THE SPECIAL SENATE COMMITTEE ON THE CHARITABLE SECTOR
EVIDENCE
OTTAWA, Monday, November 5, 2018
The Special Senate Committee on the Charitable Sector met this day at 6:30 p.m. to examine the impact of federal and provincial laws and policies governing charities, nonprofit organizations, foundations, and other similar groups; and to examine the impact of the voluntary sector in Canada.
Senator Terry M. Mercer (Chair) in the chair.
[English]
The Chair: Welcome to this meeting of the Special Senate Committee on the Charitable Sector. I am Senator Terry Mercer, from Nova Scotia, chair of the committee. I would like to start by asking the senators to introduce themselves, starting on my left with the deputy chair.
Senator Omidvar: I am Ratna Omidvar, from Ontario.
Senator Duffy: Mike Duffy, from Prince Edward Island.
Senator R. Black: Rob Black, from Ontario.
Senator Seidman: Judith Seidman, from Montreal, Quebec.
[Translation]
Senator Maltais: Ghislain Maltais from Quebec.
[English]
The Chair: Thank you, colleagues.
Today, the committee will continue its study to examine the impact of federal and provincial laws and policies governing charities, nonprofit organizations, foundations and other similar groups; and to examine the impact of the voluntary sector in Canada. For this evening, we will focus on definitions as they pertain to charities and nonprofit organizations.
On our first panel, we welcome Don McRae, Charity Researcher; and from the Chinese Canadian Military Museum Society, King Wan, President. Thank you both for accepting our invitation to appear. I invite you to make your presentations and remind you that you have five to seven minutes to do so. Then we will get to questions from the senators. We ask that, in the question and answer session, the questions be succinct and the answers likewise so that we can get as many questions in as possible.
Don McRae, Charity Researcher, as an individual: I would like to thank the honourable senators for the opportunity to appear before you. I have followed these hearings with interest and have been impressed with the way in which the committee has learned and evolved over such a short time.
I would like to concentrate my remarks on access to registered charity status and, in particular, the definition of charity. My full brief addresses all of my remarks in a more detailed manner.
I worked for over 30 years in the federal government with charities and non-profits. I dealt closely with CRA and, when they would let me, the Department of Finance.
To paraphrase Susan Manwaring in her presentation to this committee, the rules for charities are a patchwork of provisions, with no evidence of a guiding hand.
The CRA is a modern tax overseer. It is not a modern regulator. As my brief states, the CRA has very few accountability mechanisms to the public or the charitable sector. It is opaque to the point that the charities directorate needs its own Access to Information unit to handle the requests for transparency in its operations.
Finance has the power to set the policy. That being said, we are here because, historically, the Department of Finance has not addressed the major issues facing the sector. Aside from the provision of tax incentives for donations and changes to correct its previous mistakes, it has failed to move in this area.
The core of the Canadian definition of charity stems from the Pemsel case of 1891. You know, from 127 years ago. Our definition of charity is a white, male, moneyed and passive concept. Now that I have your attention, let me unpack that.
The Pemsel case was groundbreaking, but it was created in Victorian England and was a product of its time. England was a homogeneous, white male-dominated society. Multiculturalism was unheard of. Women didn’t have the vote and were not seen as full citizens. Indigenous peoples across the empire were, if lucky, treated as second-class citizens. Education was restricted. It was seen as a noble endeavour.
Debates presented both sides of the issue, something that has bedevilled people working against issues like torture, pornography and other similar topics. The poor were pitied and given charity, but not their dignity.
Pemsel moved the law of charities in England of 1891. Today, it limits the groups that warrant gaining charitable status in Canada. As Kathryn Chan stated, the definition is not moving forward through changes to the common law.
Why is the definition important? In her presentation to this committee, Debbie Douglas talked about finding the magic words so that ethno-specific and racialized communities can get charitable status. Stephen Huddart talked about the limitations placed on the McConnell Foundation in trying to support Indigenous people in inner city cores. Paulette Senior of the Canadian Women’s Foundation said the same thing about trying to fund organizations of women and girls. These groups cannot get charitable status, so they cannot provide tax receipts for donations. Just as important, these groups are not qualified donees, so charities can’t support them.
There are things called agency agreements where non-charities can be supported, but they are cumbersome administrative accords that run afoul of the direction and control restrictions of the CRA.
In other words, two large parts of the fundraising world are closed to these organizations. Their efforts are blocked because of the lack of movement in a Canadian definition of charity, but your deliberations can change that.
My first recommendation is that we look at comparable charitable jurisdictions and create a codified Canadian definition of charity. If that doesn’t happen, then I propose a number of smaller but still meaningful steps.
I recommend the Tax Court of Canada be the site of appeals for decisions of the regulator. These appeals should be held by way of hearing de novo.
