project was started. It was announced following the federal Budget 2012. Based on selection criteria, 60 organizations were selected for audit. Those audits were conducted, and last year’s message from the minister, I believe, was that we actually stopped auditing after 54 organizations. Of the 54 organizations, we still have five that remain open as audits, but in terms of outcomes, the registration of only one of those charities was actually revoked. And of all the audits we did, most of them had other issues leading to revocation as opposed to political activities.
Senator Omidvar: Most of these issues were administrative?
Mr. Manconi: Yes.
Senator Omidvar: We get back to the question that is posed around illegal deployment of charitable dollars for purposes that the Charities Act does not support. How do we get to the bottom of this question? How do we get firm evidence that charitable dollars, for the greater part or the lesser part, are in fact being deployed as the act sets out, which is that charitable dollars can only be used for charitable activities?
Mr. Manconi: We have the rules in place, and we keep promoting those rules. We promote our rules in various fashions. We don’t necessarily have evidence of what is or is not spent, but through our audit programs, we are able to detect and then find out if the charities are in fact using their funds properly or not. And then depending on the outcome of the audits, we will take corrective measures.
Senator Omidvar: Roughly how many charities are deregistered every year?
Mr. Manconi: We deregister approximately 1,500 charities a year. However, for the majority of them, it’s not for cause. It’s mainly because they self-deregistered, because they didn’t file, but not for cause.
Senator Omidvar: Okay.
Senator R. Black: Witnesses have told the committee that the recent anticipated changes in charities and non-profit organizations and the changes in demographics require a more modern and flexible regulator. Have you witnessed these changes? What is CRA doing to think about changes to make it more modern and flexible?
Mr. Manconi: So for us, we’re not sure of the definition of “modern.” It can mean many things to many people. But we do go out of our way to make sure we are engaged with the sector. We take any and all opportunities to communicate, to meet with them.
I mentioned in my speaking notes that we have the Technical Issues Working Group that represents charities across the country. We also go out to various conferences and seminars to meet and listen and learn how the sector is evolving. Through those conversations and exchanges, we do talk about how we can support the charities further. We have laws that are in place today that must be abided by. But then we also take into consideration what the charities are trying do going forward. From there, we see what we can do to help. Then we work with our friends in Finance, in terms of looking at legislation.
Senator R. Black: I asked this question of the previous panel. Do you talk enough between the provinces and Ottawa?
Mr. Manconi: We have a conference call next week with them, I believe. We have a national conference call once or twice a year.
Sharmila Khare, Director, Charities Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency: We have a federal-provincial-territorial charities regulators network. It can meet via conference call as needed. We’re planning to have a conference call in the month of May. The last conference call was almost two years ago. It is an opportunity to exchange information, provide updates. It can be as active as it needs to be, but having the network exist is very useful because a couple of weeks ago I had a question relating to a situation in Saskatchewan. I could just reach out to the network and find a contact very easily.
The provincial regulator that we have the most contact with is the Ontario Office of the Public Guardian and Trustee. We have conference calls with them twice a year, and I am in fairly constant communication with my counterparts there in terms of consulting on various policy products.
Senator R. Black: Thank you.
The Chair: You mentioned in your presentation that the Charities Directorate also consults extensively with stakeholders. You gave an example that you meet twice a year with the Technical Issues Working Group to discuss both policy and program issues. This group includes Imagine Canada and other representatives of charities. Who are the other representatives?
Mr. Manconi: There are umbrella organizations that we meet with. But Ms. Khare chairs the committee, so I’ll pass it on.
Ms. Khare: The committee is made up of 13 representatives who are either allied professionals in the sector, so lawyers or accountants, or umbrella organizations. We have the Canadian Bar Association. The Chartered Professional Accountants of Canada is represented on the committee. We have the Canadian Council of Christian Charities. In the past, when we had more of a policy focus on developing guidance on fundraising, we had organizations representing that sector on the Technical Issues Working Group.
