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CSSB - Special Committee

Charitable Sector (Special)


Proceedings of the Special Senate Committee on the
Charitable Sector

Issue No. 6 - Evidence - September 17, 2018

OTTAWA, Monday, September 17, 2018

The Special Senate Committee on the Charitable Sector met this day at 9:04 a.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.


The Chair: I’d like to welcome everyone back from the summer recess. I hope you had as good a time as I did. I’m Senator Terry Mercer from Nova Scotia, Chair of the Special Senate Committee on the Charitable Sector. As you’re all aware, the committee will be conducting several panels today, and I would like to thank everyone for putting aside some time from their very busy schedules, the individuals and organizations who have kindly agreed to participate today.

Today the committee will continue its study to examine the impact of federal and provincial laws and policies examining 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 the fundraising in charitable and non-profit organizations. Before we hear from witnesses, I would ask that my senator colleagues introduce themselves.

Senator Omidvar: Ratna Omidvar from Ontario.

Senator Duffy: Mike Duffy from Prince Edward Island.

Senator Martin: Yonah Martin from British Columbia.

The Chair: I understand Senator Gold will be joining us. He’s probably in transit from Montreal this morning.

As our witnesses this morning, we welcome from the Association of Fundraising Professionals, Mr. Scott Decksheimer, Chair, and Ms. Andrea McManus, both from Calgary; and from Imagine Canada, Mr. Bill Schaper, Director of Public Policy.

Thank you for accepting our invitation to appear. I would invite the witnesses to make their presentations, but I would also like to remind them that, as per the instructions they were given previously, their presentations should not exceed five to seven minutes. Following presentations made by the witnesses, we’ll have a question-and-answer session, and 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 senators do not need to feel required to ask all of their questions at once. I would ask questioners and people providing the answers to be succinct so that we can get as much information as possible.

We’re going to start with Mr. Schaper.

Bill Schaper, Director, Public Policy, Imagine Canada: Thank you, Mr. Chair. While the committee’s invitation to Imagine Canada today referenced fundraising, I’d like to beg senators’ indulgence and take a somewhat broader view as well. As a component of charities’ and non-profits’ overall sustainability, fundraising leads us to consider the environment in which organizations operate and the government’s role in that environment.

The charitable and non-profit sector is incredibly diverse, encompassing everything from the University of Toronto, with annual revenues of almost $3.5 billion and some 16,000 staff, to volunteer-run community initiatives like the Water and Wheels Project to build a splash pad and skate park for the youth of Thamesford, Ontario. Please excuse the shameless plug, but my mother’s husband chairs the steering committee.

Given this diversity, there’s no such thing as the typical organization. Every circumstance is unique, but there are trends and challenges that we all face. And because every circumstance is unique, there is no one policy magic bullet. The operating environment needs to be flexible enough to allow organizations to choose the approach that best meets their needs.

You have already heard a great deal of testimony about the scale of the sector, its economic and social contributions, and the sustainability issues we face. So without going into too much detail, I’d like to reinforce a couple of points.

You heard testimony from our chief economist touching on the social deficit, the anticipated gap between the demand for services and the resources available. Within the next decade, if current demographic and economic trends continue, we’re realistically looking at a gap of $25 billion per year.

How can we mitigate this?

Fundraising is certainly one piece of the puzzle, presenting challenges and opportunities of its own. We recently published and shared with committee members 30 Years of Giving in Canada, the most comprehensive overview of Canadian charitable giving that’s ever been done.

The good news — Canadians remain very generous. We estimate that donations from individuals totalled some $14.3 billion in 2014. This is a 150 per cent increase in real terms since 1985, and when giving is related to GDP, only the United States and New Zealand are more generous.

But we are seeing several troubling trends, the impact of which will soon be felt.

The percentage of tax filers claiming charitable donations is on a downward trend, from a high of almost 30 per cent in 1990, to fewer than 21 per cent in 2014. A smaller number of people are giving ever more. Indeed, Canadians 70 years and older now account for more than 30 per cent of donations today. We simply don’t know what will happen as those donors disappear, especially when the numbers show that each generation is less generous — at least in terms of traditional giving — than the one before.

Efforts to maintain and boost giving will require more than tweaks to the income tax system. While there are proposals we support, for example, related to donations of real estate and private company shares, Canada’s tax incentives are already very generous, and research shows that tax considerations are well down the list of motivations or barriers when it comes to giving.

Our research shows that if Canadians earning $100,000 and more increased their giving to 1 per cent of income, and those already there maintained their giving, we could generate $1.6 billion a year. Creating that societal norm means all of us — our sector, the private sector and governments — working together to shift mindsets. But even if we get there, $1.6 billion meets only a fraction of the potential social deficit.

I’m almost out of time, so I’ll touch on what we mean by a new relationship and operating environment. We explore these in our written brief, and we’d be happy to testify again if senators are interested.

Right now, there is no “home” for the sector in the federal government. We have an enforcer — the CRA — but no department, agency, minister or secretariat charged with ensuring that federal policies contribute to the health, vitality and sustainability of the sector as a whole. It would be as if, at the height of the 2008 economic crisis, the automobile sector had nobody in government to speak to other than the taxman.

We want to explore with government how we can rectify this situation and be given the same consideration as other economic sectors.

There is no shortage of issues we could then work to address, all of which are vital to ensuring the future of this sector. These include the funding relationship with the federal government, for example, the administration of grants and contributions; new organizational structures and financing models that have emerged in Canada and abroad, as explored in depth by the steering group on social innovation and social finance; the overall regulation of charities and non-profits, and how it could be reformed to reduce barriers to organizations becoming more sustainable and financially self-sufficient.

We want to thank the Senate for undertaking this study. Senators have perhaps bitten off more than they expected, but that speaks to the way in which this sector has been taken for granted for far too long. It also speaks to the range of possibilities and the exciting trail that we truly believe we can blaze together.

Thank you.

The Chair: Mr. Decksheimer.

Scott Decksheimer, Chair, Association of Fundraising Professionals:

Thank you, chairman, vice-chair, and members of the Special Senate Committee on the Charitable Sector. My name is Scott Decksheimer, and I am the President and CEO of the ViTreo Group, a philanthropic consulting firm, meaning I work with many different charities on their fundraising. I’m here officially in my volunteer role as the chair of AFP Canada. I’m joined by Andrea McManus, former volunteer chair of AFP International and the first Canadian to hold that global position.

AFP, or the Association of Fundraising Professionals, is the largest association of charitable fundraisers in the world, representing some 31,000 individuals and organizations and in Canada some 3,500 individual fundraisers and charities, raising funds for causes from one coast to the other. We believe in appropriate regulation and require our members to adhere to regulations and an enforceable fundraising ethical code. In fact, AFP assisted the Canada Revenue Agency in developing its fundraising guidelines.

The greatest impact a charity has is to provide programs that enhance the quality of life of all those who live in our community. Imagine Canada, among other organizations, finds that a slowing economy, along with increased demand for charitable services, will lead to a deficit in this sector of $25 billion. Where is that revenue going to come from? One area is through the charitable giving of our citizens.

At its core, fundraising is a methodical approach to developing and cultivating relationships over many years. This process of fundraising can’t only be done by volunteers, though they play a huge part in their success. It requires specialized knowledge and planning and an understanding of ethics. Fundraising is about more than just raising money. There are many benefits. In a recent survey of donors in the U.K., 63 per cent took additional actions in their community as a result of donating. Those actions included recommending causes to family and friends, looking for information about a cause or charity, giving time as a volunteer and even using one or more of the charity’s services. A healthy and growing fundraising program is a bellwether for the health of an organization and maybe the sector.

How can this committee create impactful policy that will help grow the sector? It could be through an exemption of capital gains tax on gifts of real estate and gifts of private shares. It might mean ensuring the federal donation tax credit remains stable and in place, allowing Canadians to plan their giving and estates. It might mean reviewing the rules on allowing charities to increase financing through expanded business activities or other new mechanisms to raise capital.

It’s also much about the government’s tone, its approach and its visible and audible support. When that support is lacking, donors withdraw and change giving habits, which destabilizes care and support for issues important to Canadians. What can the government do?

Andrea McManus, Association of Fundraising Professionals: All levels of government have the opportunity and the window to influence public opinion on the work that the non-profit sector does by recognizing the partnership that they have with non-profit organizations, such as, for example, when the Senate led the way in creating and establishing National Philanthropy Day. We are still the only country in the world that formally recognizes National Philanthropy Day, and it’s celebrated in many cities across the country and brings focus and attention to the value of contributing to the non-profit sector.

In addition, why can’t all policies coming down the pipeline be viewed through the lens of the non-profit sector? How will a particular initiative impact the sector? What does it mean for the people that rely on these organizations? Can we designate a federal department to have economic and policy responsibility for charities and non-profits, recognizing the value of the sector beyond the tax regulation of Canada Revenue Agency?

There are so many ways that public opinion can be shaped to recognize the value of this sector and why it’s even more important now, and that’s why the work of this committee is so timely, because we are in a time of accelerating change. Many in our profession are laser focused on the Internet and social media. Now charities large and small have access to technology that is attempting to level the playing field, allowing many new avenues of fundraising. At the same time, revenue generators such as crowdfunding, while not technically charitable in nature, have become successful at grabbing public attention.

From the AFP Foundation for Philanthropy—Canada and Ipsos Reid’s “What Canadian Donors Want” survey, 80 per cent of Canadians surveyed are either very likely or likely to donate in the next 12 months. At the same time, 60 per cent are concerned about the economy and may reassess their giving plans.

The sector and the government need to encourage more people to engage and give, and that means providing additional options to give and to educate them about the importance of giving.

I hope that our presentation has been helpful in exploring what this committee can do to assist the sector during this crucial time. Thank you for your attention, and we welcome your questions.

The Chair: Thank you, all three of you, for your presentations. We’ll now start with questions from Senator Omidvar, to start.

Senator Omidvar: Thank you, chair, and thank you all for being here and taking time. Both or all three of you are aligned in your concern about the sector not having a place in the government. Around this committee we have talked often about that, and people have used the word “ambassador,” but you’re actually talking about, I think, the machinery of government being enabled to work with the sector.

Your presentation, Ms. McManus, actually pinpointed more specifically than Mr. Schaper’s what this would look like. You’re talking about a federal department, Innovation, Science and Economic Development Canada, the federal department.

Mr. Schaper, I wonder if you could give us a sense of what other jurisdictions have done, because charities are big in similar jurisdictions other than just the U.S. and the U.K. How do they manage this enabling-environment idea?

Mr. Schaper: Just a couple of examples off the top of my head. Australia actually has a minister responsible for the charitable and non-profit sector, and they also have an independent regulator that also plays an enabling role policy-wise. Similarly, Ireland’s fairly recently established regulator plays an enabling policy role.

In the U.K. it’s been in a bit of transition. They currently have a minister for the sector. Previously they had a secretariat within the cabinet office, which is their equivalent to our Privy Council Office, that was the Office for the Third Sector, and it played that role central to machinery in the machinery of government. So there are different examples of how it can work. Definitely the notion of a home secretariat, whatever form it takes within Innovation, Science and Economic Development Canada, is one we’ve looked at as a possibility, because to us that also sends the clear message regarding the economic contributions that this sector makes as well as the social contributions.

Senator Omidvar: A quick follow-up on that.

Yes, the U.K. and Australia and New Zealand as models, they have a charity law, they have a definition of charities, which is why they have a charities commission. We don’t have a charities law. We define what charities can and cannot do, but we do not have a charity law, and we do not therefore have a charities commission possibly.

Do you think we should look at a charity law and a definition of charity?

Mr. Schaper: We’ve not taken the position that the definition of charity necessarily needs to be changed right now. We think that with the way it’s been implemented in Canada with the common law, there’s been a fair bit of flexibility in terms of who qualifies and who doesn’t qualify as a charity.

But as part of broader discussions, when we say that we’d like to have a discussion with government about broader legal and regulatory reform, that’s certainly something that I can see being part of those discussions. Whether we necessarily have to have that or not, hopefully through that process a consensus would emerge either way.

Senator Omidvar: A third question, because it’s on this topic, do you have a position on whether — I’m using the school of public policy language — the enabling environment should be inside government or outside government? I want to remind everybody that we did have a minister under Prime Minister Brian Mulroney years ago. I’m not sure if it was a ministry of volunteerism or something like that. It has to have some substance and some teeth. Are we better off at arm’s length or inside government?

Mr. Schaper: I think it’s probably a combination. I think if you get the right things in place in the machinery of government — Andrea talked about at the bare minimum this notion that when policies are being developed, differential impacts on charities and non-profits are identified and considered, much as they are for gender, official languages, Indigenous communities and small business versus large business — that would be a step.

But definitely outside government, we’ve undergone in the last 10 to 12 years an almost sort of hollowing out of capacity for the sector to convene and for umbrella organizations to actually come together. That’s not something to blame on government. Funding that used to be there isn’t there anymore, but at the same time, if we’re serious about that in the sector, we also need to get our act together and build those mechanisms and structures ourselves.

The Chair: Ms. McManus or Mr. Decksheimer? Okay.

Senator Martin: Thank you for your presentations. I feel like you just scratched the surface, and there’s so much more you can be informing us about.

Mr. Schaper, when you say that there isn’t an enforcer and we need to strengthen the enforcement aspect of what happens in Canada regarding the charitable sector, I would say that’s the same in so many other sectors. We have laws, and we implement what we can, but it’s so complex and it’s multi-jurisdictional, so the enforcement is always an area of weakness.

I was curious about the trends that you alluded to in terms of social media and crowdfunding. We’ve seen through media some of the issues around that.

Would you speak a little bit more about the enforcement issues and our challenges as we look at this sector going online, innovative ways in which fundraising is being done and what we need to be looking at to strengthen enforcement? We have to build capacity, and we are wanting to support the sector and do more, but I also fear having to worry about so many other additional aspects of the sector, especially the online component. In that mix, we also hear the trend of influences from outside and some of the foreign influence that is part of this overall sector.

I wanted to specifically focus on enforcement, some of the challenges of that, and what you would recommend.

Mr. Schaper: In terms of enforcement, we’ve got the charities directorate at CRA. There’s a temptation sometimes to beat up on CRA because they don’t do what we want them to do or whatever. In our experience, they are a very effective regulator. They are a very effective enforcer. Their hands are often tied by the fact that the regulatory system under which we operate hasn’t been modernized substantially since a court decision in the 1800s, which was based on a law passed under Queen Elizabeth I. When it comes to dealing with some of these modern and emerging issues, their hands are tied by the framework they’ve got. That’s one of the reasons we’re so keen to engage with government on what the rules are. What makes sense? Where do we want to go from here? And that’s not necessarily the role of the CRA to do.

It’s in our interest as charities and organizations that we have that strong enforcement mechanism and that strong regulating mechanism because that’s part of the public trust that we enjoy and that we’re constantly struggling to maintain and improve.

When it comes to some of the issues related to technology, I might let Andrea or Scott speak to that. They would have much greater expertise than I do.

You did mention the foreign funding. We don’t have it in a formal note, but we’ve actually started looking at, for registered charities, at least, based on their T3010 returns — because they have to report funds that come from overseas, as well as, more recently, funds from overseas that are intended to be used for political activity. On the political activity side, I don’t have the exact number in my head, but it’s less than $1 million a year that registered charities are getting from overseas for political activity.

In terms of funding from overseas generally — again, I could look this up — but it’s in the scale of tens of billions of dollars that are coming from overseas. That’s everything from tuition paid by foreign students, research grants and funding agreements between hospitals and health authorities for reimbursement. It’s donations from alumni. It’s international development agencies. There’s quite a mix of organizations, and I’ll stop there.

Ms. McManus: On the question of enforcement, I would concur with Bill’s comments about CRA being a very effective regulator. For the past 10 years, up until recently, I sat on the Technical Issues Working Group with CRA, and they have a real sense of responsibility for the health of the sector. They are constrained by the outdated laws that we have, but I think they’re a very effective regulator.

Regarding social media, if you look at something like the Humboldt Broncos bus crash of last spring that raised $15 million in a short period of time on GoFundMe, that’s not technically charitable dollars, but that is people giving. Taking that kind of action leads to more action, as Scott was saying in his comments.

So I don’t think it’s about putting regulation around that kind of giving. Where I think the federal and provincial governments have a huge, untapped role to play is helping to shift the mindset about the value of the non-profit sector, recognizing that, as Bill said, everything from large universities to small mom-and-pop grassroots charities contribute to the social fabric of what makes Canada such a special place. That’s where we need help. We need help from government in saying this is a really important part of our society. This is really something that deserves your support and it deserves our support, and we want it to be stronger, better and healthier. That’s a huge opportunity.

The Chair: Have we examined at all how we convert the enthusiasm around crowdfunding into annual participation of those same donors? I suspect many of those people are donating for the first time, particularly to whatever that cause may be, but they may be first-time donors to charities in general.

Is someone examining how we make that conversion of moving them from that perhaps knee-jerk response to give money to a cause that’s a hot topic today and turn them into an annual donor and perhaps a long-term donor?

Mr. Decksheimer: I think some organizations are doing it better than others. That’s one of the issues, that technology is giving charities and non-profits an opportunity to reach markets and people they’ve never reached before. The biggest beneficiaries of those dollars are the smallest non-profit organizations who are able to expand their giving and reach out.

But one of the things we know is with 86,000 charities or so in the country, many of those organizations are relatively small and lack basic infrastructure. So again, the large organizations are connecting better to some of those contributors than others and using that as a great way to grow. But we’re hopeful that small organizations will take advantage of this new world and be able to better connect with donors over the long term.

The one thing I did want to talk about related to enforcement is to add that in my experience, board members in organizations take their responsibility for being the stewards of that organization very seriously. They examine the larger contributions. They want to understand where the money is coming from and to recognize the impact that it can have.

That’s one of the internal mechanisms that we often forget — our volunteers, who are often overly cautious around how they accept their money and how they receive support just to make sure they keep protection for the organizations and steward those gifts well.

When you overlay a CRA regulation and a very strong volunteer board responsibility, I think organizations are well governed in a lot of cases.

The Chair: Ms. McManus, you said that CRA is listening, but are they changing? Many people who have operated in the system have sometimes been quietly critical of CRA and some others not so quiet. You’ve been a member of that working group for a number of years. Have you seen a change?

Ms. McManus: Yes, I have. I’ll give you an example. When the first draft of the charitable fundraising guidance was put before the Technical Issues Working Group, which was the first group to see it, it was quite appalling in tone. It was very negative. It was very clear from the way that it was written that this was all about government coming in and stopping these bad charities from doing terrible things.

I’m not exaggerating. It was really quite strongly negatively written.

They listened. They had to listen; they were locked in a room with us. Not just us, the Technical Issues Working Group, but then they took it out to the broader community. The document had, in the end, I wouldn’t go so far as to say a partnership tone, but it was much more positive and supportive.

I found, in the 10 years that I sat at that table, that the people at CRA had to enforce according to law, but they made a shift from sanctions first to education first and then sanctions. That was a much-needed shift.

As Bill said, they are constrained. The definition of “charity” goes back to 1604 or something like that, Elizabethan law, and it’s in the Income Tax Act. That’s one of the issues, that nobody wants to open up the Income Tax Act.

Senator Martin: Mr. Chair, you had several questions to follow, but I want to be clear that I am very impressed with the work of our charities across Canada. I’ve been involved in various ones myself, and I still am. But what I have also been hearing is that there’s the non-profit sector, and there is a concern regarding greater transparency in the tracking of money from foreign sources for the non-profit sectors.

I hear what you’re saying, that we do need to modernize and address the emerging issues so that the charities can continue to grow and do their good work. So I was focusing on enforcement and oversight of the non-profit sector, where we don’t seem to have as much information. Some concerns have been raised in the media and by different witnesses and so on.

Mr. Schaper: I’ll pick up on that point and put in a plug. In our written brief, we talk about the lack of data about the sector as a whole.

For charities, we have some good sources of data, some that aren’t so good, but on the non-profit side of things, we don’t even know how many there are. There’s no list anywhere. Some are incorporated federally, some are incorporated provincially, and the last time that the federal government made any attempt to put together and gather that information was 2003.

For us, talking about the sector broadly but then also looking at the issue of how you would get at those issues, I think the building block there is actually knowing how many there are, who they are and where they are.

We’ve been hammering on this for years. It’s been in our pre-budget briefs. It’s in our written brief that we put in for today. We’ve been meeting with Statistics Canada on this, but this whole notion of comprehensive data about the sector, we just do not have it. I think that would be really helpful in getting at some of those issues that you raised.

The Chair: I also draw the attention of our colleagues to the written report from Imagine Canada. It does include six recommendations, and you should review those as well.

Senator Duffy: Thank you for coming. It’s a very important subject.

It seems to me that when we look at this, we have two broad issues. One is the mechanics, the legal framework in which these various organizations, both not-for-profits and charities, operate. On the other side is what Mr. Schaper spoke about a few minutes ago, the declining number of donors and the cash crunch that’s going to present for charities that are operating day after day serving Canadians.

Mr. Schaper, could you repeat for me again the social deficit data? I think it’s important for our audience at home who are watching this to understand the critical point at which we are right now. Could you run over that? I’d then like to talk to you a little bit about some ideas about overcoming that.

Mr. Schaper: We’ve done various economic models looking forward a decade, and really, if current trends continue in terms of overall economic growth, revenues for the sector, and increasing demand on the sector, we’re looking at a $25 billion gap within the next decade.

The thing is that’s not like a government deficit. It won’t show up on a balance sheet anywhere. There will be delays in getting services, or people will be unable to get services, or services will just be dropped by organizations because they don’t have the resources to offer them anymore, and volunteers will be strapped with more and more demands on the volunteers and on the staff.

Senator Duffy: What we also see, at the same time, is the age wave; that is, more and more of us are getting older. I know it’s hard to believe, but we are getting older every day, and the baby boomers will need more and more services in their senior years. So we have decreasing amounts of money being given and increasing demand in our senior population for services and assistance.

So the crunch, at the end of 10 years, you figure will be $25 billion. That means that in every community in Canada, those small charities that are providing important work now are going to find themselves that much more strapped because of huge demand and not enough cash.

Mr. Schaper: That’s what the trends are telling us, yes.