I would recommend a change to section 149.1 of the Income Tax Act to eliminate reliance on charitable activities so that the focus of regulating charities is based on their charitable objects.
I would also recommend that the charitable registration section of CRA undertake a systematic systems audit to review how applications for charitable status are processed. I have worked for over 30 years with charities, and I have 10 years of research under my belt. My research indicates that there is a bias inherent in the current system.
I recommend changes to the policy restrictions on direction and control so that charities can enter into less restrictive agreements with non-charities while still ensuring that the funds are properly protected.
My last recommendation is that the CRA increase its transparency in its dealings with the public and charities.
Thank you again for the opportunity to speak before you. I will be happy to answer any questions that you have.
King Wan, President, Chinese Canadian Military Museum Society: Thank you very much, Mr. Chair. The Chinese Canadian Military Museum Society is a nonprofit organization consisting entirely of volunteers. We have no paid staff, and I am just a volunteer. Thank you for the opportunity to come here to talk to the senators about our situation.
I am not as eloquent as Mr. McRae in that, as a volunteer and in terms of our time committed to the museum, it is all in our spare time. Most recently, we had a big dinner last Saturday night, which is our annual fundraising event where our main funds come from for operations.
I would like to talk about a few things. One is that we would like to share with the senators on the committee here that we would like to see broader cultural giving in our society to provide funding for smaller organizations like ours. We are a small organization. Our only funding is through donations from our members and then sponsors. As I was saying before, the major proceeds that we receive in the year is from our annual fundraising dinner. We are fortunate to have had a large crowd of people attend our function.
We looked at the tax credit that is given to charities, and I found that the current CRA tax credit given to donors is adequate from our perspective because we are a small organization. Those who give us funds will get their normal percentage of tax credit. However, that doesn’t mean that it cannot increase to provide them with a further incentive to donate to smaller organizations like ours.
I would like to see more government programs to support smaller organizations like museums. I know for a fact that there are multiple departments in the government that would provide funding for different charities, foundations and so on, and I think there is opportunity for more, be it from Veterans Affairs Canada, Canadian Heritage or other departments, where they could spend additional funds to provide that incentive for the smaller community museums to pursue their particular objectives.
One of our objectives, again, is narrowly focused. The Chinese Canadian Military Museum Society is mainly to promote and preserve the legacy of the Chinese Canadians who served in the Canadian military. I personally served in the military myself. At the same time, there are not many left of those who served in World War II. We have post Cold War era veterans that also need to have their stories told. Most recently, Afghanistan veterans coming home should have their say and their stories preserved for prosperity for our fellow citizens.
Some of the reporting requirements in the CRA are somewhat cumbersome. I also belong to a number of other organizations where, because they are national in scope across the country, their filings of T3010s and other forms are somewhat of a challenge. When you are dealing with volunteers, people may not be as responsive as people who are paid staff, so sometimes the timing of those reporting requirements is somewhat onerous for those who are working on a voluntary basis.
I also agree with Mr. McRae on a number of issues he mentioned. I learned something from him, as well, this evening, which is the whole concept of charity in our current setup in Canada. I read a lot of submissions that were sent to us earlier through your website. We are fairly progressive, but there are countries like the U.K. and the U.S. that have certain features we should consider emulating or learning from. I am not an expert in those charities. At the same time, I do share some of the more advanced charity-giving policies and procedures.
Again, I want to thank you for giving me the chance to come here to speak to you. I appreciate any comments and questions from you.
The Chair: Thank you both, gentlemen.
Mr. Wan, you bring something to the table that is extremely important in this sector: You are a volunteer. That is the backbone of how this sector operates. Don’t sell yourself short. That is a very important role.
As a practical question, where is the Chinese Canadian Military Museum Society’s museum located?
Mr. Wan: We are located in Vancouver — Chinatown. The Chinese Cultural Centre of Greater Vancouver has a building, and we are a lodger of that building. We occupy a hallway and a small room. Fortunately, since I look over as president a few years ago, we believe in the museum, not only to present something on a one-time only basis, but I believe it has to be refreshed on a regular basis. If you have seen the museum once, you may not go back if there is nothing new to show. For a number of years, we have been changing our theme and focus of displays on a fairly regular basis. To do that requires funding. Although our volunteers are very active and passionate about what they do, at the same time, it requires a lot of effort and funds to create those new displays.
Our most recent one concerns the Indigenous veterans working with the Chinese veterans. You may not know the history behind it, but after the trans-Canada railway was built, many of the Chinese railroad workers were stranded in Canada. CPR agreed to send them home after the railway was built, but at the end of the building of the railway, they were left stranded where they were. Many of the communities did not want to have all those single Chinese men in their communities. Luckily, the First Nations took them in, because they were all subjugated to the same kind of discrimination. So along the B.C. railroad line and part of the Prairies, a lot of the Chinese were fairly well looked after, working with the First Nations people. In fact, there are a lot of intermarriages as well. That is a bit of the history. We believe that those sort of things should be captured and preserved as part of Canada’s history.