We have included lawyers who represent small charities, national charities, as well as accountants working with a variety of charities, so we have a broad perspective. This information feeds into our program and policy development work.
The Chair: You also said in your presentation that registered charities must file, and that information is posted on the Canada.ca website. But then you said some non-profit organizations must file a different annual information return, the Non-Profit Organization Information Return, which is called the T1044. This information is not made public. I was curious about that. Why the difference?
Roxane Brazeau-Leblond, Director, Income Tax Rulings Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency: It is because of legislation. Charities have a special provision that allows this information to be made public, whereas for non-profit organizations, this information is like any other taxpayer information that we receive. We are precluded by section 241 from releasing it, so this information that the NPOs provide is not made public.
The Chair: One question I asked the representatives of the Department of Finance was about switching how we give tax receipts to individual Canadians, not corporate donations. If we switch it to the same way as political donations are treated, giving tax credits as opposed to tax deductions, increasing the level, our tax credit system for political donations is extremely generous in this country and acts as a great incentive for people to give money to their favourite political parties. There are many people who think that might be a useful tool to increase the amount of donations to registered charities.
Has the CRA examined this? If so, can you anticipate what effect that might have on the system?
Mr. Manconi: As a regulator, we don’t get involved in looking at that type of tax policy. We leave it mainly to our finance folks. I’m sorry, we are not able to delve further into that question.
The Chair: We have had one witness defer to another witness who has now deferred it to someone. I just want get the right person in the chair who is going to be able to give me the answer to that question. I’m not blaming you. I understand that it is a complicated issue.
Senator Martin: I was saying we should have them together for the next session. That might be helpful.
I was just thinking about ethnocultural communities as I was listening to your presentation and the complex process for any organization to get charitable status, which is good. We want them to be fully accountable, and so the process is in place.
I don’t know if you have any stats regarding what percentage of the charities in Canada are serving or initiated out of these ethnocultural groups. Has there been any outreach to reduce some of the barriers that there may be for some ethnocultural communities to become charities? They are serving various sectors of community that deserve that attention. I don’t know if these are questions that you would answer or if it would be someone else, but I’m just thinking about our ethnocultural communities at this time.
Mr. Manconi: We definitely understand and appreciate the work they are involved in. We can certainly go back to the office and see if we have that type of information available. I’m not sure what our system allows us to do.
But in terms of reaching out and helping, we do a lot of outreach and, as I mentioned earlier, education-type products. First, on our website, we have a how-to to make it simple. We recently launched a checklist on how to register for charitable status, and there is also a “Did you know how?” section and one called “Should you actually apply?”
It actually makes folks who are applying think about what is it they are trying to get into and if that’s the right approach to take. We tried doing as much outreach as possible and educating. We also have our phone lines that are available to people who do call and ask for assistance in getting started. We try in as many ways as possible to be open and approachable for the organizations that want to apply.
Senator Martin: Regarding the processing time, it seems to take between six and eight months or more. Would you say that is standard ?
Mr. Manconi: We have been improving our processing time over the last couple of years. It used to take quite an extensive period of time. But with the outreach at the front end, whereby we actually help people doing those checklists in terms of whether they have all their products and whether this is really what they want to do, and by having our phone lines open as well, we have been able to cut down processing times.
Once we receive applications, we also now have a screening process where we can look at applications that are pretty straightforward and push them through faster. For those that are a bit more complicated, we have dedicated resources for those complex types of registrations to speed up our response time.
Ms. Khare: At the CRA, the agency has a list of employees who speak other languages, and we’re asked to renew our volunteer registration every year. So if somebody really faced a language barrier, there would be opportunities to connect them with somebody in the agency who could help them in their own language.
We have done various types of outreach. During the Syrian refugee crisis there was an organization local to Ottawa called Refugee 613. We went and gave a presentation to that group because it was bringing together a large number of players in this community.