Senator Duffy: How do we get people to give? The studies we’ve seen here in the last while suggest that senior citizens, people — as you’ve reported today — over 70, are the primary givers. That’s a stream that comes from another generation. How do we reach the new generation to convince them that it’s not enough just in that feel-good moment, when we see this tragedy in Saskatchewan, that we reach for our smartphone and make a donation because we’re moved by the emotion of the moment and the pictures we see on TV?

How do we get that to become something that everyone has in their mind and does every month on an automatic basis? Of course, now with all the technology, it can come out of your bank account. We don’t even have to write a cheque. How do we get that message out to the public? Would part of the answer be a minister whose sole responsibility is to go across the country, go to every service group and to every community group and encourage, remind and pulse that new generation? Is that at least part of the answer?

Mr. Decksheimer: Thank you for that question. Our belief is that there is a piece there. Donors give when they trust organizations and when people in authority are well recognized to speak and ask people to contribute and be part of the message.

What you’re talking about is building trust in our sector and building trust in the work of the sector. Any time that trust can be expanded by a member of government or a member of the community, that helps us at the end of the day because that sets the tone for our community and maybe for our expectations on us as Canadians as we step forward.

We’re a very generous country. There is no doubt about that. But I know volunteers across this country who sit on boards would love to see the backing of others for their work, and that recognition. We need to recognize there are groups of volunteers across this country — 80,000 some charities — that have boards of directors that are trying every day to fill that deficit.

I think we recognize that a 10-year deficit is $25 billion. There’s huge demand for services that is not being met, and charities are managing their cashflow on a day-to-day basis, and boards are managing that cashflow to ensure that they can maximize the efficiency.

Another message that I believe is often not told is the depth of efficiency in this sector to deliver programs that can’t be delivered by the for-profit sector or that governments aren’t able to deliver because, of course, there’s cash crunch there, too. This sector steps in to work and be as efficient as possible.

Senator Duffy: Are they are running on empty all the time? There’s never a flush day for charities because there’s always more demand.

Ms. McManus: Many of them are running on empty, and they are expected to run on empty. That’s not fair, and it’s not the way to fill that services gap and to make sure that social deficit doesn’t happen.

Senator Duffy: Is there a resistance in government — not just this government but broadly speaking — to the charitable and not-for-profit sector? Is there a sense that this is stuff that the government should be doing and these people are encroaching on our turf?

Mr. Decksheimer: I can speak on behalf of people that I talk to. In Canada, people often assume the government is doing a lot of this work that we’re doing as charities. What charities are trying to do is to show their value to people in the community every day.

Our biggest challenge, I think, remains a perception that we should be paupers in some way in our organizations. There are several ironies in our business where people say we should be more businesslike, but as soon as we are more businesslike, they tell us we should be more charitable. We’re often flipping back and forth.

The way we look at this is that we need to be businesslike in our practices but charitable in our work. I don’t think we can ever forget the way we approach our activity. I’m not certain I answered your question, senator.

Senator Duffy: You did. Thank you.

The Chair: That comment is interesting, Mr. Decksheimer. It’s very important, along with what Ms. McManus said, that people want charities to be well run and well funded, but when they become well funded, there is a question. I recall that many years ago, when I worked for the YMCA of Greater Toronto, one of the fundamental changes that happened in the 1950s, and well into the 1960s, was the fact that members and users of the YMCA said, “We don’t like the old buildings; they are rundown.” Then the YMCA had a very aggressive campaign to raise funds. I participated in that to a large extent, and then people said, “These buildings are new and they’re fancy.” But if you surveyed the members and the users of the facility and asked what was important to them, they said a modern, clean, safe environment in which to participate in the YMCA. There are a whole bunch of contradictions that come in here that you have to overcome.

I want to ask Ms. McManus and Mr. Decksheimer this: One of the responsibilities of AFP is to help train the people who actually help raise the money for charities. Are there any barriers in the way that government has provided that do not allow AFP or any other organization like AFP to continue with the good-quality training that you provide to your membership?

Ms. McManus: I don’t think there are any barriers that government puts up. The biggest barrier to ongoing professional development is the public perception of the great overhead myth. I want to give you some money, but I don’t want you to spend any of it on administration.

So we want you to do your job well and be professional, and we want you to use our money well, but we don’t want you to spend any money on training your people. Again, it’s that contradiction and the tension between being businesslike and the perception of what charities should look like. But I don’t think there are government barriers, no.

The Chair: The requirements report administration as a separate item. Is that a barrier? When people look at charity reports and say, “Oh, well that charity, the administration is at this percentage.” In reality, that percentage may be exactly what is required to keep the thing flowing in an orderly fashion and complying with the rules.

Mr. Decksheimer: I think what you are talking about is the perception of a blanket efficiency rating that we seem to have that this charity, A, is bad if they are at one level of admin and this charity, B, is good.

In the business sector, if we were to compare a major oil and gas company with your local convenience store and say that they operate under the same metrics, we would say that’s crazy. But in our world, we will take an environmental trust organization that’s buying assets and buying land thanks to donations, and we will compare that with a local church or with a community that is building a playground; we will put the exact same metrics and overlay them over one or the other, and that’s very difficult for people to understand.

Senator Omidvar: Thank you for that line of questioning. I’m going to stay with the big guys and the little guys. We should clarify that even though we’ve talked about charities running on empty — I think the word “pauper” was used — I wouldn’t quite apply that language to universities, hospitals and museums, which soak up a lot of the charitable donations.

Notwithstanding, this is an interesting line of questioning — that maybe we should look at different strokes for different folks. Would you recommend that the Government of Canada look at regulating charities and not-for-profits of a certain size differently than those of a different size? I know you talked about 80,000-plus charities, but hospitals, museums, universities, from all the evidence, get the bulk of the donations, whereas the little guys benefit from crowdfunding, so there could be different levers that could be deployed.

Should this committee be looking at size as a function of regulation and reform?

Mr. Schaper: In terms of overall definitions of creating a separate category or anything like that, that’s not something that we’ve really got a position on or that we’ve spent any time thinking about.

When you look at the issue of different treatments for different sizes of organization, regardless of the activity they do, there is to some extent some of that built in, so organizations that are of a smaller size don’t have to file the same level of financial detail with CRA that larger organizations do. For things like the political activity rules, whatever their future is, there are different thresholds for different sizes of organization.

Again, these are all very technical things; I recognize that. We look at the administration of grants and contributions, where reporting requirements are often the same regardless of the size of the organization or the amount of government money at risk. The blue-ribbon panel reported on this 12 years ago and basically said you have to do something about this. It doesn’t make sense.

In those sorts of areas we’re very comfortable saying, “Yes, look at the different needs of the different types of organizations in terms of going to a place of carve these out or something like that.” That’s not something that we’d be able to speak to right now.

Senator Omidvar: I have a follow up on a question to the Association of Fundraising Professionals. Both of you made a recommendation in your briefs around incenting greater charitable giving through approving the donation of real estate and privately held securities.

All of the data from the sector tells us that it is older people who are giving — wealthier people who are giving — and most of their donations are then targeted to the big guys, namely, the universities, hospitals and foundations.

How do we make sure that if such reform is conceived, the benefits of increased philanthropy are experienced throughout the sector and not just by the elites, so to say? I will be frank. This is my concern around this recommendation.

Mr. Decksheimer: A lot of gifts that go to community foundations are spread to smaller organizations throughout this country. I can speak first-hand to the benefit of a community foundation in Calgary, where a generous individual made a gift of over $100 million. That, on an annual basis, is spinning off $5 million for charities of all sizes across the community, not just the large organizations.

So yes, I agree that hospitals and universities will receive a significant share of any major tax incentive because tax incentive does increase the size of contribution, but I would suggest that there is a spinoff benefit to smaller organizations. I know of many small organizations that have received gifts of capital, and public company shares as well. It will never be the size that we’re looking at for large organizations, which also have complex gift planning and some very strong benevolent funders who have been giving to them for many years.

Ms. McManus: I think that’s a fascinating question. I worked for the past seven years on a campaign in Calgary called RESOLVE, which was $120 million capital campaign for affordable housing. Nine organizations of vastly different sizes came together to raise this money, but none of them were a big institutional type of organization. Notwithstanding the fact that we had a flood in Calgary and then we had a market crash, that campaign wound up. It probably won’t reach $120 million, but it will be pretty darn close. If we had been able to accept gifts of real estate and tax receipt them, it would have made a huge difference, but not just in Calgary. The affordable housing issue is an issue across the country, and it’s an issue that is populated by many small organizations.

I agree with Scott that it’s always going to be the way it is. You’re quite correct that 1 per cent of the charities in Canada are those large organizations. They get 60 per cent of the charitable giving. But it is things like real estate, I believe, that would help to level that playing field.

Senator Martin: I’ll just follow up on a question. I think this is very important.

Mr. Decksheimer, you mentioned how there’s a spinoff benefit to smaller organizations. It’s wonderful to know that that is happening. With ethnic organizations that may not necessarily be as versed and are part of the network, do you do outreach, or do some of these organizations do a good outreach to reach those smaller groups? I’m thinking about many of these organizations who don’t know necessarily how the process is working, and they may not even apply or benefit from these larger donations.

I am curious about the kind of outreach and how far your reach would go.

Mr. Decksheimer: Thank you for that question. Newcomers to Canada bring their own philanthropies with them to our country, but they also take steps to be part of our country. I’m very proud of our association’s work. We’ve been working and looking at what we called our diversity and inclusion project in Ontario, where we worked with, I believe, 60 individuals to provide mentorship and do work across different communities throughout different diverse groups — not just people from other countries but also in other groups that would be considered a minority in our community.

I believe we’ve got about 20 fellows across this country that do outreach and growth so that we can reach out to even more communities as well. You’re going to hear next from Mr. Krishan Mehta, who was part of that work and is looking at how we can expand giving. It’s our belief that many of these newcomers to our country are very generous people, but they’ve grown up giving money in a different way, connecting to their communities differently and sharing their philanthropy in new ways.

As a profession, we are trying to find ways to work with these communities in a way that will help us learn as well how these communities give so that we can be more effective at our work across the country, but also in furthering the connection that we have across all these different groups in the country.

We have people in about five provinces right now that are expanding our groups in the cultural sector.

Senator Martin: Thank you.

The Chair: On behalf of the committee, I’d like to thank our witnesses for being here. It’s been very informative.

I would also encourage you, as we continue to conduct our study, if you are monitoring our proceedings and you see something that you’d like to add a comment to, a written proposal can be submitted to the clerk. He will ensure that it is circulated to the committee members, and we can consider that as we go forward.

It’s important that we talk to you, but it’s also important that you know that you can talk to us as well. Thank you very much.

Honourable colleagues, we will now hear from our next witnesses: Mr. Krishan Mehta, Assistant Vice President, Engagement, Ryerson University; and from GIV3, Mr. John Hallward, Chief Executive Officer.

Thank you for accepting our invitation to appear, gentlemen.

I will now invite the witnesses to make their presentations. I know you were in the audience for the previous panel. You will see what happens. We will go to questions at the end of your presentations, and I’ll ask everyone to be concise in their questions and in their answers.

Mr. Hallward, I understand you will go first.

John Hallward, Chief Executive Officer, GIV3: Good morning, Mr. Chairman and fellow senators. Thank you for this opportunity to present the findings of our research and insights.

I’m John Hallward, founder and chairman of the GIV3 Foundation, a registered charity with the unique mission of trying to help encourage more Canadians to be more giving.

I can add that I’m a professional market researcher in my private life. I love facts, I do studies, and I’m curious about the facts in the philanthropic sector.

In particular, GIV3 creates and hosts innovative programs to engage and encourage Canadians to give more. We co-host the impactful GivingTuesday initiative, which you may have heard about, in partnership with over 6,000 charities in Canada. As well, we co-host the Great Canadian Giving Challenge with CanadaHelps, which raised over $11 million this past June for charities.

GIV3 is also keen to contribute to the discussions on government policies to best address and reverse the weakening trends we’ve all heard about in giving behaviour across Canada. We refer to this as the billion-dollar opportunity. We’ve heard about billion-dollar amounts already. If we compare back to 40 years ago, just with private donors in the giving sector, today we’re receiving $2 billion less annually from private donors. It’s not measured because it’s what we’re not giving. That’s how much we’ve declined in our giving behaviours annually to the non-profit sector.

Based on our research, we believe the solution to reverse these trends does not require increases in tax credits or tax incentives or other forms of lost tax revenue to the CRA. Instead, we believe the solution requires a focus on boosting giving values, defining giving norms and supporting the importance of giving in our communities. It so happens this is a much more affordable approach to the public purse. We are talking about a new, multi-pronged social initiative that educates, inspires, leads and celebrates greater giving and volunteering, something we envision would cost less than $20 million to the government annually.

So why do we feel this way? You may be aware that there is a weak relationship between provincial charity tax credits and giving levels in the respective provinces. For example, among the provinces, Quebec offers the highest charity tax credits in Canada, and yet it provides the weakest giving behaviour. Nunavut, on the other hand, offers the lowest charity tax credits in Canada and gives at the highest levels per capita of all Canadians.

Furthermore, we also observe different giving behaviours by various religious and cultural groups within each tax province within the tax regulations. The giving behaviour then differs despite having the same tax system. It implies that it is not the tax incentives that explain the difference in behaviours. Rather, we believe it is the values, upbringing, social characteristics and social norms in each of those cultural groups that explain the difference.

In fact, there’s actually no correlation between tax credits and giving levels across Canada. In a study we recently conducted in the United States with an American partner, we learned that giving levels hinge on donor values, the priorities people put on giving and their personal motivations toward philanthropy. We believe the same pattern likely applies in Canada. As we’ve heard, there’s a lack of data in Canada to confirm that, and we’d love to see that change.

These insights consistently imply that the solution to our declining giving behaviour is not tax based but values based, in correlation with the decline in religiosity and the values that almost every religion teaches. We believe Canada requires a solution that addresses these problems, including the decline in our giving values, and that reminds Canadians of the importance of supporting our fellow Canadians in need.

The Great Canadian Giving Challenge and GivingTuesday offer the licence to believe that the right kind of social innovations can truly work. Both of these programs have provided measured increases in donations. GivingTuesday, for example, has generated an over 460 per cent lift in donations versus the same Tuesday in 2012, before the GivingTuesday came to Canada. A comprehensive data review in the U.S. indicates that GivingTuesday raised over $300 million online last year. The Great Canadian Giving Challenge has generated a 150 per cent increase in the month of June 2017 versus the same month in 2014 before we started that initiative, as measured on the CanadaHelps giving platform.

In order to act on the billion-dollar opportunity, we envision a new initiative to encourage a greater culture of giving and generosity. We envision something akin to the idea of ParticipACTION. For those not familiar with ParticipACTION, it is a government-funded public program, because health is a public good, to help encourage greater activity and exercise. We envision a program similar to that but for giving in the non-profit sector in the belief that a rising tide floats all ships. To ensure maximum efficiency with minimal duplication, we envision one overall integrated, coordinated and focused approach, leveraging collaboration across the sector. That, perhaps, could be assigned to the ministry of national revenue. It has responsibility for the CRA and the Charities Directorate; it’s not a large ministry, relative to Finance, for example, and we think it has the capacity to take on that kind of a role.

The budget we have in mind — I believe ParticipACTION gets about $5 million to $6 million a year of public money, so we envision something similar. That’s about the size of what we envision the solution to be, perhaps $10 million to $20 million maximum. The initiative would comprise a multi-pronged approach with multiple targets, young and old — perhaps a specific French Quebec program, given the very low giving rates in Quebec. It would consistently teach and remind people about the benefits of charity as part of our civil responsibilities; address any negative perceptions of charities, and our research shows there are few negative perceptions of charities, although people generally trust charities in Canada; help reduce barriers to giving, although the U.S. data shows there don’t seem to be a lot of barriers to giving, as text and mobile giving have made it easy to give; facilitate the ease of giving and volunteering; and explore the benefits of defining social norms. I think that is a big issue.

In closing, it would be unfortunate to have to look back 20 years from now and answer why no one did anything. We continue to see this declining trend. One of the things we learned in our research is that people who are brought up to give, give more. People who understand the social norm for giving, give more. If we let another generation go by, and there are fewer and fewer mentors and leaders showing the positive behaviour of giving, we will get into a death spiral. I don’t want to look back 20 years from now and ask, why didn’t we do anything while we still had the infrastructure and the mentors in place to act? I hope you agree with that perspective, and I thank you for your attention.

The Chair: Mr. Hallward, thank you very much. Our next witness is Mr. Krishan Mehta, who is Assistant Vice President of Engagement at Ryerson University in Toronto.

Krishan Mehta, Assistant Vice President, Engagement, Ryerson University, as an individual: Good morning. Thank you for the invitation to speak with you today. I work to support charitable giving at Ryerson University, as mentioned earlier.

I also serve as the immediate past president of the AFP Greater Toronto chapter, which serves about 1,300 fundraising professionals, which makes it the largest AFP chapter in the world.

However, I’m here today in my capacity as a researcher and writer on philanthropy and giving. Recently, I completed my PhD at the University of Toronto, where I conducted a study that focused on the charitable interests of high-net-worth immigrants in Canada. This research project was informed by my work in post-secondary fundraising spanning almost 20 years, my experiences growing up in an immigrant household and, of course, my volunteer work in the sector.

I would like to begin my remarks with some important data points, which I hope and believe will help with our understanding of the generosity of newcomers.

First, according to Statistics Canada, while immigrants are just as likely to give as Canadian-born individuals, they actually contribute more money on average. The median amount given by immigrant donors is $155 versus $111 for those born here. While these amounts may seem immaterial at first glance, when it comes to middle- and upper-income households, the gap in charitable giving becomes considerably wider. For example, immigrants with an annual household income of $100,000 or more gave about $250 more, on average, than Canadian-born donors of the same income.

Second, just a few years ago, a major Canadian bank reported that half of Canada’s wealthy were either first- or second-generation immigrants. Following this, a few months ago, the federal government announced a plan to welcome more than one million new immigrants to Canada between 2018 and 2020. In fact, Canada now ranks fifth in the world when we count the number of ultra-high-net-worth citizens, and many of them weren’t born here.

Third, as of 2017, Toronto, Canada’s financial epicentre and leading touchdown city for migrants, is majority non-White. Other major cities in Canada are trending in this direction as well, which has led to the casting of a new light on the potential and transformative impact of immigrants and people of colour on charities and non-profits.

While I have a lot more to say on this topic, I would like to share just three topline issues and themes with you today, things that I’ve been thinking about over the course of the last decade.

First, charitable giving doesn’t begin in Canada. Immigrants come with varying experiences about charities and giving, and those experiences colour how they participate and support the important work of our sector. As a result, governments and NGO leaders here need to be aware of the historical context that influences these perceptions. It is, therefore, our collective responsibility to turn those perceptions around, to demonstrate how important it is to support one another through giving, and the impact it can have on building Canada. This is why I am so delighted that this Senate committee has come together — to carve out new pathways, to imagine and dream ways in which the government can collaborate better with charities, the private sector and all Canadians to advance the important work we do.

Second, high-net-worth diaspora donors are making local NGOs much more global. Immigrant philanthropists play a vital role in advancing international partnerships. They’re supporting an original motherland, a “back home,” by making multi-million-dollar commitments for programs that have an impact both here and there. This phenomenon is readily observed in Canadian hospital and university fundraising shops, where several immigrant philanthropists have recently made significant gifts to transform international student exchange programs and scholarships and to advance health research and clinical trials, and other long-term projects that propel and cement cross-border collaboration.

However, this is not just a phenomenon observed with the richest in our communities. Indeed, when it comes to natural disasters, war, famine and other crises, immigrants across the world, and particularly in Canada, band together to support their communities, without hesitation and without limit.

Immigrants, finally, are integral to the story of Canada. We all recognize that Canada has looked to immigration to satisfy its economic and global trade aspirations from the first moment Europeans set foot on these Indigenous lands. Successive waves of mass migration over the last 170 years have made Canada one of the most diverse countries in the world, as we all know. For immigrant philanthropists, this provides new opportunities to sit at the head table of various institutions — tables where they may have been excluded or that were reserved for majority populations. In essence, diaspora philanthropy — immigrant philanthropy — supports the reframing of the immigrant from beneficiary to benefactor, and supports a broader narrative about Canada as a land of great, incredible opportunity.

To close, I clearly don’t need to tell this group about all of the ways migration has changed the course of Canadian history. What goes untold, however, is the story of generosity by successive waves of immigrants. Giving, I propose, cuts across the racial and cultural divide. It brings communities together. It drives innovation and supports social change. Through this important work that you are all leading, I hope we will build on these foundations to create a non-profit sector that is inclusive of our generous communities, both new and well established.

The Chair: Thank you, gentlemen, for your presentations. Dr. Mehta, first of all, congratulations on obtaining your PhD.

I have an editorial comment as opposed to a question. For the first time in my life as an Atlantic Canadian, immigration is a top-of-mind issue with Atlantic Canadians in a positive way. Atlantic Canadians understand that we need more people in Atlantic Canada, and that with our low birth rate, there’s only one way to do it, and that’s to generate immigration. If the new immigrants are similar to the recent immigrants that we have in Atlantic Canada, we’re in for a great time because they have been very generous and have become leaders in our community. We’re so much better off because they’ve decided to stay in Atlantic Canada, and we hope more and more do so.

Senator Omidvar: Thank you, chair, for those comments, and thank you to both of you for being here. Congratulations, Krishan, on your new title.

I have two separate questions for each of you, and we can take it to the second round, if necessary. Mr. Hallward, you said that GivingTuesday raises roughly, if I remember the number, $11 million, and you disburse it to 6,000 charities or so. Is that right? Do I remember that correctly?

Mr. Hallward: Lots of facts and numbers. GivingTuesday is an open movement, so the money doesn’t come to us. We just ask charities to participate. For those familiar, after Black Friday, with all the promotions and deals, comes Cyber Monday, because the e-commerce people were upset that everyone was going to Walmart to buy stuff from the brick-and-mortar locations. Cyber Monday is the single biggest commercial day in the world.

GivingTuesday was created after those two days as a day of giving back. It’s an open movement to give back. The charities participate on their own. We ask Canadians to give to the charities, not to us, so the money doesn’t come to us.

Senator Omidvar: Thank you. I’m remembering this. GivingTuesday is a very smart marketing strategy, definitely.