Over the years, we had a number of things that happened, too. In 1941, Canada sent over two battalions of soldiers to Hong Kong to help defend Hong Kong. The Royal Canadian Regiment and the Winnipeg Grenadiers went over to Hong Kong, 2,000 strong, and lo and behold, they were taken as prisoners of war. We did a story on the Canadians who served over there and gave their lives.
Every year, we try something different and new to preserve our Canadian heritage and history. I am sorry for being long-winded.
Senator Omidvar: Thanks to both of you for being with us today. I have two separate questions, so I will start with our first presenter, Mr. McRae.
Mr. McRae, I have known you for a long time. I want to commend you. You are a retired public servant, but your love of this file keeps you going. You do the research all on your own and you put out reports in your own capacity. It is a real gift to us that you can be with us today.
I want to get some clarity around your recommendations 1 and 2. Are they either/or, or are they and/and? I am not quite clear about that. I also want to ask you about the definition of charity and definitions per se being grounded and located in the time they are crafted. About 20 years from now, if we were to redefine charity today, would we be looking at another expression of charity 20 years from now? Is it perhaps better to leave it oblique?
Mr. McRae: The first recommendation is what I would like to see happen. The subsequent recommendations are grounded more in reality. I worked with Finance for a long time. I helped create many programs and dealt with Finance. The first thing we wanted was never the thing we got, but some of the other things later on were the things that we got. I believe codification is important, and it would go a long way. If that is not accepted, the other recommendations would help push things along so the definition could change.
Senator Omidvar: Can you perhaps help us understand, in your own words, how the current definition of charity prevents progressive work being done? For instance, relief of poverty is charitable, but eradication of poverty is not. Can you help us differentiate those?
Mr. McRae: I believe it was based on a court case that basically said that if you try and eliminate poverty, in doing so, you could assist people who were not poor. That gets into the quandary of whether there is a personal benefit given to people through your charitable work.
In my time, I worked with groups of Indigenous people, women’s organizations, human rights organizations, multicultural organizations and ethno-specific organizations to try and help them get charitable status. In 1891, in England, the people who crafted what became the Pemsel case didn’t understand that women needed to advocate. When I was working, women’s centres across Canada could not get charitable status because they used the words “advocacy” or “to advocate.” I sat down with a women’s centre that still has charitable status and crafted their objectives so that they didn’t use the word “advocate” but they did everything else that would allow them to talk about women’s rights, property rights, divorce, shared custody of children — the whole nine yards. It didn’t use the word“ advocacy” because, at the time, CRA didn’t like “advocacy.” There are plenty of other examples where, because the definition comes through Pemsel, there are restrictions on where people can go.
Senator Omidvar: I will ask a question around advocacy on the second round, but first I want to ask Mr. Wan a question.
I have a picture in my mind of your museum the way you spoke about it. It is wonderful. I want to ask you a bit about your finances. You talked about government grants and donations. On an average year, what is the level of charitable contributions you receive from individuals?
Mr. Wan: We have been fortunate in the last year or so to have one or two major benefactors. For that, we are thankful that we received maybe $20,000 to $30,000 over the last few years.
We have been also receiving some grants from the government. That was back in about 2011-12. We got funding from the Canadian Heritage group. There was a historical community fund that came out, and we were able to get about $50,000 or $60,000 that year to hire someone to help us create some exhibitions, and we were able to use that to get to the Canadian War Museum for a short time.
Senator Omidvar: Thank you. If you in an average year get $20,000 in charitable donations from individuals and you have to make a pretzel out of yourself to report on it, do you think that there should be a change in the law that requires variable reporting and depth of reporting based on the levels of contributions you receive? Why should a small organization like yours have to go through the same hoops as the SickKids Foundation, which gets millions of dollars every year?
Mr. Wan: Exactly. We are small potatoes in terms of the big picture, but we have also been fortunate. When I say $20,000 or $30,000, that is strictly through individual donors and through membership, and we were able to get a bit more the last couple of years. But it is quite correct that small museum charities should not have the same standard of reporting as someone like the hospital foundations that get $60 million or whatever the case is.
Senator Omidvar: Thank you. That was my question.
Senator Martin: I thank you both, and I apologize that I missed the first part of your presentation, Mr. McRae.
Mr. Wan, it is nice to see you here in Ottawa. It is fitting, with Remembrance Day coming up and Veterans’ Week, that you are representing a unique society in Canada. In terms of the society, is it quite unique in Canada? Are there other such societies? You have a very specific mandate, as you explained. Does that limit your access to funding? I want to understand whether funding opportunities are available to you, or, with a specific mandate, whether it is more challenging?