We have accepted invitations from groups that are affiliated with specific ethnic groups. For instance, an invitation was received from the Ukrainian Bar Association. I’m not sure I even knew it existed before the invitation arrived, but that’s another way to do some outreach.
Senator Martin: I know there are law firms that specialize in helping organizations gain their charity status. I’m from British Columbia. Are you saying that if a group wants to apply for charitable status, there are personnel in the regional offices who could go and meet with the organization to assist them?
Mr. Manconi: We don’t have regional offices. We are all centralized in Ottawa. For instance, if we receive an invitation to go to a Ukrainian seminar, we will go out to various conferences of that nature.
Senator Martin: I see; it’s something bigger. Thank you.
Senator Duffy: Mr. Manconi, you mentioned that about 1,500 non-profits or charities deregulate every year. You spent quite a bit of time telling us about your outreach and educational efforts. I understand there is an association — maybe the chairman knows — of fundraising executives, and that people actually take courses in how to do this. Ms. Khare, are you aware of them? Is that one of the things you encourage your clients to do? That is, to get their people trained so that they are not depending on you all the time to tell them what to do or to explain what to do.
The Chair: Before you answer, I should declare my conflict here. I am a past president of the Association of Fundraising Professionals Foundation for Philanthropy in Canada as well as the vice-chairman of the Association of Fundraising Professionals internationally, so I declare my conflict as the question is asked. I will avoid comment.
Ms. Khare: We have a rotating membership on the Technical Issues Working Group, and I have had the opportunity to work with colleagues from the Association of Fundraising Professionals, so I am aware of the organization and the North American network that exists. Staff from my division have attended events that they have organized in the past, but as the director of policy, I don’t have clients per se who would be phoning me and asking for advice.
Senator Duffy: Given the proliferation of very small charities and non-profits, is there some way, through community colleges, through the association the chairman knows of or through yourselves, where people could learn from the ground up on their first days what the proper techniques are and the rules and the proper approaches to take?
It seems that we’re having a huge increase in demand for services from these small groups, and if they get hung up in spending too much time retroactively trying to fix mistakes they have made, it would be nice to have them clear it up in the beginning so that they don’t make those mistakes.
Ms. Khare: Right now the directorate’s focus is doing outreach through the Web, so we have a lot of products available to all Canadians. We try to communicate in a manner that reaches the non-technical user of the product. We try to focus on writing our documents in plain language as per the CRA standards.
There are organizations across the country that are offering seminars, but it’s a very interesting suggestion.
Senator Duffy: In our background note, we see here that in its departmental plan for 2018-19, the CRA has identified planning highlights with respect to registered charities, including clarifying the rules governing the involvement of registered charities in political activities.
It’s my understanding of the rules that up to 10 per cent of a charity’s budget can be used for political activities or activism. Has that review of planning highlights started? Has it been done? When are we likely to see some results from it?
Mr. Manconi: We actually launched a consultation on political activities last fall. We did a national program where people can write in and provide their comments on the rules around political activities. We also conducted face-to-face visits in six cities in Canada.
From there, the minister appointed a panel of experts in the sector to take all the recommendations and make a report. Last March, that report was presented to our minister. Since then, we have been analyzing the recommendations that have come out of that report with our colleagues at Finance to see what approaches we could take towards those recommendations. In this last federal budget, there was a reference that responses to the panel with recommendations will be coming in the next few months.
Senator Duffy: That’s great. Thank you.
The Chair: We have heard from a number of charities about the cost of compliance with the requests for information by government in general, and the CRA specifically.
Have you done an ongoing review of the information and reports that you request from charities? You mentioned the T3010 in your presentation. Have you reviewed the information that you have asked for and what you use it for and what benefit is it to you as a regulator and the cost to charities to comply?
Mr. Manconi: Are you referring to the information that’s in the T3010?
The Chair: That, and any other information requests from charities.
Mr. Manconi: The information we get from the T3010 we find valuable for ourselves, first of all, because it helps evaluate patterns and trends. More importantly, it’s more for the public as well, because then the public turns around and looks at who they’re actually donating their funds to.