Can you tell us who the 6,000 charities are that subscribe to the platform? Are they big or small? Are they spread across the country? Are they primarily education? Do you have any information on that?

Mr. Hallward: They’re everything. We hear about this number of 85,000 or 86,000 charities, and I’m not sure how many of them are active charities. I’ve heard numbers of 12,000 and 15,000, so it’s a guess. If you can think that 6,000 might be half of all those active charities, almost by averages, they represent everything. It’s totally national across all the provinces. All the communities participate, particularly the small ones, because they see this as a way of communicating and participating in a movement to encourage giving back.

So it’s totally open and everybody of all types participates.

Senator Omidvar: You made an interesting observation about the diversity and variation of provincial tax credits. Would you think that the federal government has a role in working with provincial counterparts to understand the diversity and variance, and to possibly work together, federally and provincially? Our understanding is that there is no federal-provincial table on charities and non-profits — not one that meets regularly.

Mr. Hallward: I must admit I’m certainly not as knowledgeable about the laws and the policies. I’m led to believe that many of the charity incentives and tax credits are a provincial thing. But there’s a lack of any coordination, and therefore the CRA has almost become by default the administrator — people use the word “enforcer” — but the leader of the charity sector and directorate is a CRA federal thing, only because the provinces have allowed that to happen.

It’s a curious thing, but I believe the charity laws and credits are more a provincial jurisdiction than a federal one.

In terms of whether there should be coordination, collaboration is a tricky thing in almost any application. Collaboration is not always an obvious outcome. Individual parties have their own interests and agendas. Anybody who can step up, coordinate and bring together disparate groups with disparate agendas, interests and different boards, and can coordinate it under one roof, in my books, that’s probably a good thing. So I would love to see a centralized, organized kind of leadership that could coordinate, and then do away with duplication and inefficiency.

Senator Omidvar: This question is for Dr. Mehta. Thank you for highlighting so much of the narrative of Canada through immigration. My question is around the governance. You noted that the governance tables of big philanthropic institutions have become increasingly diversified. Is that something you’ve observed, or is there data behind it?

Mr. Mehta: There isn’t any data on this. It speaks to an earlier point about the need to understand the sector from a more quantitative perspective. That said, I have observed over the last decade, in particular, a tremendous focus on diversity and inclusion at governance tables. In fact, a lot of the work that’s happening, particularly in large publicly oriented non-profits, really centres around diversity of voices and perspectives. Often, that includes perspectives outside of the dominant culture.

From my own experience as a volunteer at AFP and other places, this has become a great thrust of the work that’s happening at the strategy table. Do we have all of the voices that represent the communities that we’re embedded in and serving, and are we also using those voices to think creatively and innovatively in problem solving around philanthropy?

I’m really excited about that future. We do need a place and a space to develop further rigour and understanding about that potential.

Senator Martin: Thank you both for your very positive and inspiring presentations about this great potential and the narrative of Canada, of which we are a part.

My first question is regarding this national initiative, similar to ParticipACTION. I’m a former educator, and I know that schools are where we can best educate and enlighten the next generation of donors, and we do have some really good programs in place.

I am curious to hear a bit more about the multi-pronged, coordinated initiative that you mentioned in your presentation. You talked about GivingTuesday and the Great Canadian Giving Challenge, but could you elaborate concisely?

Mr. Hallward: I don’t believe there is one problem or one issue that explains why things are declining. I think it’s sociological changes. The decline of religiosity is one, because religious people give a lot more than non-religious people. So as religiosity goes down, in correlation, so does giving behaviour.

Because there’s no one problem, we think there’s no one solution. We think there’s going to be a multi-pronged set of solutions, which then speaks to the idea of collaboration and coordination where the multiple prongs are all brought together. I think it is a bit like ParticipACTION or recycling; you need to have the kids, the municipalities with their blue boxes, you need to have peer pressure on the street as to why you don’t have a blue box on your street. Many of these different things come together, plus 30 years later, it changes. It is the same with seatbelts, the same with many of these things. They are all multi-pronged initiatives that get us to a better place.

Senator Martin: I was thinking about how it’s multi-jurisdictional, and education is managed provincially. I was trying to imagine how this would come together.

As you say, it’s multifaceted, and it would require a lot of partners to come together. Do you have something in writing that you have worked on regarding a national campaign or initiative and that, if you were in charge, if you were given this opportunity, we could implement?

Mr. Hallward: I’d be more than happy to share. We try to do a lot of research and describe what we think this looks like. We have itemized 12 to 15 different initiatives and described each one with a paragraph.

Senator Martin: Thank you.

Dr. Mehta, when you talk about the high-net-worth immigrants and the changing demographics across Canada — I live in Vancouver — I can think of hundreds of non-profit charitable organizations that are constantly active.

Earlier, we talked about AFP and the kind of outreach to some of these smaller organizations. Would you speak to the effectiveness of this outreach and whether or not smaller organizations, especially in the ethnic communities, are even aware of how they could gain more support and become part of the greater charitable sector network?

With the groups that I meet, I find that many of them aren’t even aware that they could work with other more established charities. They’re working self-sufficiently, but at the same time lacking some of the growth and missing out on these opportunities. I am curious about the outreach, the effectiveness and how that is being done.

Mr. Mehta: Thank you, Senator Martin. In fact, I’d like to answer that question in two ways. The first is about the kinds of training and education that AFP provides, and other organizations as well. I can speak about the work that’s at AFP, specifically around supporting emerging fundraising professionals from a diverse range of backgrounds.

Several years ago, we received funding from the Province of Ontario to set the stage for this need or to build a case by bringing together philanthropists, volunteers, non-profit leaders and fundraisers from across 12 different communities, to have a conversation about the nature of giving within these communities and also their connections outside of their own communities.

There were some tremendous learnings from those gatherings which, at the end of the day, brought almost 1,000 people together over the course of a year and a half.

One of the biggest lessons was the need for rigorous training and education support for those who don’t necessarily have access to it. To build on a point I was talking about earlier with regard to governance, there are incredible programs across the country that support this education and training. Specifically around fundraising, AFP is taking that lead. But in terms of governance and board development, there are some signature programs that we must give a hat tip to, including the work that’s happening now out of Ryerson University but also in other places with DiverseCity onBoard and the Canadian Board Diversity Council, which provide critical learnings and opportunities for people to engage in conversations about how fundraising philanthropy is done differently in different communities.

To my next point, which is in some ways about unlearning some of the traditions around fundraising that we’ve adopted because they are just the norm, the way we do things, my experience tells me that we must be open to learning about how other communities embrace philanthropy and work together collaboratively through very innovative means to support causes that matter to them.

As a side note, one of the greatest concerns I have is that we often develop a preoccupation around raising money for organizations. The way our structure is set up is actually organizationally oriented around filings for organizations, around surmising and understanding the impact of an organization. But we have a great opportunity to talk more broadly about the ways in which — in my case or the cases that I’ve studied — immigrants play a role in solving problems across institutions to the sector more broadly. I think that’s something, if I were to predict in the future, we would focus on. It is something that could have a really tangible impact, particularly as we think about collaboration with government and private sector.

Senator Duffy: Thank you both for coming.

Dr. Mehta, there’s certainly a story to be told about the tremendous impact new Canadians have made on this whole country, and all of it very positive. It seems to me that if we had some kind of ministry of volunteerism, charities — pick the name — we would have a place to focus government effort and to try and push down across the country all the many messages we’ve heard today, all of which are so positive, for the future of the country.

Mr. Hallward, I’m intrigued by your list of many things that we can do and the anecdotal evidence of what happened in Humboldt and other places. There is money, and there has to be a way, a pulse, a signal, some kind of trigger that causes people to give that money in a way that in the past didn’t seem to be required.

The learning piece is terribly important, given what we’ve heard about the gap that is looming, is here now and will only get worse as the boomers get older and need more services. It seems to me that the provinces who are particular deliverers of services should be thrilled to be your partners and adopt the idea of teaching about giving and charity and thy neighbour’s keeper, et cetera, in the school system. You’re so right about everything else. If you can get young people at a very early age to understand the concept, they will spread the word and encourage their own parents.

Are there textbooks? Are there learning materials that could be introduced into the schools? Have you made your pitch to the Council of Ministers of Education? As you alluded to, the provinces guard education — except when the federal government is giving money for training, and then they look the other way — but basically the provinces guard education very jealously. It seems to me that your ideas could be transformational, both of yours, especially if introduced at the younger level, especially if introduced through the school system. Can you comment on that?

Mr. Hallward: Yes, to all of that. I think having universities and the schools teach as one is part of it. Have we approached specifically each of the provincial jurisdictions on education? No, to be frank. We’ve kind of concentrated with our limited resources on our own initiatives and programs.

The list we have of 10 to 12 or 15 different initiatives is a wish list. For example, I would love to help invest in a curriculum for the university students and make it available to all community colleges and universities across the country. It’s just one initiative that offers a free course for graduating students. These are students who have never had a paycheque and they’re about to get their first paycheques; and the question I have for them is could you live on 98 per cent of your income? You’ve never had this money before, so clearly you should be able to live on 98 per cent it. Could you give 2 per cent away? But where is that message being given?

We just had the Terry Fox Run. I think that’s fantastic, but it primarily engages younger students with no money. But the university student in fourth year is about to get a paycheque and become a contributor to Canadian society in a meaningful way. That’s just an initiative, for example, that I think I’d love to see done. Whether you approach each jurisdiction or whether you approach Universities Canada — maybe the latter would be easier for us — these are all initiatives that need to be explored.

Mr. Mehta: Thank you for asking this very important and timely question. Right now in Canada we have one graduate program in philanthropy and that’s at Carleton University, just around the corner here. It’s interesting: I teach in that program as well, and one of the most surprising experiences I’ve had, in conversations with students and others within the post-secondary educational environment, is that we need more of this. We need more of this across the country.

I’m the academic coordinator in Ryerson’s fundraising management certificate program run out of the Chang School, and I have to say that we are seeing tremendous growth in enrollment for formal education and training in fundraising. I know that at AFP internationally there’s a collegiate chapter program as well that tries to embed some fundraising practice and knowledge at the undergraduate and graduate levels on campuses across the U.S., and that is something we might wish to pursue in Canada with our connections and networks within those environments.

Community colleges also run a number of programs. At Humber there is one as well, and at Seneca, some online, some in-class formats or blended formats. I have to say that a lot of this is adult-based learning. The work that John was speaking of earlier with regard to ParticipACTION and other forms of on-boarding to fundraising and philanthropic work is well regarded and also embedded in the work that we do with regard to volunteering hours for young people to get their high school diploma and that kind of work.

There is this culture of giving and sharing that starts early on, but more could be done.

Mr. Hallward: Just to add, I think there’s also another component of education here. As we’ve heard, 85 per cent of Canadians give, so I don’t think the problem is that Canadians don’t give. I think the problem is that we don’t give enough, and it’s declining on a per tax filer, per capita basis. It’s declining. The question is how do you define that? How do you teach that? The research we have, some Canadian, and a large part of the U.S. as well, shows that people who appreciate the social norm for giving, if they know what is expected of them, give more.

I think the reason the Jewish community, the Sikh community and some of the religious communities are so giving is that they clearly understand tithing, they understand 10 per cent, and they give more. Those who don’t know give less, so part of the education, to me, particularly to a classroom, is defining what is a social norm. And if we go another generation that says, “My parents didn’t give,” then that child is not going to give. So they know and learn what the social norm is: As a Canadian you help and you give back. It’s not $100, but it’s $500 or whatever the right number should be. That is an important part of the education we have in mind.

Senator Duffy: That was part of my thinking in terms of the Council of Ministers of Education. If you start it in grade school, we’re talking nickels and dimes. There are some kids and some families who simply can’t afford it, and we understand that, but if there could be a focus that says part of the way you live your life is that you give a percentage, which is what, as you say, religions teach, but those where it’s absent, this is part of what you do.

The same with recycling — it becomes part of the way you operate.

Mr. Hallward: I got asked this in the United States. What’s the market for that question? Who owns that responsibility to teach the social norm? Anyone giving to charity has their annual giving, and they’re trying to raise money for their specific cause; they write letters and do social networking and are trying to raise money for themselves. They don’t own the problem of a lack of a defined social norm.

So where is the market? Who owns the challenge of a declining social norm to do something about it? Our suggestion is that it’s a public good, and it needs a single, strong leadership, such as a ministry or a federal initiative, because a rising tide floats all ships. Otherwise, each little charity is one ship, and all they’re trying to do is do their job.

The Chair: I will relate a very quick story about the leader in a community I worked in one time when we were talking about fundraising and everybody said, “That community is very poor, so we won’t bother.” He came back with a very quick comment. He said, “Do not assume that my people cannot give.” And in the end, when we did conduct a campaign on a per capita basis, this community was extremely generous. But if you did an analysis of the income level, the employment level of the people in the community, you would have come to the same conclusion that somebody else said we’re not going to do very well there.

Just because people aren’t driving Cadillacs doesn’t mean that they can’t be generous. I think that’s a really important point to underscore.

Mr. Hallward: Maybe the Statistics Canada people can answer this question, but my quick look at the data shows that the lower-income people give a higher percentage of their disposable income than the high-wealth people. The wealthy give $1,000 and say, “That’s above average and I’m done.” That’s a lack of a social norm. They just don’t know they should be giving more than that.

Senator Omidvar: I have a few quick questions because everybody wants to get to second round.

I really appreciate your finding that philanthropy is not incented through taxes but through values. So I agree completely that we have to make it as much a part of our daily life as wearing seatbelts in the car.

In your previous comment that, in fact, lower-income Canadians give more of their disposable income on a proportional basis, do you think we should be looking at greater incentives for lower-income Canadians to give more to philanthropy or be more charitable, or should we instead be focusing on high-net-worth philanthropists and helping them give more, which is a proposal on the table as well?

Mr. Hallward: That’s a big question, and also to recognize that there’s an expected huge transfer of wealth coming down in the next 30 years from the baby boomers with a lot of wealth down to the millennials.

I think the millennials need to be taught because at this point data shows they are putting a lower priority on giving in their life than senior people. But right now a lot of money rests with a very small group, so in the business world I always tell clients to target where the money is.

As much as there is great attention on millennials, a lot more money exists in the groups older than the millennials. The answer, then, is that I think we need both.

Senator Omidvar: My question to Mr. Mehta will stick to diversity and governance.

You’ve observed how boardrooms are becoming more diverse, but there is no data or evidence. What I have seen from Ryerson University and the Diversity Institute tells me that in Canada’s biggest and most multicultural cities — Vancouver, Calgary, Toronto, Montreal — the cities are very diverse, but the government’s tables are not.

Do you think that having charities report the demographic profiles on the T3010 will get us the evidence in the same way that we measure diversity in the business sector? We could be asking charities and not-for-profits, “Tell us every year how many women are on your board and how many minorities are on your board, using the employment equity definitions.” Do you think that would advance the knowledge base so that you would know what’s working and where we need to work further?

Mr. Mehta: Absolutely. I actually believe that if we were to have a mechanism to track and map our growth in these areas, we would then be able to reflect on its value and its impact, not just on charitable dollars in, but also on general satisfaction about board participation for volunteers and impact on governance and operations of an organization.

That said, my great concern is around a cosmetic making of diversity and that we would, in some instances, be pressed to find people who fit within a certain category or another for the purposes of meeting those targets.

I think institutionally it is very important to start at the very outset providing those opportunities for training, providing those avenues for leadership, providing as well ways in which we can give and receive feedback on the ways in which we are able to participate at a leadership and governance level.

Senator Omidvar: I want to clarify, I never said anything about targets, specifically reporting. I just want to be clear. So nobody thinks I’m —

The Chair: Nobody wants to take the blame for that.

Senator Omidvar: Yes.

I’m concerned about money going from one group of people to one set of institutions, I’m also concerned whether immigrants are giving only to their own communities and diaspora communities? Are they actually reaching out to embrace Canada in full? In particular, is there any appetite to link immigrant philanthropy to Indigenous issues?

Mr. Mehta: Yes, yes and yes. In the research that I conducted, as part of that work I interviewed executive directors of settlement agencies that have a charitable mandate that are actively fundraising. I wanted to learn about their experiences of working with high-net-worth individuals from their own community, and there are tremendous barriers. There are hard questions around class alignment that make it very difficult for grassroots settlement and refugee agencies to break into their own communities and raise significant funding from philanthropic immigrants.

That said, my experience tells me that there are great opportunities as well for large organizations to collaborate with some of those smaller organizations to provide service, education and learning opportunities. I’m thinking about the work that’s happening at Ryerson specifically around educational program access for Hispanic students led by and for the Hispanic community locally. I think there’s some tremendous opportunity there.

But I also am really curious about the opportunity that lies ahead of us with regard to global philanthropy through our diasporas. As I mentioned in my opening remarks, I see great opportunity for us to be thinking about the ways in which Canadian charities can connect internationally to support large global issues. Diasporas really play an important unlocking role in that work because of their homeland connections and because of their familial connections back home. Thinking about remittance economies and international aid work that’s happening that is on the line of charitable giving on many fronts, we’re talking about a $62 billion transfer of funding that goes unaccounted for in many instances.

So what do we do about that? What role does the federal government play in understanding its impact on us?

The Chair: Thank you, Mr. Mehta.

Senator Martin: I think the work you’re doing is really invaluable. When we are talking about growing our base of Canadian donors, I really do believe that new immigrants, the diaspora communities, will be key to really diversifying and growing our base.

I was curious about some of the best practices that we see from certain charity groups — maybe of certain ethnic groups — and how we should be sharing this. Are there people like you in other parts of Canada, in universities, who perhaps are doing outreach and talking to these groups? It’s good that we’re having this conversation. I can think of a few very creative examples, including one in Calgary, the Calgary Korean Scholarship Foundation. One of the directors decided that he would encourage all his friends and will a certain percentage of his assets to the foundation, and it has caught on. There are a lot of things that charities and organizations are doing locally.

In sharing this, are these examples and best practices being discussed? How can we bring them to the table and share that wealth of knowledge with other groups as well?

Mr. Mehta: Quite a bit of work is being done to understand the transformative impact of immigrant philanthropy, both in Canada and beyond. There isn’t one place where all that information is collected currently. I’d like to have a little drawer in my home where I have a lot of this content, but that said, there is a growing need to both synthesize that information and also be able to deliver and share that information that is translatable, particularly academic information or research that’s translatable for a broader public use.

As a bit of a side note to this, my experience working with high-net-worth immigrant donors is that they are not only interested in supporting members and causes that speak specifically to the communities they come from. They are very much interested in and committed to building a broader community, social safety network, social welfare network and web. Regarding the point brought up earlier surrounding Indigenous communities, I’m seeing more and more immigrants and diaspora donors supporting some of the recommendations from the Truth and Reconciliation Commission of Canada as it relates to giving. We are seeing that through educational programs, scholarships and bursaries specifically, but there’s a lot more work to be done in this area.

With regard to your question about what else is happening across the country, a number of researchers are looking at workforce development and immigration around human rights and migration. Regarding Senator Duffy’s question earlier, there is an opportunity to perhaps look at the ways in which a coordinated effort at the federal level might be able to impact other jurisdictions at the provincial level. I’m thinking primarily about education, colleges and universities and special training institutes. I’m also thinking about other areas like Status of Women Canada offices across the country as well. This is really a complex orchestration of many different portfolios coming together for one great cause.

If we were able to understand the capacities of each of those areas, then I think we might be able to find areas to really see flourish in the short term.

The Chair: Mr. Hallward and Mr. Mehta, thank you very much for your presentations. We do appreciate you being here. We’ve learned a lot.

We now have the video conference set up. By video conference, from Scotia Wealth Management, we have Mr. Malcolm Burrows, Philanthropic Advisor. Thank you for accepting our invitation to appear, Mr. Burrows. I would invite the witness to make his presentation, but I would also like to remind everyone, as always, that we’ll have a question period at the end, and questions should be succinct. Hopefully, Mr. Burrows, you can keep your answers down so we can get in as many questions and answers as possible.

Mr. Burrows, take it away.

Malcolm Burrows, Philanthropic Advisor, Scotia Wealth Management: Thank you so much. I’m joining you from Edmonton today. It’s my great pleasure to be here.

By way of introduction, I’m a Toronto-based philanthropic advisor, and for the last 29 years I’ve worked at charities and Scotia Wealth Management. The views shared today are my own.

Today I’d like to focus my remarks on three topics: the state of the donation incentive regime, donations from taxable real estate and private securities and, finally, the evolution of charity in Canada.

Starting with the state of our system, changes to the Income Tax Act since 1996 have made Canada’s donation tax incentive regime arguably the most generous in the world. These incentives have focused on exceptional gifts from assets, including gifts by will and lifetime major gifts.

As other witnesses will undoubtedly tell you, these incentives have increased the value of gifts, but not the number of donors. Meanwhile, we have witnessed an increase in crowdfunding, which is benevolence generally, not charity, that provides no tax benefits to the donor. Generally, I believe Canada has placed too much emphasis on the donation tax credit to incent ordinary, everyday donations, and frankly they’re not needed to the same degree, anyway.

As philanthropic research has consistently demonstrated, donations are motivated by a complex mix of altruism, values, faith, community connections and personal involvement. As the failure of incentives such as the First-Time Donor’s Super Credit shows, juicing the donation tax credit does little to motivate donor behaviour. It does, however, cause the government to oversubsidize existing dollars flowing into the sector.

Canadians know they’re receiving tax savings for donating to charity, but they rarely know the value of the tax credit. Moreover, they are not influenced by tax savings alone. In my written submission I’ve provided additional information on our system and how it compares favourably to the U.S.

Finally, I want to emphasize that our system is mature. We’ve spent over 20 years working on it, changing it extensively and expanding it. I see few opportunities for further productive expansion. I think this committee is so important because it’s focusing elsewhere, away from incentives, although there are a few incentives to discuss.

The danger at this point is the loss or erosion of donation incentives, which we’re already beginning to see. Again, I mentioned a couple in my paper, and I’d be happy to come back to that.

There are two major classes of capital property that do not have special donation incentives in our system, and they’re taxable real estate and private company shares. We were close. A law was slated to be implemented in 2017 before cancellation due to the change in government. In 2009 and 2011, I wrote two papers advocating that capital gains be eliminated on the donation of these assets but only in certain circumstances. In-kind donations, I underscore, are problematic and raise valuation and, most importantly, management issues for charities.

In my C.D. Howe paper, I recommended that the incentive be tied to donating cash from the sale of these properties to one or more charities within 30 days of the transaction. The logic was to eliminate valuation issues and ensure all charities could benefit by removing charity management issues of complex property, that charities get cash and, as well, to incent donors. The mechanism also makes it easier to donate a portion of sales proceeds in a major sale. This idea was adopted in the legislative proposal.

This proposal is also one of regional equity. Outside big cities, wealth is created through private companies and real estate. Incenting donation of these asset classes will help ensure charities in smaller communities get their fair share of major donations.

The provisions tabled by the Department of Finance in 2015 have been criticized as complex and restrictive by some in the tax planning community. I think we need restrictions to balance interests and preserve public policy aims. The proposed rules will open the door for wealth creators to give back to the charities in their community at the time of a major asset sale. It’s not going to solve all problems, but it will incent a number of important donations.

Finally, although this hearing is focused today primarily on tax incentives and the health of the community, I’d be negligent if I did not urge this committee to champion the evolution of the definition of “charity.” As last Friday’s legislative proposals on political activities demonstrate, this is an area of current concern and evolution.

Canadian charity laws derive primarily from common law, starting with the Statute of Elizabeth in 1601. Canada has fallen behind other common-law jurisdictions in evolving charity law to meet the needs of contemporary society. In Canada, the biggest inhibitor is the appeals process.

I encourage the committee to recommend an amendment to the Income Tax Act to allow appeals for refusal to register or revocation cases to go to the Tax Court of Canada. Currently, these appeals go to the Federal Court of Appeal, which reviews the existing CRA file. Appeals to the FCA have meant little progress in the definition of charity law in almost 30 years. Charities don’t appeal. The CRA has, de facto, defined charity law through the administrative process.

Other decisions under the Income Tax Act go to the Tax Court. Registered charities and applicants, by contrast, have no practical legal recourse under the current system. The law of charity, which should be dynamic to serve the needs of the community, is being stunted. This change can be accomplished at little cost and would have a long-term, significant effect on allowing charity law in Canada, which is focused on public benefit to communities across the country, to evolve.

Thank you. I’d be delighted to entertain questions.

The Chair: Thank you, Mr. Burrows. I appreciate your being here.

I’ll ask a very quick one. In your C.D. Howe paper you recommend the incentive be tied to donating cash to one or more charities within 30 days of the sale of private shares or real estate.

Is the burden on the charities to sell the private shares or real estate within 30 days? If so, 30 days is a very short time period to sell an asset that hopefully has some significant value and could lead to the sale at a price lower than the market might bear.

Mr. Burrows: That is an excellent point of clarification. Thank you for that.

To be clear, the proposal is not the charities to touch the real estate or the private company shares at all but for the donor to sell them. So first the donor has to sell the private company shares or the real estate, and then the donor has 30 days to choose what amount of cash from the sale they want to donate to one or more charities.

So the key thing is the charities are not handling this property. They don’t have to value it. They don’t have to ascertain. There’s not a fire sale. There’s a legitimate sale in the marketplace and cash proceeds. There’s already an existing provision — I base this on something that’s already in the act that exists for employee stock options. There’s a provision that allows the exercise of employee stock options and the subsequent distribution of cash, and that has worked very well since the year 2000.

Senator Omidvar: Thank you very much for taking the time to submit your brief. I’m going to stick with Senator Mercer’s line of questioning. I find your idea around generating more philanthropy through the sale of real estate assets, not the donation of real estate assets, an interesting one.

How does this align with the current legislation and regulations around gifts of public securities and ecologically sensitive lands? Will we have different platforms for different donations? Would that not create confusion? I’m wondering about that.

Mr. Burrows: It’s an excellent question. With public security, it’s an in-kind donation rule now, and that has existed in various forms since 1997. For the most part, public securities are liquid, to be sold by charities quickly in the marketplace, so charities get value. That’s really the bottom line. Charities need value for their charitable purposes.

The second point around ecologically sensitive lands, which applies to properties as well, is that we want in Canada the lands themselves. We want them to go to an approved eco-trust.

Senator Omidvar: You’re breaking up.

Mr. Burrows: Is that any better? No. I can hear you well, but it’s something on the system somewhere between Edmonton and Ottawa.

The final point that I wanted to emphasize is that, yes, it is a different system, but I don’t believe that we could have an in-kind donation system for these two asset classes. Otherwise, only the big charities are going to win. Only the big charities are going to benefit. And most charities, even very large ones, have a real challenge dealing with private company shares. I know. I work in a financial institution that works with — and handling these donations is quite complex. And so to incent donors to give these shares in kind to the 86,000 charities I think would be a recipe for disaster, and frankly, unfair to the charities. It would be a tax — so this fixes the value so there’s certainty, and it also ensures that the charities get what they need, which is cash.

The Chair: If I could ask a supplementary question. It seems to me that in certain charities and certain circumstances, the gift of a piece of real estate is exactly what they want. For example, in a community that is building a new facility to provide services to the community, what they really need is a piece of real estate. And if they can find someone to donate it, it’s obviously a major benefit to them.

But with your proposal, the donor would have to sell it to give it, but then when they’ve sold it, they don’t own it.

Mr. Burrows: Right. Exactly. In my C.D. Howe proposal, I called these mission-use donations. So it could be a school, it could be a church, it could be low-cost public housing of one sort or another. These are essential parts of our system, and I suggested a carve-out and some sort of hold. That didn’t make it into the final or the draft legislation, rather.

I think with these things you need to go forward. You’re not going to solve all the problems at once, and if you don’t have safeguards, it brings more money in and allows the maximum number of charities to use it. It’s not that donors can’t donate land; it just means that, at least with the current drafting, they would be prohibited from getting extra incentives, which is the elimination of capital gains.

Senator Omidvar: Thank you. When you say “the current drafting” of the legislative proposal, could you tell us exactly what you’re referring to because, as far as I know, maybe you’re talking about the previous government. Is that right?

Mr. Burrows: Yes, exactly.

Senator Omidvar: I just needed some clarity there.

Mr. Burrows: That’s important.

Senator Omidvar: I’m very curious about this proposal because it democratizes the incentive a little bit more by ensuring that smaller charities can also benefit.

My question is around your second proposal, which is around the definition of charity — we need to evolve it, we need to define it, it’s so outdated. You talked about the fact that Canada has fallen behind other jurisdictions in evolving charity law to meet the needs of contemporary society.

Can you tell us who we should look to for some promising practices and whether they’ve worked and what you know about them?

Mr. Burrows: I looked at a number of places. Different jurisdictions have approached it in different ways. In the U.K., they actually created a statutory definition of charity, and so our traditional four categories of charities were expanded to 26. I’m not entirely in favour of that, and I’m aware that potentially what we do is turn the common law and that tradition into a political ball. There’s a lot of concern among religious groups, for example, that the traditional place of religion within the common law would be marginalized in a more contemporary setting.

Australia and New Zealand are excellent examples of where they are, largely through the appeals system, reviewing and evolving their definition. So they were able to deal, for example, with issues like political activities in a much more progressive way. It’s been a repeated issue over the last years. I applaud the current government for the way they’ve handled it, the way the draft legislation that came out on Friday was good. We went through a very painful, awkward period because we didn’t have the updates in the system and we didn’t have a mechanism where charities could appeal. There wasn’t that back and forth that you need in a robust democracy.

Senator Duffy: Thank you, Mr. Burrows, for being with us. You mentioned draft legislation being tabled last Friday. I haven’t seen that yet.

Senator Martin: Bill C-76, is it? Is that the one? No? Which legislation?

Senator Duffy: Notwithstanding that, perhaps you could tell us a bit about that. Then I want to raise with you the Prime Minister’s mandate letter dated November 15, 2015, to the Minister of Justice, Jody Wilson-Raybould, about this very subject. I don’t know if you’re current on the Prime Minister’s letter. First, could you tell our committee what happened on Friday?

Mr. Burrows: On Friday the government tabled some draft legislation, I think it’s Bill C-17, that clarified a number of points in section 149.1 of the Income Tax Act that relates to definition of “charity”. So it reasserted the primacy of charitable services, which is a common-law definition, and it removed one of the contentious areas that had grown up in the Canadian system around a maximum of 10 per cent around political purposes.

Now, political purpose is ancillary and supplemental to a charitable purpose, and it reinforced the need for political purposes, which includes in most cases advocacy, to be in support of the charitable purposes, and it also emphasized that this is a consistent part of all common law, that you can’t have a partisan charitable purpose. You can’t have charities advocating for one party or another or one candidate or another, particularly in the context of an election. So it provides some clarification, which was needed for a long time.

Senator Duffy: Some of us were travelling on Friday and missed that update, so we’ll look at that with great interest because that would be one of the key areas this committee would be looking at.

Getting to my question, on November 15, 2015, in swearing in his new cabinet, Prime Minister Trudeau gave each minister a mandate letter which lays out what he would like them to do with their portfolio. In the mandate letter for the Minister of Justice, the Honourable Jody Wilson-Raybould, the Prime Minister writes he wants her to work with the ministers of finance and national revenue to develop a modernized regulatory and legal framework governing the charitable and not-for-profit sectors.

Is the legislation that you referenced that was released on Friday a response to this directive from the Prime Minister?

Mr. Burrows: I think it’s part of that framework. However, it was in direct response to a case that had gone to the Federal Court of Appeal, in I think it was early July, called Canada Without Poverty, where a Charter challenge was brought on behalf of a charity around political activities. The government responded in two ways. One was to appeal that challenge because there’s a number of questions about whether the Charter is an appropriate place to be dealing with charity law. And the second point was this proposed amendment that was released at 4:30 p.m. on Friday. It’s one part of the overall system. The nice thing about a mandate letter is it’s broad enough to include just about anything. I think one of the key things, and this is true across all common-law countries, is how do we evolve? We’re based in this system that was codified in many ways in other countries and in other times, and how do we continue to evolve in the Canadian context and address our public benefit needs? We’ve been lagging behind.

Senator Duffy: I was going to ask what you see as the time frame. This proposed legislation will obviously have to go through the legislative mill here. One doubts that it would be possible to get it through before the next election. How urgent is it, in your view, that the amendments or proposals that were released on Friday be acted on expeditiously? That’s my question. Meaning before the next election.

Mr. Burrows: Of course. I would say that from a charity perspective generally it’s early days, it’s over a weekend, but the draft legislation has been well received initially. I believe the government has generally been listening and responding in a balanced fashion. It’s a need that needs to be addressed, and in our view it should be addressed within this government.

Senator Martin: I have questions for clarification because of what I just heard.

Sir, would you kindly identify the bill. Is it Bill C-76 you are referring to, or a different bill?

Mr. Burrows: I believe it’s Bill C-76. I don’t have everything in front of me right now. I should know.

Senator Martin: You mentioned that in the amendment a contentious area regarding political partisan financing has been removed. Do you feel that that adequately addresses some of the concerns raised about foreign interference in such charities?I know that’s a topic that has been discussed since the last election.

Mr. Burrows: Of course. Obviously this is focused on the environmental community. There are dollars that flow north and south of the border and internationally in a number of different areas. I don’t see foreign interference as a major issue. Obviously, it became politicized in Canada, but we need a diversity of voices on these key issues. I think a healthy democracy requires that.

The actual incident of foreign interference was demonstrably very minor, and it was done through grants to Canadian charities. I don’t see it as a direct interference issue at all, and I don’t see this particular legislation dealing with it in one way or another.

The Chair: By way of clarification, as we’ve been talking, Bill C-76 deals with amendments to the Elections Act, which talks about fundraising for elections.

Senator Martin: So it’s a different bill he’s referring to.

The Chair: These are two different things now. So if we can get it in our heads now that Bill C-76 is something that will —

Senator Martin: That is not what he was referring to. Thank you.

The Chair: We should all be concerned about it, but not right now or at this committee. With the other comments that were made on Friday, we need to clarify what they are, and we will do that in the next 24 hours.

Senator Martin: Thank you, Mr. Chair.

The Chair: Thank you for that question, Senator Martin.

Mr. Burrows, do you have another comment?

Mr. Burrows: I have a point of clarification because I was a bit vague. On Friday, it was a legislative proposal and not a bill yet — hence my confusion — which came out around 4:30 in the afternoon from the Department of Finance.

The Chair: We wait with bated breath for the legislation.

Senator Omidvar: I want to use my time here and your expertise to probe another set of questions that you don’t cover in the brief, but you are the head of Philanthropic Advisory Services at Scotia Wealth Management and you have high-net-worth clients who give to charities. So I want to ask you a question about the rise in donor-advised funds, what your observations may be on the reason for an apparent boom in donor-advised funds, and give us some sense of what that is related to.

Second, could you comment on whether we should look at ensuring that there is some transparency and accountability around donor-advised funds, which are very opaque? One doesn’t really know whether individual donor-advised funds are disbursed to the 3.5 per cent and whether it should be 3.5 per cent generally. Maybe that’s another question. But let me stick with donor-advised funds and get your expertise and insight into those questions.

Mr. Burrows: Thank you. I really appreciate the opportunity to speak on this.

A lot of my professional activity is in the States. As a group, Scotia Wealth Management founded and operates a public foundation with an independent board called Aqueduct Foundation. It has been in existence for 12 years. We’ve received over $650 million in donations during that period, and we’ve granted out close to $340 million.

One of the things about donor-advised funds is they come in different forms and in different shapes. There’s the community foundations movement; there’s $5 billion in assets there, and you had representatives speaking to that earlier in the morning. In our case, we see ourselves as a facilitator for philanthropy, a bridge. Last year, on assets of $200 million, we granted out $40 million. We’re not granting out at a minimum level. We are facilitating philanthropy because often they are very large amounts given all at once, and there’s a desire to distribute it in a thoughtful, meaningful way.

In many cases, for individual donors, it’s about finding smaller charities, because I used to work at large charities that were very well staffed, with big brands, and it’s easy to give to those charities all at once. It’s much harder when you have $1 million, $2 million or $3 million coming in all at once to find the right charities and ensure you have the flexibility to donate to them. In many cases, all the money comes in and then it’s granted out over a spend-down period of five years or 10 years. Our model is quite different in that way.

So what we’re trying to do is ensure donors have the time to find the right destination. It’s really to be a bridge, as the name implies — Aqueduct Foundation.

Senator Omidvar: I have a quick follow up on that. There does seem to be rising concern about the lack of transparency and accountability related to donor-advised funds. For instance, the Aqueduct Foundation, which you mentioned, I don’t know if in its reporting to the CRA, the T3010, I imagine, whether individual funds are listed and whether individual percentages are listed. It seems to me that there is some desire to go down that road. What would your response be to that?

Mr. Burrows: You’re right, they’re not. It’s one charity. The board of directors controls those funds, and it’s not listed. Every grant is listed and reported to CRA, but they’re not listed by funds. We produce an annual report. Just like the community foundation movement has a very strong tradition as well. They invented donor-advised funds in Canada.

Right now the minimum disbursement rate is 3.5 per cent. In the U.S. it’s 5 per cent. We are primarily public-benefit organizations. We should be looking and ensuring that that public benefit is getting out into communities. It’s not just a lock for value.

Senator Omidvar: Our disbursement rate in Canada stands at 3.5 per cent. It was reduced. I’m not quite sure about the number it was reduced from.

Mr. Burrows: From 4.5 per cent.

Senator Omidvar: It went down a full percentage point, lowered partly to help foundations deal with the financial crisis.

Do you think it is time to raise it back up to 4.5 per cent, given that there has been a financial recovery?

Mr. Burrows: It’s always important, particularly in a moment like this, to reflect on public benefit. The nature of endowments is that you have this huge amount of capital and a relatively slim trickle getting out into the community. There are tax-exempt entities and tax-receive entities.

I’m not going to say definitively, but I think it’s a really important debate. Other jurisdictions have higher rates.

Senator Omidvar: In the last budget, the Minister of Finance provided special relief to journalism, in particular — public-interest journalism — by granting charitable status to public-interest journalism.

I’d like to get your opinion on that. Let me contextualize the question a little. I think public-interest journalism, in particular, local journalism, needs to be supported because it’s under stress, but is the charitable dollar the way to go? Are we seeing a bit of mission creep from traditional charities? Today, it’s public-interest journalism; tomorrow, it could be farmers’ markets. Are we looking at a brave new world here?

Mr. Burrows: It’s a terrific question. It actually ties back to the notion of evolving benefit. What are the needs in our democracy at this point? The checks and balances. Journalism has been so important, and our concern is particularly at the local level that we lose that strong, well-resourced voice of opposition and things like that, which is a central part of democracy.

One of the things I always point out on this question is that there are a number of ways that journalism is already being supported in the charitable sector around individual things. It’s quite widespread in the U.S.; there is the ProPublica Foundation, for example. I think it’s worthwhile. I see a crisis in traditional journalism, and I don’t think that it’s often dreamed of as some sort of panacea — it isn’t — but if you look at whether it’s TVOntario and public broadcasting, they get donations already. So to say that we don’t have it in our system —

The Walrus magazine is a registered charity. Canadian Art magazine is a registered charity. It’s not journalism per se, but there’s a lot of crossover in this. Whether Le Devoir becomes a registered charity, I think, becomes a matter of public policy debate. I think it’s a great example of how, as a nation, we need to figure out what our evolving public needs are and whether we should change and evolve the definition of charity.

The Chair: Thank you, Mr. Burrows. That’s a good point to end on. I’d like to thank you for your participation and for making yourself available while you’re in Edmonton. It’s always important for to us reach out to people across the country.

This afternoon we’re going to hear from three witnesses on this next panel: Mr. Donald K. Johnson, who is a board member for four non-profit organizations in the fields of health care, education, social services and arts and culture and a well-known supporter of the sector; Mr. Adam Aptowitzer, who is a lawyer working with charities and not-for-profits at Drache Aptowitzer LLP; and Ms. Ruth MacKenzie, Chief Executive Officer, Canadian Association of Gift Planners. Thank you for accepting our offer to appear. I would invite the witnesses to make their presentations, and following those presentations we will go to questions. We ask that the questioners be succinct and as short as possible and that the witnesses be likewise in their responses so that we can get in as many rounds of questions as possible.

We’re going to start with Mr. Johnson.

Donald K. Johnson, Board Member, Four Not-for-Profit Organizations in Healthcare, Education, Social Services and Arts and Culture, as an individual: Thank you. First of all, I would like to thank the committee for inviting me to appear as a witness at today’s hearing. I am appearing today in my capacity as a volunteer board member of four registered charities in health care, post-secondary education, social services and arts and culture.

We are recommending that the government remove the capital gains tax on charitable donations of private company shares and real estate in the 2019 Budget, the same tax treatment as applies to donations of listed securities. It is estimated that introducing this measure would stimulate an additional $200 million per annum in charitable donations. It is the single most important and tax-effective measure the government could introduce to significantly increase charitable donations every year going forward.

As you have already received a copy of my submission, I thought I should focus my five-minute remarks on addressing concerns that some MPs and senators might have regarding this measure.

As each of you know, the tax policy professionals in the Department of Finance are always opposed to these measures because they will cost the government tax revenues. However, public policy decisions regarding the Income Tax Act are made by the Minister of Finance with the support of the Prime Minister.

One concern that needs to be addressed is that this may be viewed as a tax break for the rich, and we already have a very generous tax system for charitable donations. In fact, this measure would remove a barrier to donations to charities and enable individuals with these appreciated assets to give back to their communities. The cost of the donations is shared by the government and the donor, not 100 per cent by the taxpayer.

The real beneficiaries of this measure are the millions of Canadians who are served by our hospitals, social service agencies, universities and arts and cultural organizations. It also addresses an inequity in the tax system between entrepreneurs who take their company public and donate shares to a charity and those entrepreneurs who keep their company private and want to donate their shares.

The other concern that needs to be addressed is the perception that the beneficiaries of this measure will be only the large, elitist organizations and that smaller charities servicing the disadvantaged in our society will not benefit. All charities, large and small, and the people they serve will benefit from this measure. The best example is the United Way of Greater Toronto. The total gifts of stock received by the United Way of Greater Toronto from 1956 to 1996 was only $44,000 over 40 years. Since 1997, when the capital gains tax on charitable donations of listed securities was cut by 50 per cent and the remaining capital gains tax removed in the 2006 Budget, the United Way of Greater Toronto has received over $200 million in gifts of stock. The United Way of Toronto provides funding to over 200 agencies across the GTA, which provide vital services to hundreds of thousands of Torontonians in need of support. This is just one example.

I have had the pleasure of serving as a member of the Major Individual Giving Cabinet at United Way Toronto for the past 17 years. The United Way is one of my favourite charities.

If this barrier were removed in the 2019 Budget, many potential donors would establish a donor-advised fund or a family foundation. They could then have an opportunity to direct funds to small social service agencies in their communities that provide crucial support to the disadvantaged who desperately need assistance.

That concludes my remarks. I would be pleased to answer any questions. Thank you.

The Chair: Thank you, Mr. Johnson. Ms. MacKenzie.

Ruth MacKenzie, Chief Executive Officer, Canadian Association of Gift Planners: Mr. Chair and honourable members of the committee, thank you for the invitation to appear before you today on behalf of the Canadian Association of Gift Planners, or CAGP, to discuss the future of the charitable sector with a specific focus on the role of tax benefits as well as donating private securities and real estate.

CAGP is a national membership association made up of charity fundraisers as well as an array of allied professionals, such as financial planners and advisers, lawyers, estate planners and accountants. Through our 1,200 members in 20 chapters, we have touched thousands of donors across the country. For more than 25 years CAGP has been inspiring and educating people involved in strategic charitable gift planning and advocating for a beneficial tax and legislative environment that strengthens philanthropic giving. In our recent submission to the Standing Senate Committee on National Finance, made in relation to the 2019 pre-budget consultation, CAGP made two recommendations specific to strategic charitable giving. We recommended that changes be made to the Income Tax Act to allow for the withholding of income tax to be waived when a donor instructs a financial institution to make a charitable gift directly from their Registered Retirement Savings Plan or their Registered Retirement Income Fund to a Canadian registered charity or other qualified donee.