We encourage folks, before they donate, to make sure they go to our website where they can see the charities, their purposes and activities and make sure those line up with what they actually want to give their funds to. It’s a good way as well to find out whether the charities are still active or whether they’ve been revoked or not. It’s an open and transparent process for us to share with the Canadian public what the charities are doing.
Senator Raine: Thank you for being here.
I’m very confused when it comes to the political activities of charities. I read here in the Report of the Consultation Panel on the Political Activities of Charities that you released in March last year:
Amend the ITA by deleting any reference to non-partisan “political activities” to explicitly allow charities to fully engage, without limitation, in non-partisan public policy dialogue and development, provided that it is subordinate to and furthers their charitable purposes.
Is the use of a charity’s resources for partisan political activities always prohibited? Can you explain what these partisan political activities include? I don’t understand partisan, non-partisan, political activities and charitable reasons. There seems to be a vague area there.
Ms. Khare: Thank you for the question. It is complex and nuanced.
Senator Raine: Maybe we could ask you for a written description as well.
Ms. Khare: Sure. We’d be happy to do that.
Basically, certain activities are prohibited. If the charity is engaged in an activity that’s illegal, it is kind of a non-starter, and if you’re engaged in partisan political activities, that is also a non-starter.
Something that’s partisan is where you are providing support directly or indirectly or in opposition to a political party or a candidate for public office. Just to provide an example, a charity couldn’t throw themselves behind a political party or throw their support behind a specific candidate for public office. That would be partisan, and that is not permitted.
Senator Raine: This is with respect to charities. But non-profits can do whatever they want?
Ms. Khare: Not whatever they want, but they have to have a purpose that is not for profit.
Senator Raine: But it can be for political reasons?
Ms. Khare: Yes. So many groups of individuals who might otherwise wish to conduct their partisan political activities in a charity may decide to set up a separate NPO to conduct their political activities.
Senator Raine: In the United States you would call that a PAC, a political action committee.
The Chair: Budget 2018 has added a little wrinkle to the definition of charities that we haven’t talked about. Budget 2018 opens the doors for charitable status to news organizations. That’s what the budget says. I can’t recall the Budget Implementation Act that deals with this, but I hope that the government, when they made this proposal, did consult with the Canada Revenue Agency on how this will fit into the definition of charities — that I can make a donation to a newspaper in Halifax, for instance.
Ms. Khare: I don’t think we can speak to the budget process per se, but Budget 2018 did talk about an exploration of a few concepts to promote local journalism. I’m not trying to defer this question to the Department of Finance, but they would take the lead on that initiative, and we would provide support, as requested.
The Chair: It seems that we should have your input.
Ms. Khare, I go to your comment that it has been two years since you had a conference call with your provincial colleagues, and you’re having one next month. I’m glad to hear that. It seems to me that if you’re going to have a network and you’re two years between conference calls, then it’s not much of a network. I hope we’re going to see more frequent calls set up in the future. I won’t ask why you haven’t had them in two years, because I’d be accused of being political, but is it your intention to diarize this and make it a regular occurrence?
Ms. Khare: It’s a very good question. In fact, we’re trying to think about what the mandate was for this network. We recently conducted a survey. We conducted a survey within our own organization to see what our colleagues in the Charities Directorate wanted to use the network for. We conducted a survey of all of the participants in the provinces and territories to see what their intentions and desires were for this network. So we’re just compiling the results of these surveys that we conducted so that we can move forward in a more deliberate manner.
The Chair: If at some point throughout this study CRA is invited back, or if you care to do so separately through the clerk, could you let us know the results of that survey? I think it’s interesting.
Personally, I think it’s a very valuable network to have someone to contact on a regular basis who would facilitate a smoother operation. It is not that operations aren’t smooth now. I don’t want to be seen to be critical. I just want to see that things move on.