In addition to making simple cash gifts, donors are increasingly integrating assets in their strategic giving plans. This is particularly the case with wealth held in RRSPs and RRIFs, and this recommendation is a simple amendment that will increase the efficiency of making a donation. Presently, if an individual wishes to make a donation from their RRSP or RRIF, their financial institution must withhold the tax, notwithstanding that as a result of the gift no tax will be owing. The donor must then file their tax return, report the gift, receive a tax refund and then, if desired, remit the balance to the charity to complete their gift.

This complexity creates issues for charities in explaining this giving vehicle to a prospective donor, in properly receiving the gift and in ensuring the donor’s ultimate objective of making a gift in a particular amount. If a donor directs the financial institution to pay the funds directly to a registered charity, this process seems unnecessarily convoluted. We believe our recommendation to the Standing Senate Committee on National Finance would be strengthened by the stated support of this special Senate committee.

Our pre-budget submission also asked that the government eliminate the capital gains tax on private company shares and real estate when the proceeds of the sale of those assets are donated to a charity. The elimination of capital gains tax on gifts of listed securities in 2006 has been enormously successful, resulting in billions of dollars in shares being donated to charities every year.

Real estate and private company shares are the last two asset classes that aren’t incentivized. Expanding the capital gains exemption to include these capital assets would complete the picture of a suite of strategic asset-based giving vehicles. Beyond significantly enhancing donations to charities, this would strengthen the culture of giving in Canada by providing an innovative way to give back, as well as a mechanism whereby individual donors can minimize the personal impact of a tax event while simultaneously supporting a cause they care about.

With small-business owners playing a large role in Canada’s economy, the potential impact of the ability to leverage those assets as charitable gifts is considerable. Further, as an early indicator of the intergenerational transfer of wealth, we see many Canadians disposing of their leisure properties. Motivated by simplifying their asset base, or maybe just to mitigate issues for their children to argue about, we believe that many Canadians would be prompted to make a donation when selling their cottages if the capital gains tax were to be eliminated.

It’s worth noting that these assets are not solely in the hands of wealthy Canadians. Many small-business owners and cottage owners are part of Canada’s middle class. Elimination of the capital gains on these assets when making a donation would serve to democratize charitable giving, providing an opportunity for average Canadians to make a significant and meaningful charitable donation.

This is also true for charities in rural Canada where many small businesses and leisure properties are located.

CAGP believes this is a key policy issue that would make a real difference to Canada’s charities, and there is widespread support for this proposal across the sector. We encourage this committee to add its voice to that support accordingly.

If I were to share one thing as CEO of CAGP that keeps me up at night, it’s that so few donors or charities — in fact much of the sector as a whole — recognize that. It’s a dated statistic, but fewer than 10 per cent of Canadians leave a gift to a charity in their will. Few average donors understand just how within their reach it is to leave a significant charitable gift to a cause they care about by establishing an insurance policy, and there are thousands more who could take advantage of the opportunity to donate securities.

At the same time, asset-based giving is rarely highlighted in research about the giving habits of Canadian donors. Few charities allocate the budget or ensure their staff are knowledgeable about the opportunities and complexities of gift planning or are equipped to have these discussions with donors.

I think we all get it. Charities, and small charities in particular, are challenged to bring in resources they need now. How can they consider investing in a program that will pay off in five, 10 or 20 years? But they ignore it at their peril, and they will miss out. They are missing out on significant donation revenue as a result.

I have one final point that is equally important to our recommendations on those two strategic giving provisions. We ask that this committee recognize and highlight the broader picture and policy discussion related to the tax system and philanthropy in Canada. We have a remarkably generous tax system that enables charitable giving. It is a system that has been built over 20 years through thoughtful planning and balanced public policy. It is crucial that we appreciate this, that we remain cognizant of what has been built and preserve and protect it, and that it be seen as a system of Canadian values rather than a series of individual tax incentives to be considered in a given moment or on an individual basis. It’s the proverbial case of the whole being greater than the sum of its parts.

Again, thank you for the opportunity to appear before you today.

The Chair: Thank you, Ms. MacKenzie.

Adam Aptowitzer, Lawyer, Charities and Not-for-Profits, Drache Aptowitzer LLP: Good afternoon and thank you, senators, for the invitation to address you today.

My practice and public writing focus on the tax issues surrounding charities in Canada, and I have been asked to speak to you today about technical issues, but they arose as a result of a paper I published with the C.D. Howe Institute regarding the donation of shares of private companies and real estate to charities.

I expect that you have access to data on the massive amount of wealth held by Canadians composed of shares of private corporations as well as real estate. Much of this wealth is held by people who have reached the end of their working lives and are considering their estate and any charitable intention they may have.

There are currently no restrictions that prevent individuals from donating shares of their corporations or real estate to charity, and there is nothing that would stop a charity from accepting a bona fide donation of these items.

Of course, there are taxes to consider.

And there are four concerns about these types of donations from a policy perspective. The first is their valuation for purposes of the charitable donation tax receipt. The second is the continued exercise of their voting power by the donor even after the donation is made. The third is, of course, the effect on the tax revenue, and the fourth is the potential misuse of charitable assets to fund a business owned by a charity.

As donations of these types of assets are already allowed and considered by the Income Tax Act, it should come as no surprise that provisions already exist to ensure that donations are properly valued and that donors cannot continue to exercise power after their donation. These provisions have been used for many years, and their efficacy has been proven.

The first two concerns have already been considered by the Department of Finance and solutions legislated.

Assuming a receipt is issued to an individual donor, the tax treatment of such donations is treated no differently than the donation of other capital property. One way to incentivize donations of these assets would be to reduce the amount of the tax payable on donations so that the tax credits generated by the receipt could be used to offset tax owing from other sources. This is the same method that is used to increase donations of publicly traded securities, environmental property and Canadian cultural property.

All of these reduce the tax owing on donations to nil as long as certain conditions are met. The same approach could be taken on the donation of privately held securities, but there is no reason to assume the rate of taxation should necessarily be zero. If Parliament is concerned about the effect on the tax revenues posed by the tax-free donation of privately held securities, then the tax rate could be set at some amount less than it is but greater than zero. For that matter, it could be done for a trial period. This would allow Parliament to judge the effectiveness of the approach with a measured amount of risk.

The additional relevant consideration is that charities could end up owning businesses as shareholders and devoting attention and, potentially, financial resources to these corporations. This is currently allowed and, quite frankly, somewhat useful, but, of course, if the act incentivizes these types of donations then these occurrences will increase, as will the potential that charities could use funds for which they have issued charitable donation tax receipts to fund businesses that they own.

Unfortunately, the governance of charities is a provincial jurisdiction, and these types of rules, if they are necessary, should involve provincial co-operation.

The donation of real estate is a thornier issue. As I mentioned earlier, the Income Tax Act already contains a system that encourages the donation of environmental property to environmental charities. If the donation of regular real estate is expanded, it could undermine the current environmental gifts program because people with property that could be certified as environmental may consider donations to other types of charities that do not conserve property simply because it is easier or more convenient.

There are two ways to deal with this problem. One way would be to enhance the environmental gifts program to make donations of environmental property that much more enticing, or one may consider a program for the donation of regular real estate that would be less rich than providing the same tax credits as is received on the donation of environmental property.

There currently is no good answer for what such a program could look like. I expect that a detailed study must be undertaken to determine a policy position that encourages the donation of non-environmental real estate while avoiding undermining the environmental gifts program.

That concludes my submissions; of course, I’m happy to answer any questions you may have on these topics.

The Chair: Thank you very much, Mr. Aptowitzer. I have one brief question of you. You did not address the issue of charities finding themselves indirectly in enterprises, such as a YMCA offering some services to their members for equipment, and that ends up becoming an enterprise where it was designed to be a service, but since there’s an exchange of money, there is some enterprise to it. How does that fit into your plan?

Mr. Aptowitzer: Well, you did ask me to keep my answers short, so this may be difficult.

What you’re referring to, I believe, senator, are the related business rules within the Income Tax Act. Currently, charities are allowed to undertake business as long as it is related to their objects and ancillary to their overall programs. There are a variety of guidance points that are put out by the CRA to indicate where they may feel one project falls within the category or not.

The difficulty, though, and I alluded to it in my comments, is that fundamentally the governance of charities is a provincial and not a federal jurisdiction. The rules within the Income Tax Act on related business haven’t quite been challenged on a constitutional perspective, though they may well be. I think that a person making such a challenge would have a legitimate grievance that they’re unconstitutional. My concern would only be that rules on business being conducted by charities should likely invite provincial participation to help ensure that charities are not receiving funds and then using them to pour into perhaps a bad business in shareholder loans. So I think that is a concern, but I believe it would require provincial participation.

Senator Omidvar: Thank you all for being here. Perhaps I could address my first question to Mr. Johnson and Ms. MacKenzie. Both of you have recommended added incentives so that donations of real estate, privately held securities, RRSPs, RRIFs be tax-exempt. Do you think this would enhance the total envelope of giving, or would people simply replace their cash donations with these kinds of donations?

Mr. Johnson: I think that’s a logical concern, but 95 per cent of these donations would be incremental. I will give an example. My friend has a minority stake in a private company that he has owned for 25 years. He can sell his shares to the founder of the company, the controlling shareholder, at any time based upon a price that is agreed upon by him and the owner, the controlling shareholder of the company. Currently, he can sell his shares for $6 million.

Now, if the capital gains tax is removed on private company shares, he will donate $6 million immediately to two charities, but each year he donates $10,000 in gifts of cash to charities. If it’s removed, there’s $6 million compared to $10,000 that he currently gives to charities each year. That’s just one example.

I feel very confident that a very large percentage of these donations would be incremental and not substitutions for cash donations.

Ms. MacKenzie: Thank you. It’s a great question. In my first draft of my notes, which clocked in at about nine minutes, I actually mentioned that. I really appreciate you asking.

The answer is we don’t really know because there isn’t a lot of data about the specific giving habits of Canadians in relation to their making donations from assets versus cash gifts. But the members of CAGP are experts in strategic charitable giving, and those conversations with donors typically are very different. When you’re talking to a donor about making a gift of cash from their income versus a capital asset or an asset, they’re often making the gift at a time of a significant tax event, and they are using the tax system not as an incentive to giving but, rather, as an enabler of their giving.

Our members tell us that their annual giving or their cash giving from their donors typically does not decrease when they’re talking to donors about making more strategic gifts from their assets. It’s anecdotal, but that’s our sense. I’m sure in some cases people will replace one for the other, but I think the net amount of giving will go up.

The Chair: Senator Duffy has a supplementary.

Senator Duffy: Thank you. Just a supplementary on this before our audience loses this train of thought.

Mr. Johnson, your friend with the $6 million in shares, for the benefit of those who are not familiar with the tax implications, could you walk us through that? Your friend is a minority shareholder in a privately owned company. If he exercised his buy or sell agreement with the owner, those shares would be worth $6 million. Under the current regime, how much approximately would he have to pay in capital gains tax on those shares that would not go to charity but to government? Is it one third?

Mr. Johnson: Because he has owned these shares for 25 years, his cost base is virtually zero. If he sold his shares now, under the current tax regime, he would trigger a capital gains tax. He’d have to pay income tax on 50 per cent of the capital gain. So $3 million would be taxable, and he would be paying $1.5 million in taxes. But because he would be triggering perhaps a payout of $1.5 million in taxes if he sold his shares now, he’s simply going to hold onto his shares as he has for 25 years.

Senator Duffy: But to follow through, if the government were to change the law, the whole $6 million would go to charity instead of $1.5 million or more going to the federal government out of that gift. So out of the $6 million, at least $1.5 million would go down the street to the Finance Department or the Tax Department. So what we’re talking about is a change that makes a significant difference to the recipients, that is, the charities, if we were to do this.

Mr. Johnson: Absolutely. It’s a removal of a barrier to charitable giving, because no one gave stock or listed securities to a charity prior to 1997 because it didn’t make any sense. The capital gains tax that you had to pay offset a lot of the benefits of the tax receipts, so no one gave stock.

Since 2006, when the rest of the capital gains tax was removed against listed securities, charities have received over $1 billion virtually every year. That’s incremental funds for charities, for health care, for education, the two biggest tax expenditures for the government.

Senator Omidvar: Are we replacing a basket of apples with a basket of oranges? I think we all agree that we don’t know yet.

In the case of the $6 million man, let’s also not forget that, although he or she didn’t pay $1.5 million in taxes, he or she gets a $6 million charitable receipt for that donation. So we have to weigh all these issues, but thank you very much.

We had a conversation with Malcolm Burrows, and he talked about the proposal. He actually has a bit of an addition to the proposal, which addresses the question of valuation and management issues by charities big and small when they’re given real estate or privately held securities. They have to manage it. His proposal was that the incentive be tied to donating cash to one or more charities within 30 days of a sale of private shares of real estate. He actually said that the proposal is a recipe for disaster without these safeguards built in.

He also informed us that this safeguard would actually incent donors in smaller communities to donate the cash proceeds from their real estate, cottages, et cetera, to local communities. I wonder if you have a response to that, anyone.

Mr. Aptowitzer: Thank you. That’s an interesting question.

That idea was part of the proposals made in 2015, just before Parliament was prorogued and an election was called. So we’ve had a little time to think about those.

Part of the problem with that particular suggestion is the fact that when a lot of people sell their corporations, they don’t get paid within 30 days. They have a five-year earn-out or a period of time between then and when they get their money. So they were in the awful position of having to borrow the money to make the donation to hopefully get their money, if the five-year earn-out worked out the way it was supposed to go. So it was fraught with practical difficulties.

Again, I go back to the provisions that exist in the act now. Regarding that provision, the reason to donate the funds after a sale is because then you have an arm’s-length third party that has bought the shares, so there’s no question about the valuation. So we’re not in difficulty. The provisions that exist in the Income Tax Act now are quite good. If an individual donates shares to a private foundation, let’s say, they don’t get a receipt. Those shares remain in the charity, and if either the shares go public or the charity sells them, then and only then a receipt is issued for the amount that was sold to the third party, let’s say, or the valuation in the context of going public.

The whole issue is made moot by the regulations that are currently within the act.

Senator Omidvar: Mr. Johnson, you said you were a big fan of the United Way, as I am too. When the United Way received gifts of publicly traded securities, did they develop a policy? Some charities develop policies. The minute they get assets of this type, they will sell; some will hold. What was the policy to ensure the donation gets disbursed do their member agencies?

Mr. Johnson: I’m not sure I understand the question, but I think the United Way disburses about 85 per cent of the donations received to these 200 social service agencies across the GTA, and those agencies help the people in need in the communities.

Senator Omidvar: Perhaps I should clarify. I meant does the United Way, in Toronto, for example, hold on to those shares and wait for the share price to go up or down, or do they sell? There are policies that these governance bodies have.

Mr. Johnson: They sell the shares immediately. They have no reason to keep the shares. They sell them immediately and disburse the cash.

Senator Omidvar: And that’s a policy?

Mr. Johnson: Yes.

Senator Omidvar: Is that your understanding of generally how this sector works? When they receive these shares, they have a policy to sell them?

Mr. Johnson: Yes. These charities don’t want to hold on to securities. They want to use the cash to execute their mission. They don’t hold on to the shares.

Mr. Aptowitzer: If I may add, charities are also subject to a disbursement quota, which means that a certain portion of their assets that are not used in charitable activities must be sold off and then used in their charitable activities the following year. So there are provisions in place for that as well.

The Chair: Before we go to the next senator, I want to acknowledge the presence today of former Senator Landon Pearson, who for many years was the voice of the sector in the Senate. We acknowledge her presence, and thank you for being with us.

Senator Gold: Welcome. Thank you for being here. In principle, I would support the recommendation that you’ve all advanced. In a previous life, I was on the executive of Centraide, which is the United Way in Montreal, and involved in the Jewish Community Foundation of Montreal and of Canada. I’m also the chair of planned giving for the Montreal Symphony Orchestra. I’ve seen first-hand the benefits, at least to the organizations, charities and groups that we fund, of the change in policy that allowed for public securities to be traded. That was more by way of comment than question, but I did want to thank Ms. MacKenzie for her comment about putting this in the context of planned giving.

In my experience, what this might do is open up the possibility to large numbers of Canadians who simply don’t see themselves as potential major donors. Most folks say big gifts are for rich folks. We’ve had experience in a number of these organizations that I’ve been involved with where people of apparently quite modest means, when made aware of the options and the tax benefits especially for planned giving but also for securities, are able to do magnificent things and make a great impact under circumstances where their annual giving may have been far less than even the $10,000 of the person Mr. Johnson referred to.

So the technical issues are important. The questions that have been raised we will study properly, but, for my part, if we could amplify the recommendation through the work of this committee, I think it would be of great benefit to all of the people served by all of the charities across this country.

I have one small question for Mr. Aptowitzer. I was concerned about the point you raised about environmental concerns. I actually had that experience somewhat in my business career, where we had land that could have been given to an environmentally appropriate organization, but they weren’t really able to take it at the end of the day, and we weren’t able to do anything else with it. We didn’t want to develop it and couldn’t develop it. It ended up being of no great use to anybody. I look forward to any further concrete suggestions of how to adjust this to not have a negative impact on the environmental groups that would receive it but to create some incentive for those of us who can’t find the appropriate group willing to take the particular parcel of land that’s available, for one reason or another.

Mr. Aptowitzer: Right. In the context of my paper with the C.D. Howe Institute, I spent a lot of time thinking about that. At the end of the day, there’s really one obvious solution, and that is simply not to make the donation of regular real estate as rich of an incentive as the donation of environmental real estate.

Currently, environmental real estate is treated in a different class than any other charity of any kind, and that’s because it allows the carry forward of the charitable donation tax credits to 10 years as opposed to five years. There is that. When I say “rich,” I don’t necessarily mean money. There are other ways that we can look at this.

Part of the problem with the set of proposals made in 2015 was that, because it allowed for the sale of the real estate and then the donation of the proceeds, it incentivized the donation of environmental property. A donor could then say, “Well, I could get the same benefit if I donate a portion of the cash or the whole thing,” although the calculation is in fact a bit different.

If you’re going to look at the donation of real estate — and I encourage you to do that; in case my comments aren’t clear, I’m very much in support of the donation and the change of tax treatment on the donation of privately held securities as well — I think you must also look at the Ecological Gifts Program and ensure that whatever happens on the donation of regular real estate, it is not undermining that Ecological Gifts Program, likely with a slightly different program.

Senator Gold: Thank you. To loop back to questions about the impact on our tax revenues of expanding incentives for charitable giving, there will be some impact. If the plan succeeds, there will be some kind of trade-off. I appreciate that a lot of this is provincial jurisdiction. As a constitutional lawyer, I tread carefully in this area.

Some public support for the work of our charities does come from government directly and, of course, through the tax system. What are some of the policy ways in which we could offset the impact on our tax revenues with this incentive? Is it just a net zero-sum game, or are there ways to at least mitigate the impact on the public coffers?

Mr. Aptowitzer: That’s a very interesting question, and I think it goes back to Senator Duffy’s calculation of the tax owing on a donation or sale.

What’s very interesting is that currently in Ontario the tax credit rate actually does not equal, at the two highest brackets, the tax rate. What happens is, if you earn a dollar and donate a dollar, you still owe 4 cents to the government.

So when we look at the balance, the fact is there is still some money left in the provincial coffers. The federal provisions don’t do that — much to their credit, I would suggest — but there is a way to measure this out such that the impact on the fisc isn’t as great.

I would also just take a moment to point out that Mr. Johnson pointed out the dates 1997 and 2006. That’s because what happened was that, in 1997, Finance Minister Martin, I believe it was, originally reduced the overall taxation rate but not to zero. Then, in 2006, it was eliminated completely. So, as I said in my comments, there is a way to measure this without betting the farm on it. You could reduce the rate by half, let’s say, put a five-year time limit on it, and see the effect before going the full way and making it a permanent inclusion, God willing, in the Income Tax Act. So there are measures.

The Chair: Mr. Johnson, would you like to comment?

Mr. Johnson: Assuming the estimate of incremental donations of $2 million per annum of private company shares in real estate is based upon an analysis that was done on donations in the United States, in the United States, gifts of appreciated capital property are exempt, including listed securities, private company shares and real estate, and in Canada it’s only listed securities currently.

But in the United States, roughly 80 per cent of the donations of appreciated capital property are in the form of listed securities, and roughly 20 per cent, give or take each year, are from private company shares and real estate. Because charities receive over a $1 billion virtually every year, since 2006, the ballpark number of incremental donations is $200 million.

In addressing concerns of the Department of Finance about a fiscal cost to this measure, the foregone capital gains tax on this additional $200 million of donations is roughly $50 million to $65 million a year, and the charitable donation tax credit is the same as for cash donations. So the incremental cost to the federal government is only $50 million to $65 million, but charities get $200 million a year. If you add the foregone capital gains tax and the charitable donation tax credit, it’s roughly $120 million, but charities are getting $200 million. So it is definitely more tax effective, from the government’s perspective and the taxpayers’ perspective, than direct government spending.

Senator Gold: Thank you.

Senator Martin: Thank you. This is a follow-up question to what you were saying and to what you have presented. Like Senator Gold and others, I too feel that your recommendation is one that I would personally support, in light of especially the good work that charities are doing to encourage more Canadians to give such gifts. But if it’s more tax effective and the fiscal cost to the government is, as you say, $55 million to $60 million, there must be other reasons why, in your efforts to ask government to take such measures, there is resistance. Are there risks other than the ones you outlined in your presentation, about some of the concerns of these types of donations? You listed four. It must be a very complex process. There’s jurisdictional overlap, and we have the provinces that we have to work with, but what other pushback or reasons are given by government? I think it’s important for us to understand both sides in order to make recommendations from our committee.

I’m curious as to whether there’s anything you haven’t shared with us because of limited time. What other pushback does government have, other than the fact that it will be a cost to the public purse?

Mr. Johnson: I think I covered the two main pushback that one can expect. It’s a tax break for the rich. That’s been a standard issue every year for the last 24 years, and the concern that it is only going to benefit the large, elitist charities. I think I’ve tried to address each of those concerns.

I think the tax policy professionals in the Department of Finance have always been opposed to these measures, dating back from 1997 on. It’s very rare for a Minister of Finance to go against the advice of the Department of Finance. In terms of charitable donation taxation, it’s only happened three times that I can recall. Once was in 1997, when Paul Martin was Minister of Finance, and he cut the capital gains tax in half. He did it on a five-year trial period to demonstrate that it wasn’t just the big elitist organizations that received it but other small charities, like the United Way.

The next time a Minister of Finance went against the advice of the Department of Finance was in 2006, when Finance Minister Jim Flaherty removed the rest of the capital gains tax on donations of stock.

The third time was in 2015 when Joe Oliver was Minister of Finance. In the 2015 Budget, there was a measure that the owner of private company shares in real estate sold the asset to an arm’s-length party and gave the cash proceeds to a charity within 30 days to be exempt. One of the main concerns of the Department of Finance was about valuation abuse because in listed securities you have a public market for the stock; for private company shares in real estate, there is no public market. There’s a concern that if you based the tax donation credit on an appraised value, there’s a concern about the conflict of interest that a donor retains the services of the appraiser, and there’s a bit of a conflict there because the appraisers may be incentivized to give an artificially large valuation of the asset. But because the condition was the owner had to sell to an arm’s-length party, that dealt with any concern about valuation abuse.

In the 2015 Budget, it was a Conservative government, but it had the support of the Liberals and the NDP. Scott Brison, who was the finance critic for the Liberals, was publicly supportive of this measure in the 2015 Budget. The leader of the NDP was also publicly supportive. It was supported by all three parties in 2015.

At the end of the day, as I mentioned in my remarks, the decision is not made by the Department of Finance, with all due respect. They have the responsibility to oppose any measure that costs the government tax revenues. The decision, at the end of the day, is made by the Minister of Finance, with the support of the Department of Finance. In order for the Minister of Finance to be supportive, it’s important that members of Parliament communicate their support in Liberal caucus meetings.

Senator Martin: Those are good examples to outline what must happen. Thank you.

Senator Duffy: Thank you. I want to pick up on something that was mentioned by our colleague Senator Gold a few minutes ago and that I think again encapsulates, for the folks at home, what we’re talking about here.

Senator Gold mentioned cottages. Many people who don’t consider themselves rich have cottages. We’ve heard Mr. Johnson and Mr. Aptowitzer talk about when we’re dealing with shares in private companies, and it all sounds very complicated. Folks at home say, “Well, that doesn’t apply to me.” But they have a cottage, maybe a little place in the woods, and it’s probably appreciated a ton of money in the time they’ve owned it.

So wouldn’t it be, in the interests of expanding the pool of donors, much to the benefit of all Canadians if we simplified the process so that these kinds of gifts don’t appear to be so complicated and difficult that people say, “Well, I won’t bother.”

Ms. MacKenzie: I think that’s a great point. As you were inferring, it serves to democratize charitable giving. As Senator Gold spoke about earlier, it’s an opportunity for average Canadians to enjoy the power of philanthropy by making a significant gift that can make a significant change to a cause that they care about. I think that democratization applies to small charities as well, particularly when it’s people who have had leisure property in a rural community and they want to support that local community. I think it’s not going to be all about dollars going to big urban charities.

Senator Duffy: So the challenge for us in our report, and for the government, which receives the report, is to find a way to craft rules that make it simple, in the same way that when people buy an RRSP or whatever, they just check a box, and there you can provide for some avenue to help a charity.

Mr. Aptowitzer: Right. If I may, I think the processes already are rather simple. The donation of private company shares is signing some documents. The donation of real estate is a conveyance, as if you were to buy or sell it. So the actual process of having it done is already well established, I would suggest. The issue is the receiving and the valuation, going back to Senator Martin’s issue. I think that’s why the current provisions work great.

If you’re in Muskoka, north of Toronto, and you have a cottage, those things are pretty easy to sell in that area, with a large population base. So you can donate it to a charity. And even if there’s a five-year hold period, chances are the charity will be able to find somebody in five years. I think the difficulty is in more rural areas, where maybe the market isn’t as active. When we’re to donate real estate — or, in the case of a small business, donating the shares in a small business to a charity — if the receipt were to be issued right away, the charity may have issued a receipt for an asset that’s worth nothing; they can’t use or sell.

That’s why I like the current five-year reserve provisions, which basically keep everybody saying whether they really want the gift or not and whether or not they can sell it. It makes a lot of sense. I would suggest that the committee look at the current provisions as a model for simply no reason to reinvent the wheel.

Senator Duffy: We were told earlier today that there’s a $2.5 billion gap between what charities will need and what they are projected to receive from public donations over the next decade. Surely this makes this a matter of some urgency.

Mr. Johnson: Yes, I think the ideal time for this to happen is in the 2019 Budget.

On your comment about cottages, if someone wants to retire and they simply sell the cottage, they can give the cash proceeds to a charity immediately.

Senator Duffy: But there’s a tax implication.

Mr. Johnson: No. If they sell the real estate, including a cottage, to an arm’s-length party and give the cash proceeds to a charity, they’d be exempt from capital gains tax.

Senator Duffy: Perfect. You’ve educated the public and me. Thank you.

Mr. Johnson: It’s very simple.

The Chair: Hopefully we’ve generated some gifts through our testimony. Contact the charity of your choice.

Senator Omidvar: I have two separate sets of questions, but I want to continue with your language, Ms. MacKenzie, the democratization of philanthropy. My concern is with smaller charities, causes that are essential but not necessarily popular. Just as Mr. Aptowitzer has suggested that there should be some protection for gifts of an environmental, ecological lens, would you consider an incentive, if such a proposal gets passed, that those who donate to charities with an annual revenue of under so much get an additional incentive?

Ms. MacKenzie: I have to admit that’s not a provision that we’ve considered greatly. I think if that would serve to level the playing field a bit in terms of directing donations to smaller charities, it’s something worth considering and looking at.

Senator Omidvar: I’m basing my question on the evidence. We’ve heard a lot about cottages. Lovely as they may be, the evidence suggests that 60 per cent of philanthropy goes to hospitals, museums, foundations, et cetera. I have nothing to tell me at this point that if this is approved, that will change. So I’m looking for some comfort. I too believe philanthropy is good, but I want to democratize. That’s my incentive. Help me out here.

Ms. MacKenzie: One comment I would make — and I don’t have the exact figure with me today; I can certainly follow up — is I know that hundreds of thousands of dollars of gifts of securities go through the giving platform CanadaHelps, which is a platform that levels the playing field around charitable giving and is significantly facilitating donations to smaller charities. That’s one example of how that provision is benefiting smaller charities and not just the big ones.

Senator Omidvar: Right. When the evidence rolls up, including GivingTuesday, all these other platforms we’ve heard about today — wonderful — the evidence still suggests that there is a trend of high-net-worth donors giving to charities of a certain kind. Thank you for thinking of this question.

I have another question, in my short time, for Mr. Johnson.

Mr. Johnson, you said the cost to the federal government would be roughly $50 million to $65 million annually.

Mr. Johnson: In foregone capital gains tax.

Senator Omidvar: Yes. Malcolm Burrows suggests it would be $190 million to $440 million annually, and the Parliamentary Budget Officer suggests it would be $102 million federally, with another $50 million provincially. Should we just agree that we don’t know?

Mr. Johnson: As I mentioned earlier, the foregone cost of the capital gains tax the government foregoes is $50 million to $65 million. That was in a C.D. Howe Institute report several years ago when they had a special conference on strengthening charitable giving in Canada. The cost of the charitable donation tax credit is roughly 34 per cent of the $200 million, which would be about $65 million or $70 million. So the combination of the two — the $50 to 65 million, plus the $60 to 65 million — is around $125 million or $130 million to the federal government. If anyone wants to challenge that, I would like to hear it.

Senator Omidvar: These are your colleagues —

Mr. Johnson: And the $50 million to $65 million assumes that the owner of the private company of shared real estate is going to sell the asset right away. That is not the case. The actual cost to the federal government is the discounted present value of what the government would receive when the owner ultimately sells. In that example of my friend who has $6 million, he will give it all to charity if it is in the 2019 Budget, but he will hold onto it for years. So it’s the discounted present value of the foregone capital gains tax.

The Chair: Witnesses, thank you very much for being here today. It has been very informative. Senator Duffy has continued to try and change the debate into a sales pitch to the audience. I hope it has worked. I hope that somebody is now contacting the charity of their choice to make a major gift. That would be wonderful.

If I could make one personal comment, the one thing that never gets measured in all of this — in the cost to government in taxes that might not the paid — is the benefit to the recipients of the charitable work, whether that be the United Way of any community or some other charity servicing Canadians. That can’t be measured in terms of the savings to the taxpayer and to the government.

You have helped clarify this for us. We appreciate it.

We will now hear from our next witnesses, Keith Sjögren, Managing Director, Consulting Services, Strategic Insight; Hilary Pearson, President, Philanthropic Foundations Canada; and Philip Cho, Chair, Korean Canadian Scholarship Foundation. Thank you all for accepting our invitation.

We will now have your presentations, followed by questions. I’d ask colleagues to have short, quick questions, and I appreciate the witnesses giving similar answers so that we can get as many questions and answers in as possible.

Please go ahead.

Keith Sjögren, Managing Director, Consulting Services, Strategic Insight, as an individual: Thank you very much, Mr. Chairman. I would just add that in addition to my professional role at Strategic Insight, I am also privileged to be the chair of the advisory committee to the Master of Philanthropy and Nonprofit Leadership program at Carleton University. I am delighted that one of my committee members is here today: Hilary Pearson.

I am going to keep my remarks brief, and I’m going to focus on the donor-advised fund market in Canada, as well as on the benefits and challenges associated with this giving vehicle. Also, rather than use the term “donor-advised funds” frequently, I will use the term DAF to refer to them. It will get things through a little more quickly.

Canadian donors have a number of options for structuring their financial support for charities. Factors impacting the donor’s selection of giving methods include the donor’s timeline, the source of funding for the gift, the size of the gift and whether the donor plans to support a single cause or multiple causes. In addition, there is an issue around whether additional research into the cause or charity is required.

Increasingly, donors who are financially able to consider relatively large and more strategic donations are selecting structured giving vehicles such as a donor-advised fund. A donor-advised fund is an account within an existing public or private foundation. To establish an account, the donor makes an irrevocable gift to the foundation, and in exchange receives a tax receipt along with administrative and investment services. Donations to donor-advised funds can be in the form of cash, securities and other types of investments, insurance proceeds or through a bequest. The funds are granted, often over time, by the sponsoring foundation to qualified donees on the advice of the account holder.

It is the responsibility of the foundation to comply with regulations and to undertake administrative matters to ensure that the account is managed in compliance with the agreement between the foundation and the donor, as well as all regulations.

The required annual disbursement to qualified donees by foundations is applicable at the sponsoring foundation level, not at the donor-advised fund level. Since donor-advised funds are not standardized through regulation, each sponsoring foundation has the ability to establish its own terms and conditions with respect to minimum contributions, minimum balances to be maintained, investment options and various types of fees.

Donor-advised funds have been available in Canada since 1952 and are generally favoured by affluent donors who seek flexibility on various levels but who may not have an ability or an interest in establishing a private foundation. DAF account holders are generally existing supporters of charities. They are usually over 50 years of age and are often in receipt of a settlement from a liquidity event or a lump sum associated with employment. By liquidity event, we’re looking at the sale of a family business or a sale of real estate.

As a point of reference — and Hilary will correct me if I’m wrong — in 2016, there were approximately 5,500 private foundations in Canada with total assets of around $41 billion and an average asset level of 7.4 million. By comparison, total assets held in donor-advised funds at the end of 2016 were estimated at $3.2 billion.

The average balance held in the estimated 10,000 Canadian donor-advised fund accounts at the end of that year was approximately $300,000. The Canadian total is close to that of DAFs in the United Kingdom but dwarfed by the $285 billion in total DAF assets reported in the United States. It’s the case, however, that the average balances in Canada and the United States are similar.

Community foundations hold slightly over half of the donor-advised fund assets in Canada, with total assets estimated in those types of accounts at $1.7 billion. Other sponsoring foundations, such as those associated with financial service institutions and financial firms, are estimated to have approximately $1.5 billion in assets.

We are currently in the process of writing a major report on donor-advised funds, and that report will indicate that assets held in a representative sample of donor-advised funds have been growing at approximately 20 per cent per annum in recent years. That reflects both inflows into those types of accounts as well as the market return on the undistributed assets held in those accounts.

The 2007 change to federal tax regulations, which eliminated capital gains on donated publicly listed securities, as well as the changing demographics of wealth, is recognized as being a major driver of the recent growth in the use of donor-advised funds and the establishment of foundations specifically for the purpose of housing these accounts.

There are a number of benefits to donor-advised funds: they embrace a wide range of donors, it’s often possible to open an account and work through a current financial adviser, they are relatively easy to establish and relatively straightforward from an administration perspective, they are lower in cost than some of the alternatives, and it enables individuals to separate their tax planning event from philanthropic action. In addition, people suggest that it simplifies estate planning, it engages young adults in philanthropy, and it provides, if need be, anonymity of donors.

On the other side, there are concerns about donor-advised funds. There are very limited information and reporting requirements, in that the sponsoring foundations are not required to disclose extensive detail about the donor-advised funds they hold. There is clearly a delay between the tax benefit and the granting to operating charities. There is no minimum disbursement rate to individual donor-advised funds, as you would find with a private foundation, and there is a suggestion that the use of donor-advised funds actually diverts capital away from operating charities.

There is also a suggestion that there are conflicts between some of the stakeholders, in particular between financial advisers who are earning based on the undistributed assets and the needs of the charities.

There is also discussion around the value created for the donor in terms of the fees paid to the various participants in donor-advised funds.

Outside the need for improved disclosure and greater detail in reporting, both to donors and to government, the need for regulation is not immediately apparent. There are few, if any, cases of abuse of donor-advised funds, and sponsoring foundations are well governed and recognize that their role is not to horde assets for commercial benefit, but to facilitate for giving charitable purposes. To this end, some sponsoring foundations could ease restrictions on minimum donations and balances, holding periods and maximum grants. It may also be appropriate for foundations to provide donors with the opportunity to invest all or a portion of the undistributed capital held in donor-advised funds in impact investment. While offering a return lower than public markets, such impact investments would contribute to the achievement of specific social objectives.

Given the increased awareness about donor-advised funds, the trends in the creation of ownership of wealth in Canada and the significant transfer of wealth projected for the next two decades, and the increasingly active role in retail philanthropy being played by financial institutions, we anticipate that assets held in donor-advised funds, and the flow of grants from donor-advised funds, will continue to increase over the medium term. It would not be unreasonable to expect the total assets in these types of accounts to reach approximately $7 billion by the end of 2024.

The Chair: Thank you. The next presenter will be Ms. Pearson.

Hilary Pearson, President, Philanthropic Foundations Canada: Thank you, Senator Mercer and members of the committee, for the invitation to appear before you today.

I am the President of Philanthropic Foundations Canada, which is a pan-Canadian association of grant-making foundations. Today I will be discussing the role of Canadian charitable foundations, and how their work is encouraged or hindered by the federal policy and regulatory regime for charities.

As mentioned in the written brief we provided to the committee, Canadian foundations collectively contributed grants of about $5.7 billion in 2016 to Canadian charities. This is a combination of private and public foundations. This is a large amount, even if it is spread across the 85,000 or so charities in the country.

I am here today not to discuss how much is given, but to shift the conversation from how much is given to the conditions under which these grants are given, and to suggest that it is possible for philanthropic foundations to become more effective funders in today’s Canada. Specifically, we recommend that the Senate committee could encourage the Minister of Finance and the CRA to undertake a comprehensive review of the existing regulatory framework for charities in the Income Tax Act.

I want to acknowledge an important development that occurred only last Friday, when the federal government released draft legislative proposals that would remove the quantitative limits on so-called political activities of charities from the Income Tax Act. This was a first, very positive response to the consultation panel on the political activities of charities, which reported last year to the government. PFC is extremely encouraged and pleased to see that the federal government is willing to remove this provision which has discouraged charities from helping in the development of public policy in pursuit of their charitable purposes.

This action is a very important step in reviewing the regulation and the policing of charities through their activities, in this case their political activities. We appreciate the government’s willingness to move forward and see this as a very encouraging sign. We look forward to the promised legislative amendments that are going to be introduced in the house this fall.

However, in general, the current federal regulatory system, in our view, still unnecessarily constrains the deployment of charitable capital, and prevents effective partnerships within the charitable sector, and between the charitable sector and private and public sectors. These constraints include disproportionate reporting requirements, rigid rules governing financial relations between charities and non-charities, a lack of regulatory clarity about the ways in which investment capital can be provided to charities by charitable foundations and excessive focus on the activities, rather than the purposes, of charities.

These constraints combine to make charities and charitable funders less innovative, less effective and less capable of contributing to our society overall. We would like to see federal regulation and law that encourages, rather than deters, legitimate and productive partnerships between charities, foundations, businesses and governments. I think you heard some of this from my colleague at Imagine Canada this morning.

A provision of the Income Tax Act, which we would like to see reviewed, is the provision on maintaining direction and control of funds. We join with others in the charitable sector who are recommending that the federal government change the rules governing the provision of grants and loans to non-charities, which must be made through agency agreements, and replace these agreements with so-called expenditure responsibility agreements to ensure that the charity’s resources are being used in furtherance of its purposes. This would mean that a foundation would take responsibility for ensuring that its funds are being used for charitable purposes by directing them to non-charities that also pursue a charitable purpose and are willing to sign an agreement with the foundation.

Today, both grants and loans to non-charities must be made through agency agreements, dictated by the Canada Revenue Agency, which impose onerous monitoring and management rules on the agents themselves. This can be changed without abandoning the principle that charitable funds be used for charitable purposes.

We conclude by returning to our central ask, which is that the Senate committee call for a comprehensive review of the Income Tax Act with respect to charities. We have not had such a review of the Income Tax Act provisions regarding charities in the 50 years since these provisions were introduced, although a number of them have been introduced subsequently over the past 50 years. It makes no sense that no comprehensive review has been done. Many of these provisions were introduced piecemeal and are inconsistent with each other. This is no way to regulate an important sector that contributes so much to Canada’s economy and society in the 21st century. Such a review will take some time, as it should, and ideally it should be done in collaboration with experts and actors in the charitable sector itself, but it needs to be done.

One of our members, the Muttart Foundation of Edmonton, suggested in a presentation to senators in February of 2017 — last year — a number of issues that could be reviewed. One is that such a review could include an open discussion on the definition of “charity,” which has not been modernized in Canada as it has been in other Commonwealth jurisdictions, such as the U.K. and Australia. The review could also consider why all appeals by charities of decisions made by the CRA must go to the Federal Court of Appeal instead of the more accessible Tax Court of Canada. And given the increasing need for more revenue generation by engaging in business activities, why not consider allowing charities to generate such revenue as long as it is destined to activities that are in pursuit of charitable purpose? Why does the Income Tax Act have such a focus on “activities” rather than simply “purposes”?

Charities are confusingly monitored and forced by the CRA to report on various kinds of activities, some of which are charitable, some fundraising, some administrative and, of course, some political. How to decide consistently and report clearly on all these activities? Why are they not all considered to be activities in pursuit of a charitable purpose, which is accepted by the CRA in the first place?

Should activities be removed from the act? The courts themselves have pointed out the confusions and difficulties posed by focusing on defining these various activities of charities. These are some of the questions that a comprehensive review could address.

My final comment relates to the role of foundations in today’s landscape of donors, recipients and civil society organizations. Foundations arguably have a unique role. They are long-term funders. They are able to take calculated risks, even the risk of failure, without short-term consequence. They have neither voters nor shareholders. And because they can take risk and because they are long-term funders, they can fund the experimental, innovative and unproven social initiative. These characteristics make it all the more important that they be allowed and encouraged to fund flexibly and creatively while still respecting public policy frameworks.

Thank you for your time, and I welcome your questions.

The Chair: Thank you. Next is Mr. Cho.

Philip Cho, Chair, Korean Canadian Scholarship Foundation: Thank you, senators. Good afternoon. My name is Philip Cho. I’m the Chair of the Korean Canadian Scholarship Foundation. My role there is purely on a volunteer basis. Charitable law and fundraising are not issues in which I have had any formal training.

I’ve chaired the KCSF for six years now and have had to learn a great deal on the job about charities, fundraising and even my own Korean Canadian community. My testimony today will be based on my experiences in this role and discussions with other people working in the Korean Canadian community.

When I refer to “our community,” please understand that in this context I am referring to the Korean Canadian community mainly in the GTA, but please do not interpret this as meaning that the Korean Canadian community is somehow distinct from the broader Canadian community. It’s just easier to say “our community” rather than saying Korean Canadian community over and over again.

Thank you for allowing me to speak to you today. I am not in a position, again, to provide details about how specific federal or provincial policies affect our work. Instead, I hope to provide some information about our work and why I believe this committee may wish to consider ways of developing the growth of culturally specific community organizations. I will talk about our work specifically, but the issues could be applicable to many other culturally specific community organizations.

Some believe that maybe having ethnocentric programs may prevent or hinder integration into Canada. I want you to consider that if done properly, these programs in fact facilitate and may be vital to much better integration and participation in Canada.

The KCSF is a charitable organization founded in 1978. We do not have any staff but utilize the services of an outside bookkeeper. We have a volunteer board of about 10 members and two permanent committees of volunteers, totalling approximately 25 young professionals now.

Our scholarship program provides over $130,000 in scholarships annually to about 25 students from across Canada. We currently have an endowment fund of about $2 million and a designated scholarship fund of about $225,000. We also provide important programs for high school and university students and recent graduates. These programs are aimed at developing some of the necessary soft skills young people in our community need to be successful in Canada. We have to work very hard to raise funds for these programs, which are separate from the scholarship program funds.

To complement its successful scholarship program, KCSF began offering these other programs because, as a racialized community, our members may not always fully benefit from similar programs provided by mainstream society. For example, mainstream programs are often designed on the premise of a “typical” Canadian, and visible minorities often do not view themselves as a typical Canadian or are sometimes made to feel as not truly Canadian. We may be asked, “Where are you really from?” because our appearance betrays our non-Anglo roots. In addition, mainstream programs do not address how an ethnic group’s culture can be adapted or integrated into the mainstream culture. It often ignores any potential conflict between a specific cultural value and what may be considered best practices in Canada. This is not a flaw or fault of the mainstream program because such a program was never designed or intended to address these issues.

In our experience, many Korean Canadians have felt the need to separate their Korean identity from their Canadian identity in order to be successful in mainstream Canada. Rather than living as a “Korean-Canadian,” this may be better described as “Korean/Canadian.” Having or trying to separate one’s culture, which forms and influences the core values of one’s self and family from their participation in mainstream Canada, can lead to unnecessary stress and anxiety and reduces the inherent benefits of a diverse society.