Senator Omidvar: I want to particularly appreciate the question from Senator Duffy, because it speaks to the enabling environment that the Mowat school of public policy’s paper on not-for-profit and charities talks about, and some of these suggestions by Senator Mercer and others as well are very helpful. The charity sector needs someone to monitor and enforce and make sure tax laws are complied with. It also needs someone who encourages, enables and lends support. There are so many issues in the charitable sectors, ranging from small charities to big charities, issues of governance, issues of capacity, issues of human resources, et cetera, and they have nowhere to go. That’s not a question. That’s a statement. I apologize, chair, but I will get to my question.
My question also goes back to the advisory panel’s report. Talking about modernization, they make a reference to social enterprise models. Charities are now more and more engaging not only in charitable work but also in social enterprise, so they are dual purpose.
Have you seen a rise in the number of charities asking for registration with these kinds of activities? How do you make sure that they are fairly dealt with, that compliance issues are taken into account?
Mr. Manconi: We are seeing applications where organizations want to be involved in social finance. We’re trying to deal with those with the current rules that are in place today. At the same time, we’re also engaged with ESDC, Employment and Social Development Canada, as they have the lead on the file for social finance and social innovation. We’re supporting them on their approach on how they can advance this file. So we’re providing some guidance and assistance and participating in the working groups in order to come up with solutions for the sector for how they can delve more into social finance.
Senator Omidvar: Do you anticipate a change in the legislation or the policy framework governing the Charities Act to enable charities that are engaged in social finance, et cetera?
Mr. Manconi: They have a whole slew of recommendations that are coming on. Perhaps Sharmila can elaborate as she is part of the working group. They are working on different aspects of this, whether it be legislation, whether it be at the working levels.
Ms. Khare: Along with our colleagues at the Department of Finance, we have been engaged with ESDC probably since 2008 on discussions related to social innovation, social finance, and we have played a supportive role in terms of providing information. There is a lot of scope for charities and non-profit organizations to engage in this field, and sometimes it’s a question of having the information and understanding, especially on the charities side, what they can do.
In terms of a new structure, we work with the rules that are set out in the Income Tax Act. That is our basis for providing guidance to the sector. There are provisions that allow charities to engage in businesses that are related to their mandate, but that’s where we need to establish the limits and the scope.
The Chair: One of the things I’ve heard from certain charities is that they have difficulty with the definition of political activities because advocacy and political activities are two different things. When I was the executive director of the Kidney Foundation, my job was to advocate on behalf of people with kidney disease, on behalf of doctors who wanted more money for research, on behalf of patients who wanted better services, et cetera, and in some cases that involved talking to politicians. That would be measured as political activity, but it was in providing services to people with a debilitating disease such as kidney disease.
How do you marry the definitions of advocacy and political activity? How do you, as an agency, get to the point where you say that’s advocacy and that’s political activity?
Ms. Khare: It’s a very challenging subject area for us, and how to communicate what these different buckets of activities are to Canadians and to charities is quite challenging. We’ve produced a lot of educational materials that are available on our website — power points and videos. I reviewed the testimony from the session you had last week, and I found Dr. Susan Phillips’ comments very interesting. She talked about sharing information. In our guidance we talk about activities that you might think are political but are absolutely okay. We deem them to be charitable, because charitable organizations and foundations often have interesting points of view to share with our elected officials, but it gets into a political activity when you’re really advocating for a change to a law or you’re asking the public to act, like a call to action.
The Chair: I’ll give you a practical example. It’s interesting and involves one of our colleagues in the Senate, Senator McInnis from Nova Scotia. When Senator McInnis was Minister of Transportation in the provincial government in Nova Scotia, I organized a lobby visit to Senator McInnis to encourage him as the minister to add to the Nova Scotia driver’s licence an organ donor card, which was critical to the people that I was working with at the Kidney Foundation because kidney transplants are an important part of their well-being. Senator McInnis, as the minister, did agree.