The sense of separation of identities sometimes can be reinforced for young people even when we have Korean heritage festivals and Korean culture celebrations because we continue to see the Korean culture as ethnic or something other, which is certainly important for some Korean Canadians who came to Canada as adults, but for members of our community who were born or came as very young children, Korea was never their home, and their experiences are uniquely Korean Canadian.

At the same time, we continue to have new Korean immigrants, and these members may have different difficulties adapting to life in Canada. Language and culture are barriers to them. They do not know how to be Canadian in the same way as those born here. Studies show high rates of depression, anxiety and other mental health issues for these young people and a great reluctance to seek help.

In today’s Canada, I believe we should be striving for a hyphenated Canadian — Korean-Canadian, Jewish-Canadian, Indian-Canadian and so on — to be able to feel they have one identity that harmonizes all the parts of that individual’s experience. It will be different for everyone. The amount of my Korean-ness may be different from Senator Martin’s, but we should never feel as though our “Korean-ness ” needs to stay at home in order to be successful in mainstream Canada.

Our programs try to show our young members that being Canadian with Korean heritage is just as much Canadian as someone whose family has generations of roots in Canada. We try to show that their unique personal experience growing up in Canada is just as Canadian as anyone else’s experience and that no one else should see these as separate. They are parts of the same whole.

We offer programs such as a mentorship overnight camp for high school students that is run by students in university. We work with the university students and help them develop leadership, project management, team work and public speaking skills so that they can run the camp. Throughout the training and the camp, there are always discussions about identity and candid conversations about how to reconcile these seemingly separate identities to be successful in Canada.

We’ve run conferences, bringing in unique speakers who have found success in the mainstream so that our young people can have role models and mentors to guide and inspire them. We have an annual very popular networking event that attracts close to 300 Korean Canadians in the GTA to learn about the power and value of networking and practise their skills in a safe space.

Further, simply by creating these programs and committees, KCSF has created a platform and space for our members to find colleagues, peers and mentors to help them in their personal and professional growth. As a further example of this idea, I just returned from a lawyers’ conference in Atlanta. This was a gathering of about 350 lawyers of Korean heritage from all over the world. We had lawyers from New Zealand, Australia, Dubai, Germany, Argentina, Brazil, the U.S., Korea and Canada. It’s one of the only lawyers’ associations in the world that connects lawyers who share a common heritage. The existence of this organization does not isolate hyphenated Koreans from their respective countries. The organization gives its members strength and support to become leaders and trailblazers in their respective countries. The other added benefit of growing these community-based organizations is to develop a network of organizations that support each other and can refer members to other services that may be required. This type of knowledge is not something that is easily offered by mainstream or pan-Asian-focused organizations.

What I want to leave this committee with is the thought that these culturally specific organizations, who do much-needed work in their communities, should have the full support of Canada. The reality, as I have experienced, is not easy. Many different organizations are seeking funding from the same donors, who eventually suffer donor fatigue. Leaders of the organizations are volunteers and get burned out very quickly. Volunteers are not experts or formally trained to provide the services, so there are many inefficiencies in the development of these programs. There’s simply not enough human capital to properly carry out the work, raise funds and ensure compliance with the regulatory schemes in a way that allows true growth for the organization. A great deal of effort is spent to simply continue providing the very limited level of service or programming.

When you listen to the other testimonies from experts in the area, please give consideration to the important work that culturally specific community organizations do for the greater Canadian society and how their work can be enhanced and supported. Thank you.

The Chair: Thank you to all three of you. Your presentations have been very interesting and thought-provoking. In keeping with our instructions, everybody, about keeping our questions short, I will start with a short question to Mr. Sjögren.

In your presentation, you said, “We are preparing a report.” The question is who is “we”?

Mr. Sjögren: “We” is a firm, Strategic Insight. We are a research and consulting firm based in Toronto, but our only clients are those involved in the financial services sector and include the Government of Canada down to relatively small investment firms.

We have seen a growing interest in the integration of philanthropy and wealth management by our clients. Really as a service to our clients, we’ve decided to undertake a detailed investigation of the donor-advised fund area. It’s a report that we have sponsored, and we would be pleased to provide the committee with a copy of this report at the time of its release. We are hoping it will be released within four to six weeks.

The Chair: Thank you very much. We’d appreciate it if you’d do that.

Senator Martin: Thank you to all of you for your very important insights and presentations. I’ll start with Philip, whom I know as part of the larger Korean Canadian community.

My question specifically, I know the good work that the KCSF does and has been doing for decades, but do you use different strategies to build up your donor base, specifically whether it’s donor-advised funds or looking at gifts of private company shares in real estate? Do you explore such strategies? Do you work with other charitable organizations that have more experience and partner with them and maybe even just the kinds of partnerships that our other speaker alluded to? Would you speak a bit about what you’re doing as a foundation?

Mr. Cho: We do explore, but it really just stays almost at the exploratory level because, again, the human capital is just not there. The amount of time that’s necessary to simply raise the funds for our next fundraising event, to run the programs and make sure they’re done properly just takes so much time from everyone — they are all volunteers. Normally the people that are volunteering for our organization are people in mainstream Canada. They’re lawyers and accountants and are very busy in their daily lives. We have difficulty raising funds to hire full-time staff, which is really what we need to reach the next level. It’s almost a vicious cycle where we can’t get there to explore those other partnerships, which we know are available. Again, the rules around partnerships and some of these receiving grants are so complicated sometimes that to seek them out and decide whether there’s a case to be made requires a lot of time and effort. Unfortunately, we haven’t been able to get past those hurdles.

Senator Martin: Ms. Pearson, would you elaborate on the complexity and the difficulties that prevent or impede the kinds of partnerships that could be taking place beyond what you already mentioned?

Ms. Pearson: Yes. I talked about one example, which is the relationship between a charitable funder and a non-charity, which has to take place through an agency agreement. The CRA has a legitimate purpose in wanting to ensure that the funds a charitable funder provides are used for a charitable purpose. Nobody would deny that. I think that is very important.

The question really is how can one ensure that that is the case without imposing such onerous requirements on either the funder or the charity, in situations where there is very little staff or very little capacity to manage all of that, that the effort is abandoned. It just isn’t possible to do it.

I have to say that foundations on the whole, private foundations in particular, much like the Korean foundation, have very little staff, maybe one or two people who are working in a private foundation. Typically, private foundations will operate by giving grants to so-called qualified donees. The Canada Revenue Agency and the Income Tax Act keep that a fairly tight box. That is a fairly straightforward process. A grant can be given by checking with the Canada Revenue Agency, and you can find out a lot about a charity by checking the Canada Revenue Agency website. One would think in principle that this would be a fairly straightforward piece, but it’s the reporting requirements and trying to understand what the grant is going to be used for and what kinds of things you’re going to be asking your grantee to tell you in order for you to be able to comply with the reporting requirements of the Canada Revenue Agency that are so problematic.

Senator Martin: I’ll go on round two. Thank you.

Senator Omidvar: I have a question for each of our witnesses. Thank you so much for being here. Try to keep it tight.

Mr. Sjögren, I’m very interested in your insights into donor-advised funds, given that they are the largest-growing philanthropic instrument of our times, but there is a concern about the lack of transparency and accountability. We don’t really know if every fund is disbursing annually because it’s an aggregate amount. I’ve also heard about the corporatization of philanthropy with more and more financial firms like Mackenzie, Fidelity, et cetera, playing here. What would you say to a simple strategy of ensuring that there is transparency and accountability through extra information being required on the T3010s of charities who hold donor-advised funds?

Mr. Sjögren: One of the challenges we have found as researchers is the lack of information about donor-advised funds, that the sponsoring foundations are not required to provide any information on the breakdown of those accounts at all. We would not suggest we need any reporting at the account level, but even at the aggregate level of donor-advised funds, which is currently not available in public filings. If you look at various community foundations, they do break down those funds that are considered donor-advised funds, and they will provide some analysis.

In our work we’ve looked at community foundations and their transparency versus the very little transparency that is in reports available from what I would call commercial foundations.

If you look at the United States, if you look at Fidelity Charitable, in 2016 they received more donations than the United Way in the United States. It has assets of over $17 billion. They publish a detailed annual report. They publish an annual balance sheet and income statement as well, and the information available on donor-advised fund sponsors in the United States is far greater than it is here.

So there are certainly examples where there is greater transparency and you can examine the underlying activities of the sponsoring foundations.

As for the requirement for each fund to have a set amount of distribution, some sponsors of donor-advised funds in Canada actually require that. You mentioned one, the foundation that is associated with Mackenzie Financial. They require their account holders to distribute between 4 per cent and 8 per cent.

The average distribution, if you look at donor-advised funds, is probably in the range of 12 per cent, so overall, donor-advised funds are distributing three times what is required of a private foundation. So the track record —

Ms. Pearson: Any charity would have to supply that.

Mr. Sjögren: Yes. As I indicated, there are certainly donor-advised funds that don’t distribute anything in a given year. Some of those have been set up for legacy reasons so that they are distributed at the time of the death of the account holder, which is not unreasonable. So there are special circumstances, but there are obviously account holders that for various reasons choose not to make any distributions in one year but may make a substantial distribution in the next year.

Senator Omidvar: Thank you. That was very helpful.

I’ll move to Ms. Pearson. Thank you for your brief. I particularly liked the specificity of your recommendations, but I want to focus on the constraints you mention in your brief, such as the reporting requirements, the relationships between charities and government, the limitations on how to use investment capital and the focus on activities versus purpose. I’m going to take a point from Senator Duffy’s playbook and ask you to unpack this for our television audience. Let’s pick one: excessive focus on the activities rather than the purposes of a charitable organization. How does that play out for the charities involved?

Ms. Pearson: It plays out certainly through the T3010, the annual reporting requirement and, of course, all of the bookkeeping and the administrative record keeping that has to take place in order to be able to fill out that form successfully. The Canada Revenue Agency requires a lot of detail on the different kinds of activities that a charity pursues, and it’s difficult for a charity sometimes to disaggregate, to say, “X per cent of my time was spent on an administrative activity, fundraising, political activity or a charitable activity,” so called. These are the different kinds of activities you have to report on in the T3010.

An organization that is pursuing a charitable purpose could be engaging in all of those activities and typically is, particularly if it’s an organization that’s interested in public policy work or in advocacy, which means that it can be engaging in political activity as well.

All that has to be tracked and reported. For charities that have fairly limited capacity, it takes away from the essential work of the charity, which is, again, pursuing that charitable purpose. I’m not saying that there should be no reporting at all. I want to be clear about that. That would apply to all charities, regardless of whether they’re foundations, funders or actual charitable organizations that are delivering services. Reporting is important. Accountability is important.

The question is, when the Canada Revenue Agency and the Income Tax Act itself — because activities are referred to in the Income Tax Act — when that becomes the only way in which a charity can be monitored, then I think you lose the forest for the trees. It becomes a question of examining individual trees as opposed to looking overall at the ensemble of what the charity is trying to do, and whether that is indeed pursuing a charitable purpose or not.

Senator Omidvar: Thank you. That’s very helpful. I wish we had more time. May I ask one more question?

The Chair: You mentioned time. We’re getting pressed for time. Quickly, please.

Senator Omidvar: We’ve been hearing from witnesses who are recommending increasing the incentives so that more people are able to give more through the donation of real estate or RRSPs. Would you recommend that if we consider these proposals, smaller charities be provided with additional incentives and capacity building so that they too can benefit from this largesse that is projected to enhance philanthropy?

Mr. Cho: We’ll take anything. Again, I think it boils down to some of the reporting requirements, processes and the know-how which, unfortunately, we don’t have the expertise in.

Another issue we’ve come across in many instances is when there are funds available from different sources, whether from government grants or from corporate sponsors, there’s a tendency to now move towards this project-based grant making, so there’s a very small amount available for administration and overhead. So the organization really just can’t build itself to get to the point where it can be self-sufficient and really make use of all the different tools available to it.

I know we have one donor who wanted to provide a grant of private securities to our organization, and we have very little understanding of how that works. Certainly there is the CanadaHelps platform, and again, we have to figure that out, and we’re working with the donor. These are conversations that are had late at night between all sorts of different things that are happening in our professional careers.

The concept, perhaps — I’ve been thinking about is from the start-up world and these incubators and things that are very progressive for entrepreneurial activities, if something like that could be applied to the charitable sector for these community-based organizations where that kind of support is there to accelerate their growth.

The Chair: Thank you very much.

Senator Gold: Thank you all for being here. I couldn’t agree with you more about the importance of culturally specific foundations and the importance of community foundations. Would you agree that, at least with respect to charitable foundations, it does provide a kind of strategic focus for community building? That is, the foundation can act strategically and sometimes steer funds, including donor-advised funds, to causes that may not be as obvious or prominent but are really needed, especially if the foundation or the professionals have developed relationships with the donor — as their financial advisers in some cases, which I’m familiar with.

Just a general comment on whether the community foundation approach answers some of the concerns about donor-advised funds and also helps fund less popular causes.

Mr. Sjögren: Perhaps I can start. The community foundations as a whole are important providers of donor-advised funds, and in the analysis that we undertook, we looked specifically at fees charged to donors by foundations sponsoring donor-advised funds. Not surprisingly, the aggregate fees that would be charged by a community foundation to a donor are substantially lower than the fees that would be charged by a foundation that’s associated with a large investment dealer.

From a value perspective, we also found that community foundations tend to be closer to the donors than the other types of sponsoring foundations in that they provide education facilities, they have peer-to-peer groups, they are nurturing those donors to become philanthropists, and they are encouraging them to look locally in terms of where their grants go. They have a significant role to play in the development of this particular vehicle.

The fact of the matter is that the growth of assets in donor-advised funds held at community foundations is far slower at the moment than it is in donor-advised funds held at commercial foundations.

Senator Duffy: Mr. Sjögren, you said the financial institutions commissioned this study and are interested in it. You have done it, but it’s for the financial institutions that have shown an interest in this area.

How do we get the banks to make it? I know they have these funds as part of their portfolios, usually through their investment arms. When you buy your RRSPs or whatever banking things you do, how do you convince the banks to put it on a little checklist of things that a bank talks about with their customers?

Mr. Sjögren: Thank you for the question. That is a challenge that we have come across. The banks would generally admit that only 10 per cent of their financial advisers actually engage in a discussion with their clients about charitable giving, and it gets slightly better as you move up the food chain, so that those advisers dealing with affluent Canadians are more likely to bring it up.

If you actually ask advisers why they don’t talk about charitable giving, they say they don’t have the technical knowledge. Some of them say they would prefer not to become involved in dealing with personal values rather than financial values. Those who are honest would say if I encourage my client to donate, I’m going to lose assets on which I’m earning an income stream.

Ms. Pearson: The previous witness, Ruth MacKenzie of the Canadian Association of Gift Planners, her organization and mine are releasing a study of philanthropic advisers this week. It’s called “Doing Good for Business.” It is a series of case studies on the advisers themselves and interviews with them. These are the people who have been successful in raising philanthropy as part of the conversation. The intent here is to show the rest of the adviser community that this is very good, not only for philanthropy but also for their own business and their own client relationships.

Senator Duffy: Congratulations on that, and a quick shout out to Senator Gold who made the point to an earlier panel that some people are better off than they think they are. I think there’s a slogan at one of the banks: You’re richer than you think. If we can cause Canadians who don’t think of themselves as affluent to actually take inventory and decide what they want, then that’s good.

The Chair: This ad has been brought to you by Scotiabank. Thank you, Senator Duffy.

Thank you very much for your presentations. It’s very interesting. I have a list of senators who would like to ask more questions, but we must move to the next panel.

We will continue our hearing with our next witnesses. From PricewaterhouseCoopers LLP, Canada, we have Mr. James Temple, Chief Corporate Responsibility Officer. By video conference, we have Kevin McCort, President and Chief Executive Officer, Vancouver Foundation. And we have Mr. Andrew Chunilall, Chief Executive Officer, Community Foundations of Canada.

Thank you for accepting our invitation. I’d ask you to make your presentations and try to stick to the time limit that we gave you. I will be disciplining my colleagues to stick to the time limit I give them to ask questions when we get to that point.

We’re starting with Mr. Chunilall.

Andrew Chunilall, Chief Executive Officer, Community Foundations of Canada: Thank you, Mr. Chair. I appreciate that this panel is at the end of a long day. I recognize that there is a risk of being somewhat redundant, so I’m going to try to make my remarks from a different angle. I’ll focus less on some of the federal legislation and more around the trends that we’re seeing in the industry that will impact the legislative framework guiding charities and foundations in Canada.

Rapid technological advances, generational change, demographic shifts and growing globalization — every sector is undergoing an adaptive shift as we respond to the present and future realities that shape Canadian communities. The 21st century economy calls upon all sectors to identify new ways of conducting business, characterized by an emphasis on knowledge and networks.

Throughout this rapid change, Canadians continue to rely on registered charities, non-profit organizations and social enterprises for services, leadership and innovation that touch on all areas of community and social well-being. Charities and non-profits generated $176 billion in income, employ 2 million people and account for more than 8 per cent of Canada’s GDP. The prominent role of the sector shows no signs of slowing. As my colleagues from Imagine Canada spoke about this morning, the demand for essential services provided by charities and non-profits will rise dramatically over the next decade.

Under the current regulatory regime, the private sector has significant flexibility to be adaptive to the 21st century economy, characterized by platforms, aggregation and cross-sector collaboration. Businesses have access to debt, equity and financing to accomplish their goals, and the private sector organizations are permitted the flexibility to focus their efforts on profit, social benefit or both. This flexibility has seen a rise of multi-million dollar companies such as Benevity and GoFundMe, which facilitate employee and online giving and have flourished in terrain traditionally occupied by registered charities.

At present, Canada’s registered charities and non-profits are explicitly committed to social benefit, and yet they are restricted in the ways that they can achieve those benefits. For example, registered charities face significant barriers to working with unqualified donees, even in cases where such collaboration would be the most effective way of achieving their charitable purposes. Similarly, registered charities face a narrow definition of permitted related business activities, which limits their ability to use social enterprises to further their missions.

The modernization of the Income Tax Act, like the addition of a destination test as suggested by the 2018 steering group report, can unlock the ability of charities and non-profits to engage more fully in social enterprises for the benefit of Canadian communities.

At Community Foundations of Canada, we have seen these rapid social shifts and responsible leadership by charities and non-profits in communities in all parts of Canada. Community Foundations of Canada is the national network of 191 community foundations. Together, we are a philanthropic movement working across sectors to help Canadians build strong and resilient communities. Roughly 90 per cent of Canadians have access to a community foundation, and the movement collectively holds $5.4 billion in assets. These assets, along with those of other public and private foundations, provide funding and financing for registered charities, non-profits and social enterprises, an important complement to government investments.

In 2017, Community Foundations of Canada granted over $60 million and invested $60 million in impact investments. With a look to the future, Community Foundations of Canada recommends that the Special Senate Committee on the Charitable Sector consider the following recommendations.

First, that a thorough examination of the Income Tax Act be undertaken to modernize the regulation of registered charities in line with the recommendations of both the Government of Canada’s consultation panel on political activities and charities produced in March 2016 and the Social Innovation and Social Finance Strategy Co-Creation Steering Group in August of 2018.

Second, that a home for the sector be formalized within government to better recognize and facilitate the vital role that charities and non-profits play in Canada.

Thank you for your attention. I can take questions at the end.

James Temple, Chief Corporate Responsibility Officer, PricewaterhouseCoopers LLP, Canada: Senators Mercer and Omidvar, thank you for the kind invitation to be here today. I’m here in my capacity as Chief Corporate Responsibility Officer at PwC Canada. In this role, I oversee the team responsible for helping PwC solve problems across the country. Together with our people across the country, our clients and our communities, we tackle complex social, environmental and economic issues, bringing our skills, our capabilities and our thought leadership to life to add a voice to those who often can’t.

Within Canada, PwC has more than 6,700 partners and staff in locations coast to coast. With more than 110 years of excellence in Canada, we provide industry-focused professional services, including audit and assurance, risk assurance, tax, deals and consulting. To help the Canadian not-for-profit sector organizations face emerging issues, we also have a dedicated team of practitioners and advisers working closely with these thought leaders around strategic guidance. In my capacity working inside the firm, I also have the great pleasure of serving as the executive director of the Pricewaterhouse Coopers Canada Foundation.

I applaud the committee’s work in examining the federal and provincial laws and policies governing charities, non-profit organizations, foundations and other similar groups and commend you on the examination of the impact of the critically important voluntary sector.

With a specific focus on how this social-purpose sector is funded and my role within the company, I would offer the following observations to reinforce what we have heard today and to reinforce this from a business lens.

We know that Imagine Canada defines the social-purpose sector as being comprised of registered charities, public-benefit groups, not-for-profit organizations and social enterprises. Together, they account for over 8 per cent of GDP and face a growing social deficit which we have heard will amount to upwards of $25 billion over the next 10 years. Yes, this deficit is calculated using the difference between the demand for social services and the realities of a fragile financial sustainability given aging populations and questions around how we engage an emerging demographic across Canada. Foundations, donor-advised funds and other funding mechanisms play a critical role in enabling the long-term resiliency of this sector. They complement government investments and support us in an economic resiliency for a greater Canada.

We also live in a society where the public has come to expect these social-purpose agencies and how they interact with us. To continue to meet these expectations of society, the sector requires a safe space within government to take risks, to innovate and to fail, like any other business.

There is no one home within government to have a focused conversation. Today I come with observations and come to the committee with some thoughts to consider.

First, the social-purpose sector requires a formalized home within government to better recognize, amplify and collect meaningful data on its strength and impact as an important economic driver for Canadian economic growth and competitiveness. And I reiterate what my colleagues on the panel have said with regard to Canada’s Social Innovation and Social Finance Strategy Co-Creation Steering Group, via ESDC, presented in August.

Second, modernization of the regulatory framework governing the charitable and non-profit sectors is required. Specific attention can be paid to addressing the definition of what constitutes charitable purpose versus activity, and the mechanisms available to public, private and corporate foundations to work with entities that are fulfilling public benefit but are not currently qualified donees. This may include setting clear guidelines regarding a foundation’s ability to make program-related investments or loans to entities that are fulfilling a social purpose — for example, a social enterprise — or to invest within public-private partnerships that have a better return on investment on public purpose and for those involved.