I thought of it afterwards as it was reported that it would be reported as a pretty political activity. We went and saw the minister, we lobbied him to make a change to an important document like the driver’s licence in the provinces. He agreed with it.
Would CRA measure that as a political activity when we were indeed doing it on behalf of Nova Scotians who had kidney disease or some other malady that would benefit from transplantation?
Ms. Khare: It’s a very interesting example. Of course, I don’t have all the details. It would probably take a long time. We would likely view that as a representation to government, and that would be okay.
Senator Martin: You talked about 60 charities that were selected for audit; of those, were any investigated for partisan activities during the 2015 election? Was that one of the things you were looking for?
Mr. Manconi: Basically they were looking at their activities as a whole at a certain point in time, looking at all the activities they were doing.
Senator Martin: All activities, which would include that.
In terms of creating the list, who determined the list of 60?
Mr. Manconi: We started with all the information in the T3010s that are captured in our system. As they file, they’re supposed to declare whether they’re political activities or not and by how much. There was a large pool of organizations. From there, we find the selection criteria to get down to a manageable amount, which was 60 organizations.
Senator Martin: Some of our questions have fixated on this area, and I think it’s because there were various anecdotal evidence and other direct results because of the activities of some of these groups. It seems they could have been NPOs because their activities aren’t necessarily made public and they’re not restricted to the legislation. It doesn’t capture them. There’s a lot more activity surrounding that.
I just wanted to say I know so many amazing charities, some in British Columbia, and I know across Canada. I hope that our committee, as we continue our study, will look at ways to support those charities that are serving Canadians in very important ways.
It is concerning, hearing in your opening comments that there’s no separate organization within the CRA that oversees NPOs and that, really, there seems to be a bit of a gap perhaps in the oversight of what they are doing, and political partisan activities could be among their activities. This is a concern for all of us and something we should be exploring. In any event, I just had a few questions about that list of 60 and the audits that are ongoing.
You said you may open up the other files. Will you also be adding more charities for further audits as well?
Mr. Manconi: As I said, that project is restricted to those 54 audits. Then, once the audits are completed, should they be completed, we’re going to do day-to-day business audits.
Senator Raine: I want to follow up. If the CRA receives a complaint from a Canadian citizen about a charity or non-profit organization that they feel is disregarding the laws or regulations, how does that get dealt with in the CRA?
Mr. Manconi: We have a Leads Program, as we call it. If anybody calls or writes to us by any means, we will investigate every single lead we receive to find out whether the accusations are factual. Then, depending on the outcomes of our investigation, we’ll determine whether an audit is required or whether there’s any other type of corrective measure.
Senator Raine: Will you respond publicly or to the person who submitted?
Mr. Manconi: We don’t respond back to the person. We will just thank them. It can come in through different sources and different ways, but we will take action to review those pieces of information as they come in.
Senator Raine: Does the person who was concerned find out if anything happened?
Mr. Manconi: No, because they will be making a claim against another organization. Under section 241 of the Income Tax Act, we’re not able to share information as to our findings with another individual.
Senator R. Black: In what year were there 86,000 registered charities in Canada?
Mr. Manconi: Today.
Senator R. Black: Is that going up or down?
Mr. Manconi: It’s been steady for the last few years.
Senator Omidvar: Do you have a comment on the advisory panel’s recommendation that the CRA should focus on charitable purpose over charitable activities? Perhaps you can explain that a little to all of us, as well, because that’s a major shift.
Mr. Manconi: The difference between purpose and activities?
Senator Omidvar: Yes.
Ms. Khare: Essentially, a charity has to be established for exclusively charitable purposes. That’s really your mandate, your raison d’être. You need to demonstrate to the CRA that you have activities that further those purposes. If you have activities that further those purposes, they become charitable activities. They are not charitable in and of themselves.
There has been quite a bit of debate around this issue. Many commentators in the sector have written about the issue. Some may feel that it is enough to state what your charitable purposes are, and that should be enough to satisfy the regulator.