Last, a competitive pan-Canadian data strategy and framework is required, which we have heard from others here on the panel today.

I thank you for your time and would invite questions.

The Chair: Thank you very much. We’ll now go to Mr. Kevin McCort in Vancouver via video conference.

Kevin McCort, President and Chief Executive Officer, Vancouver Foundation: Thank you very much. As you mentioned, I’m in Vancouver on the unceded traditional territories of the Musqueam, Squamish and Tsleil-Waututh First Nations.

I am fortunate to have worked for 30 years in the roles of CEO, board member, staff and volunteer. I am currently the CEO of a dynamic community foundation that has granted well over a $1 billion and stewards a $1.2 billion endowment. Previously, I spent six years as the CEO one of Canada’s leading international development charities, and nearly two decades before that as a front-line worker on humanitarian relief and community development projects throughout the developing world.

I am drawing on this experience when reflecting on the Senate committee’s mandate and comments made by Senator Mercer and Senator Omidvar that spoke to empowering and enabling charities to better meet the challenges of today and tomorrow. These sentiments are entirely correct. We have an extraordinary charitable sector in Canada that enjoys positive and sustained support from citizens and governments. Yet any system can be improved, and because our services remain in great need, I’m pleased to share these recommendations.

My first recommendation is that you do commit to the essential role of the sector in building the Canada we seek, but this is more than just a strong charitable sector. It is about acknowledging what McGill professor Henry Mintzberg writes in his book Rebalancing Society: A healthy society balances a public sector of respected governments, a private sector of responsible businesses and a plural sector of robust communities.

Let’s make a home for the sector and not just a regulator, as we have with CRA, and that will signal to everyone that Canadians seek to preserve the social equilibrium necessary to protect our environment and our democracy and bequeath a liveable future to our children.

The second recommendation is that you help the sector build income and assets to better serve Canadians. One of the key beliefs affecting the charitable sector is that all it’s resources should go to the mission and as little as possible should go to the cost of running the organization. Over the years, this belief has led to a culture of underinvestment throughout the sector, and an expectation of low costs by donors. Attempts to change the narrative to focus on outcomes or impacts, not overhead and cost per dollar raised, have largely failed. This is often because charities themselves have their low cost as a comparative advantage, further fuelling the idea that a sector that fails to invest in itself is a good thing. For the sector to have any hope of providing balance vis-à-vis the public and private sectors, this needs to change. Charities need strong balance sheets, robust income statements and an operating surplus, while simultaneously delivering positive outcomes and impacts. Governments regularly discuss recommendations to help the private sector. For example, the discussion over the last few weeks regarding changing the capital cost allowance for depreciation of investments is just one example. For charities, this committee needs to recommend amendments that will increase giving and sector assets.

The first recommendation is one you may not have heard before, and it is that you should look at regulating unclaimed property. B.C., Alberta and Quebec are the only three jurisdictions in Canada that have legislation regarding the disposition of unclaimed property. This excludes federally regulated banks, and British Columbia is the only jurisdiction in North America where property that has been deemed unreturnable is donated to charity.

The Vancouver Foundation is the charity recipient of these funds. We’ve received $36 million since 2004 and donated 100 per cent of this to charities in the province. The B.C. system should be replicated across Canada.

The second recommendation is to consider tax credits and disbursement quotas aligned with public priorities. We heard some examples regarding ecologically sensitive lands, but the logic here is to expand that. Governments issue and set quotas, so these can vary according to policy goals set by governments. Taken as a whole, these regulations can change giving patterns and use of assets by the sectors.

Higher tax credits for causes deemed more important or urgent and/or setting the disbursement quota in ways that encourage certain types of investments made by charities are well worth investigation.

My third recommendation is that we must ensure the balance of tax benefits with societal benefits. For the sector to maintain public support for beneficial tax status, people must see that the public benefit outweighs the private gain that tax credits may provide, and I have two specific concerns in this regard. The first is around gifts of life insurance.

The Vancouver Foundation recently rejected some very large gifts of life insurance which were structured in ways that we did not feel provided sufficient social benefit compared to the tax receipt we could have issued. So we have changed our policy, and we no longer accept gifts where the insured life is a minor, nor are we interested in issuing tax receipts for insurance premiums paid today but that promise gifts that won’t be paid out for decades.

Second, we’ve heard about this from other panels today: concerns about the disbursement quota with community foundations and donor-advised funds. Disbursement quota is a minimum amount a clarity is required to spend either on its own charitable activities or on gifts to qualified donees or other registered charities.

Since another foundation or community foundation is a qualified donee, a giving circle could be sustained that effectively breaks the link between tax benefits given and social benefit conferred. To avoid potential abuse and to maintain public trust in the foundation and endowment community, perhaps permission should be sought if inter-foundation transfers exceed a certain percentage of the foundation’s annual disbursement.

In the interest of time, my last recommendations are bullet form only. Recommendation 4 is to strengthen human capital. We believe it’s important that this committee endorse the idea of paying people a living wage. Governments are major funders of the sector — 40 per cent — and they must provide sufficient funding to allow charities to pay their staff a living wage, and we know that this often doesn’t happen.

Second, support the development of portable pensions for workers in the sector. The charity and non-profit network has done extensive research into this. I strongly endorse their recommendations about the need for this kind of labour force investment.

Third, I would urge you to explore tax credits for volunteers. From our experience, we know that some of the people we most want as volunteers in our charities simply can’t afford to give their time. Giving time is a huge opportunity cost for many people, and some assistance in offsetting that should be considered.

Finally, as you may know, I was a member of the Consultation Panel on the Political Activities of Charities; we submitted our report to the Minister of National Revenue in March 2017. I encourage this committee to fully support the recommendations of that panel.

The Chair: Thank you very much. We appreciate your presentations, all three of you. I remind colleagues that we’re trying to stay on schedule. So please be short with your questions, and witnesses, please be short with your answers.

Senator Omidvar: Excellent presentations from all of you. In the interest of time, I’m going to truncate my questions. And my first question goes to Andrew and James. Both of you called for a home for the sector. James, you called for a home for the social-purpose sector. Andrew talked about a home for the charitable sector.

Can you expand on this a little? Can you be a little bit more specific? Is this a minister, an ambassadorial role, a department with policy and budget levers? Is it inside or outside government? We’ve heard about this home for the sector fairly regularly, and it would help us if you could paint a bit more of a nuanced picture here.

Mr. Temple: I would say it’s a combination. When we look at multiple jurisdictions in the U.K., Australia and New Zealand, which have been cited and where there is a home and a secretariat within government, we also know that it will be critical to work with the sector and across the public, private and not-for-profit sectors to understand what that may take.

What we have observed is a home where reporting functionality is centralized in a more coherent way. When we look at CRA’s oversight among other homes within government, how do we curate one body that can provide oversight with ministerial oversight that might also help be a cost efficiency for government? So whereas what gets managed gets measured, we can then elevate the amount of information available to better inform and create agility and adaptability of the sector itself alongside others.

Mr. Chunilall: James made some good points. I will build on them, if I can. In the U.K., they established the Charity Commission for England and Wales in 2017, which is a non-ministerial department. Australia has the Australian Charities and Not-for-profits Commission formed in 2012. In New Zealand, they had the Charities Services and the Charities Register within the Department of Internal Affairs. Those are three examples from the Commonwealth.

The one final point I’ll make is that, in those examples, they concluded that having a sector whose purpose had a social outcome aligned with the tax authority in that country was not achieving optimal results.

Senator Omidvar: Thank you.

Mr. McCort, you had so much in your presentation. In my time, I’m going to zero in on one particular recommendation, which is that tax credits should be flexible in terms of the priorities this country is facing. So I would imagine what you mean by that could be that those individuals or organizations that give money to, let’s say, reconciliation would get a higher tax credit than those who give money to universities and hospitals. Am I understanding you correctly here?

Mr. McCort: Yes. And that’s building on the fact that there are already some preferential differences. We heard this morning about the gifts of ecologically protected lands have different treatment under the tax system than gifts of real estate. I think it’s fair for our government to consider that the government is issuing tax credits and you have governments with different priorities over time, yet all charitable tax donations are given the same amount. That assumes that they’re all equally valid, and maybe that’s true, but I think it’s reasonable for a government to accept the premise that they have different priorities over time and there may be some incredibly important priorities at a given time. Climate change is one where you might say that now it is the most important challenge we face, and that perhaps should benefit from a greater tax credit than other forms of giving, which we may feel aren’t quite as urgent.

Senator Gold: I’m tempted to enter into this discussion because I have some reservations about transferring priority setting in the not-for-profit and other areas to the changing vagaries of government policy, but it’s worth looking into. I thank you for the suggestion.

Thank you all. If I may just ask you to comment on a more general trend that I’ve at least experienced and observed. It’s not simply the trend is a bit downwards in terms of giving in some respects and decreasing with age, but it’s also that there’s been a real difference and move away from what we might call collective giving to more targeted giving. Organizations like the United Way or Centraide in Quebec, which services, in my part of the world, 350 organizations, are really struggling to maintain the level of giving that the agencies they support require.

Could you comment about the risks to supporting the less popular causes, those organizations that don’t have the marketing sizzle or aren’t branchées, as we’d say in Quebec, connected, to pull in the vice-presidents of the banks or of the consulting groups? Is there any way to address this? Is there any policy fix for this? Or is this just part of the iPhone, iPad generational shift that we’re seeing all across the sectors?

Mr. Chunilall: I’m happy to jump in on the front end of this question.

I think you’re right, senator. In respect of giving and whether it’s on a decline or not, the verdict is still out on that. The way that we would measure giving, as an example, would be to look at all the revenue that non-profits and registered charities have collected. In my opening remarks, I talked about GoFundMe, and you’ll recall around the tragedy in Saskatchewan with the Humboldt Broncos, GoFundMe aggregated over $12 million in giving, but it was non-charitable because no tax receipts were issued. So does that capture itself in the data, which then talks about the relevancy of the donation tax credit, which we haven’t yet broached?

The second part of your question was with respect to what do we do about the less exciting causes or the less popular causes. I don’t think any cause or any social outcome is less exciting. It’s just that the charity, the organization itself, may not have the resources to amplify or have a voice at the table that encourages giving around it. In part, that’s some of the constraints within the regulatory regime, because substantially all of your assets, defined administratively as 90 per cent of assets, should serve a charitable purpose. As my colleague Kevin McCort indicated, that doesn’t leave much for a communications strategy or a branding strategy or engagement with donors or even developing an innovative way to deal with the issue itself. We have to look at a higher level at how we can modernize the regulatory framework that allows for capacity building within so that you can more effectively deal with the problems of the community.

Senator Duffy: We’ve talked about having a minister for charity, someone to go across the country and speak at service clubs, high schools, grade schools and everywhere and anywhere to create this kind of public awareness of how important this sector is.

In your interactions with government on these various task forces and so on, is there any feeling inside the government that you can detect that people would think that would be a good way to go, to collect everybody in one place? One sense is that it ends up at CRA almost by accident because they’re the ones who collect money and issue tax receipts and so on.

Mr. Temple: Senator, while I can’t comment on what we’re hearing within government, what I can tell you is what we observe, that the inefficiency created by additional bureaucracy within the charitable sector is astounding. Where there is a movement and a discussion around overhead that took place earlier today, a question that the committee may consider would be to what extent we are adding additional overhead to charities, perhaps an unintended consequence of oversight. However, to communicate what the additional requirements of overhead are — reporting, for example, would be a good one — would be where that goes.

Senator Duffy: This is the regulatory burden on the charity —

Mr. Temple: Correct.

Senator Duffy: — as opposed to the advocacy role that we would hope someone in government would take on to sell across the country.

The Chair: Mr. McCort had a comment on your question, Senator Duffy.

Mr. McCort: Thank you. I’d like to draw your attention to Global Affairs Canada and the Minister of International Development, where there are hundreds of Canadian charities involved in international development and they have a ministerial home within government. They also have a regulator, which is CRA, and they also have strong advocacy organizations or strong umbrella agencies. My belief is, in fact, that’s what the charitable sector overall needs, a home in government, a strong regulator and strong leadership from the sector itself. You need three things. The answer isn’t in one piece. It isn’t in a regulator or a minister. It is in a combination of those three.

My experience, after 25 years of international development, is a ministerial home is in fact very beneficial for the sector.

Senator Duffy: Another part of the education process — and one of our witnesses this morning mentioned the green bins and all of these various other social changes that we’ve seen over the last 20 or 25 years in which it has now become a norm that people recycle and have changed social behaviour in a positive way — no smoking, for example.

Has the sector considered trying to arrange meetings with the Council of Ministers of Education, the provinces, to see if there could be some kind of course, book, booklets, whatever, put in even at the elementary school level to describe charities, what they do and how they work? We have UNICEF and the Terry Fox Run and so on, but that’s kind of ad hoc. If we can somehow make it part of the culture from the time people are young, maybe that would help us further down the road because the statistics show the aging of the baby boomers and the decline on that side.

Mr. Chunilall: I’m happy to weigh in on that question. I think you mentioned the right word, senator, culture. A lot of philanthropy, particularly in the community foundations sector, is a philanthropy that’s an outcome of the Rockefellers and the Carnegies all those years ago. In effect, it still carries the day here in Canada, and there’s a lot of good associated with that.

However, the country is going through its own cultural evolution, as we all know. We had a group here from the Korean community who spoke earlier and talked about how there’s a different attitude and perspective around giving for Canadian Koreans. That exists among all of Canada.

So I think any initiative that talks about giving and brings it in through the school system has to be culturally affluent and sensitive to the diversity of our young people across Canada. Certainly that has the ability to open up giving and to have a more robust sector.

The Chair: We should recognize, Senator Duffy, that some jurisdictions in the country require young people, to graduate from high school, to have volunteer hours, which hopefully is part of that process.

Senator Duffy: Has the sector spoken with the provinces on this sort of thing?

Mr. Temple: Senator, to my knowledge, that hasn’t taken place. But I would say there are strong provincial organizations — for example, the Ontario Nonprofit Network, Volunteer Canada and Imagine Canada, which do convene important conversations, and perhaps this is a question to take away.

Senator Duffy: Thank you.

Senator Omidvar: Thank you so much. I want to acknowledge what Mr. McCort said about human capital in the sector but also to let everyone know that we have a full panel focusing on that, so I’m going to try to take the time to ask you some questions.

I think what you have suggested around how your foundation deals with public versus private benefit is actually a really interesting, promising practice that we should look at and think about recommending to others or, in fact, in regulation.

But I wanted to ask you particularly about your proposal about tax credits for volunteers. I have mixed feelings about that proposal. I think volunteering does not have a monetary benefit attached to it; and if it does, then it becomes something else.

I also agree that there shouldn’t be unnecessary barriers to volunteering, but I worry about taking away the essence of volunteering. If you attach, one way or another, a monetary benefit in your tax return, who would it benefit? It would benefit those who have taxable income. It would leave out all the others who fall below. So I worry about that. Could you give me some comfort? I think that’s what I’m looking for.

Mr. McCort: Thank you for the question. The Vancouver Foundation Act was written in 1950, and it’s very clear that we are not allowed to pay any funds to our volunteers. What’s changed since the 1950s is that we’re actively trying to include in our volunteer world people for whom volunteering is a true cost. It’s an opportunity cost that takes them away from work and their families. We are able to reimburse them their costs, but we’re stuck in this framework where we’re unable to really understand the full cost of volunteering to somebody.

I agree with your perspective. We can hire staff if we need to. This isn’t about hiring people. It’s about dealing with the opportunity cost for people for whom the current system actually presents obstacles to their being involved, and trying to look at removing those obstacles. Whether a refundable tax credit is on offer, there are a number of ways where the tax system actually does return money to people.

This is one where I don’t have the answer, but I know we are looking at ways for that, in particular for young people, Indigenous communities, single mothers, voices we want to hear at the foundation but for whom we see barriers to encouraging their participation. A tax credit, as you point out, may not help if they don’t have taxable income. There’s something in here; we don’t know exactly the answer, but we think there needs to be some investigation into ways to encourage people for whom volunteering is actually very difficult.

The Chair: We should point out, Senator Omidvar, a couple of previous studies done by special Senate committees. For example, the Special Senate Committee on Aging, one of the recommendations in that report talked about the issue of trying to recognize volunteers. Indeed, I was on that committee, and it came up at a hearing we had in Vancouver. The place where we met had a large volunteer base, but the volunteers’ biggest single problem was the cost of parking in downtown Vancouver. They were willing to volunteer, but they were seniors in most cases, and the cost of parking in downtown Vancouver became prohibitive in trying to find a way to be creative. So there are some other angles that need to be looked at.

Senator Omidvar: Let me explore that angle a little further. When we’ve received proposals here for enhancing the tax credit or the charitable regime, we’ve always looked for answers as to what would be the cost to the budget. Do you have an estimate of that, or studies that you know of that we could look to?

Mr. McCort: Look to, for example, the volunteer firefighters’ tax credit, where it’s set up that if you give a certain number of hours, maybe 200 hours per year, you’re able to deduct something like $3,000 from your income.

The example I was looking at is where we’ve said there’s a very specific population that’s putting substantial hours of unpaid time into something to public benefit. How, then, can we use another public benefit, which is our tax system, to recognize and hopefully incent that behaviour that overcomes some of the barriers people experience?

As I said, I don’t have specific solutions, but there are enough obstacles to volunteering. As we heard from the sector, 12 million people are volunteering, but numbers are declining. So this is something to look at to ensure the health of our volunteer base in the future.

Senator Omidvar: That reference to the volunteer firefighters was very helpful. Thank you.

I was interested in your previous experience as head of an international development charity. We haven’t heard much here, so far, around the barriers to international aid, the restrictions around charitable giving. I wonder if you could quickly tell us what the most significant barriers are that Canadians face when they want to give money on international issues and causes.

Mr. McCort: A significant one is the direction and control provisions of CRA, where a Canadian charity can only give to a program over which it has substantial direction and control. That actually runs quite counter to many of the charities’ beliefs that they want to work with partners in a partnership basis where there isn’t a superior-client relationship, where it’s actually a partnership. So many charities have great difficulty in structuring agreements that demonstrate to the CRA that they have substantial direction and control while also working with their partners in a true spirit of partnership. That’s one specific example where modernizing the framework would be very beneficial to international charities. That’s on the operations side.

When it comes to Canadians donating to charities, there are a few barriers to doing this. I’ve certainly been a big fan of consolidating the field, where charities band together and launch a single appeal for a large disaster as opposed to multiple competing appeals. The Humanitarian Coalition is an agency you could invite to hear about how collaboration among what would normally be considered competitors has generated significant benefits to the charities, the beneficiaries internationally as well as to Canadian donors. Those are two specific examples.

The Chair: This will be our final questioner.

Senator Gold: Thank you. I have just some brief comments and a question. They’re all for you, Mr. McCort. I couldn’t agree with you more with regard to the challenges vis-à-vis foreign partnerships. I’ve lived through that and a CRA audit on this issue. Organizations have to torture themselves to create agency agreements in good faith when they’re dealing with partners that are sometimes, quite frankly, more dominant and important than we are.

Second, vis-à-vis a comment on recognizing, in some way, volunteerism, in another committee of the Senate upon which I sit, we’re involved in a search and rescue study. We have discovered that one of the real challenges in the North, which our committee will be visiting soon, is that one category of volunteers who do enormously important search and rescue work, because the government can’t do it, are volunteers and can’t get paid. There’s another group, part of the Rangers, who do magnificent work, who are paid. It creates a disincentive for people to volunteer where they are sometimes needed because they can’t be properly compensated. It applies to many areas where people are doing work of public benefit.

I’m very interested in the concerns you’ve expressed and the policies you’ve adopted vis-à-vis the gifts of life insurance. I chair the planned giving committee of a major orchestra in Canada. We’re pushing life insurance gifts because it’s an important way to build up our foundation.

What are the principles and policies that you’ve developed that might be of help to us to avoid doing the wrong thing with the best of intentions?

Mr. McCort: I’ll talk specifically about the gifts that we have declined. As you know, there are many gifts of life insurance that are well suited to what charities are interested in, but like anything, the boundaries can be pushed to points where they become no longer acceptable. For us, one of those lines that was crossed was when someone brought us a proposal to insure the life of a minor, someone under the age of 18. That presented us with two challenges. One was the issue of consent. Is that actual person there? Did that person issue proper consent? And our belief is no. So we feel it would be inappropriate for us to accept a policy to life insure a minor. We no longer accept policies like that. We don’t accept policies like that. We didn’t accept them — we never have — but we won’t accept them if someone proposes them.

The second policy question is a maturity date. This happens again with minors, but it could happen with someone in their twenties where the maturity date could well be 70 years from the time the policy agreement is paid. When we receive a gift of life insurance, there are two ways that this generally happens.

One is where the owner of a policy bequeaths the proceeds to a foundation and then every time they pay the premium, they get a tax receipt for the premium. The other case is where the charity pays the premium out of its operations in anticipation of a gift.

When the prospect of realization of that policy and premium are close together, that seems reasonable to us. If the gap between when we issue a tax receipt and the years and years before any money is given to a charity and generates social benefit is too long, then in those cases, we would rather not have the gift. That’s for two reasons. One is the optics and ethics of it don’t seem to square to us of matching public benefit and tax benefit over the duration of time. The second is more practical. When we pay an insurance premium, it comes out of our books as an administrative expense and not a charitable expense. You can have a very big increase in your administrative expenses and no concurrent increase in your charitable disbursements. That can paint a negative picture of a charity in the eyes of its donors who have concerns about the ratio between administrative expenses and charitable expenses.

The Chair: Gentlemen, thank you very much, all three of you. It’s been very interesting. As you can see, you generated a fair number of questions and debate. We will obviously be considering everything as we make recommendations later on.

I want to remind colleagues that we meet tomorrow morning at 9 a.m., again in this room. Since the Senate will sit tomorrow, we will be finished by three o’clock so you can get your attendance taken in the chamber. If you sit over here in a committee meeting, you will be marked as absent under our rules. So we will be finished by three o’clock so that you can do that.

I think today has been productive. I’m glad we’ve done these two days. We are making some headway on an agenda that we set for ourselves some time ago.

(The committee adjourned.)

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