We do look at both. We need to know what activities you’re planning to do in order to confirm that you are going to be furthering your charitable purposes. But where you draw the line is a question that is a matter of debate right now in the sector.
Senator Omidvar: I’ve heard someone say that the minister will be making her decisions on the panel’s report in the next —
Mr. Manconi: There will be a government response in the coming months.
The Chair: We’ll be anxious to see what the minister has to say. We may want to have the minister come and see us at some point in the future.
Senator Raine: We asked the question to the witnesses from Finance Canada, and I think they said you should answer it.
The Chair: They may have suggested it, but I think it’s up to these witnesses whether they will answer it.
Senator Raine: Does CRA track foreign currency coming into non-profit organizations for use in Canada? I’m fully aware that we, as Canadians, like to donate to non-profits that serve charities and serve good purposes in other countries. I don’t want to imply in any way that this is all bad. But I think there’s a lot of concern, coming from British Columbia and with the climate out there right now, that activism funded by people from outside Canada is not necessarily good for our country. Is there any tracking of funding that flows from foreign foundations or donations into Canadian non-profits?
Ms. Brazeau-Leblond: Not every non-profit organization needs to file an information return, and for those that do, in the information return itself no information is required as to the source of the funds, whether they are domestic or foreign.
Senator Raine: So if we were thinking that our government would somehow know when organizations are funded from outside our country, that’s not true. We can’t know.
Ms. Khare: My colleague was speaking to what happens on the non-profit organization side.
Senator Raine: I don’t think these are charities. I think they’re non-profits. They’re non-governmental organizations operating in Canada.
Ms. Khare: And they are receiving funds from abroad. Okay.
Just for your information, for registered charities, we do collect information on flows of money that exceed $10,000, and we also collect money that comes from outside of the country that is directed towards political activities.
Senator Raine: For charities only.
Ms. Khare: That’s for charities.
Senator Raine: How many non-profit organizations are there?
Ms. Brazeau-Leblond: It’s hard to estimate.
Senator Raine: Anyone can be one, right?
Ms. Brazeau-Leblond: There has been an estimate that it could be 80,000 to 90,000.
Senator Raine: Do you think we should be tracking money that’s coming into those kinds of organizations from outside Canada? I guess there’s no way of doing it.
The Chair: — decision of people — put our colleagues in an unfair position.
Senator Omidvar: That is a very interesting point that Senator Raine has made, and I have a follow-up question. What is the role of the provincial government vis-à-vis non-profits? Do they exercise oversight? Do they have this kind of information, or is it a big cloud?
Ms. Brazeau-Leblond: I’m not exactly sure of the provinces’ role. There are provincial laws. The exemption for income tax —
Senator Omidvar: — is federal.
Ms. Brazeau-Leblond: It has nothing to do with the provincial. The requirements of the Income Tax Act have to be met.
Senator Omidvar: I understand, but non-profits have an option to file for status either provincially or federally, so there must be something around provincial oversight. Maybe that is a question we can ask.
The Chair: She could bring that up at her next conference call with her provincial colleagues. Our purpose here this evening is to make this conference call worthwhile.
On behalf of my colleagues, Ms. Brazeau-Leblond, Ms. Khare and Mr. Manconi, thank you very much. It’s been an excellent presentation. Again, planning a session with the Canada Revenue Agency and the Department of Finance Canada never looks that exciting on paper, but you’ve made it interesting. We’ve learned things, and that’s what we’re about.
As I said with the previous witnesses, if, as you monitor our process — and I know you will — you see something that we’ve missed or that you’d like to bring to our attention, please feel free, through the clerk, to send us information. I want to say that at some point in the future of this study we may want to have you back. But with a number of references that have been made to the minister, we may indeed want to have the minister appear as well at some point. We reserve the right to do that at some point.
Thank you very much for extremely interesting presentations. As I said earlier, we’ve learned a lot.
(The committee adjourned.)