Mr. Wan: Yes, it is more challenging because we are narrowly focused on veterans and on a certain ethnic group as well.
The major government funding would come from Veterans Affairs Canada or Canadian Heritage. Those are the two main ones we can get money from. Sometimes the procedures are more onerous, and we are competing against other veterans organizations as well. That is the challenge we have.
Senator Martin: I know the museum personally. I see the changes that are happening each time. It does require so much work as a volunteer. I want to commend you and everyone involved in what you are doing.
In terms of the cumbersome process you talked about, it is very complex. I hear “complex” from many organizations. Would you break it down for us in terms of how onerous it is? The insight would be helpful.
Mr. Wan: It depends on who is on the board of the museum. If we have someone who is capable of doing finances, it is easier. But we still have to have our financial reporting requirement on an annual basis. It doesn’t matter how big or small our revenue stream is. That, in itself, is a challenge.
Senator Martin: Mr. McRae, when you said there is a bias inherent in the system, you mentioned some of them. Are there others which you haven’t yet elaborated on?
Mr. McRae: The research that I have done shows that, over the past couple of years, the number of charities in Canada has remained stagnant. Since January, we lost about 200 charities. When I was going through my career, the number of charities increased every year. I wanted to find out about that.
CRA is being more restrictive in terms of their approval rate of registrations. I like numbers, so give me a minute. From 2002 to 2006, the approval rate was 74.5 per cent for charities. That changed and went to 44.8 per cent from 2014 to 2017-18. The rate has gone down approximately 30 applications per 100.
The revocations have increased in terms of how many charities lose their registration. If you fail to file your T3010, you lose your registration. You can get it back with a $500 penalty, but the rate of re-registrations has gone down. I did a study that looked at it from 2002 to 2014, and it went down by about 10 per cent. It is decreasing that way.
I also go through and see who the new charities are. By and large, the new charities are not as diverse as our Canadian society. I find that problematic. It hasn’t changed that much from when I was doing my job.
Senator Seidman: Thanks for your presentations.
I would like to go back to the definition issue that Senator Omidvar mentioned when she first approached you with her question. There are advantages and disadvantages to a definition. A researcher would say that we need to have a definition because we need to understand the concept and then we can measure it. A quantitative researcher might say that. On the other hand, a lot of others — and sometimes legislators — would say that codifying something can be negative because it can restrain or confine and lose relevance over time.
Mr. McRae, as a former researcher, I truly appreciate your desire for a definition, but let me ask you about the public benefit test that has been used in addition to those Pemsel categories that you mentioned and whether you think that public benefit test is something that is helpful.
My notes tell me that organizations wishing to register as charities with the CRA must ensure that their resources be devoted to charitable activities in furtherance of their charitable purpose. While noting that the difference between purposes and activities is often unclear, the CRA defines charitable activities as what a charity actually does day to day and over time.
Is that helpful in understanding what we mean by a charity as opposed to codifying a definition?
Mr. McRae: Being a bureaucrat, I know what happens when a system ossifies, where it becomes hidebound.
Under the political activity audit, one of the organizations received a 35-page letter stating that its activities were offside and that 98.5 per cent of its activities were offside in terms of the political activity audit. The organization in question had a $400,000-a-year budget. They couldn’t hire a lawyer. Essentially, CRA had taken them to so many lengths using charitable activities and not focusing on what the organization was doing as an organization and whether or not its objects were there, whether or not its objects were charitable. If 1.5 per cent of your activities are charitable, to me, that’s buying coffee and cookies over the year. For $400,000? That’s $6,000?
The problem with the regulator is that it keeps on reinterpreting some things like public benefit. To me, the way to get around the public benefit is to get agency agreements so that charities can fund non-charitable organizations. There was — I can’t remember his first name — Mr. Miller, who talked about the philanthropic legacy that foundations had for the Indigenous people that they wanted to try and help. They can’t help if the organizations are not charities. If, however, the CRA starts to set up agreements that allow them to fund these organizations, then perhaps you can do that even though they are not charities.
I would say that one of the reasons why CRA thinks they are not charities is because of perceived personal benefit but, in a country like Canada, we can’t look at philanthropy as one whole thing. There is a spectrum of philanthropy. When you have newcomers coming to Canada, the first thing they want to do is support their family. The next thing they want to do is support their clan, to use a Scottish term. The first thing you want to do as a highland Scot is to support the highlanders, then you want to support Scotland and then, I’m sorry, but England is not in there. There is a spectrum of philanthropy, and people move. My research, when I was working in Canadian Heritage, showed that ethno-specific organizations move their philanthropy from local and focused on their own to being greater, and that takes time. In order to get them to that greater thing where there is no perceived personal benefit, we need to help them along the way. If we can get rid of restrictive agency agreements, that’s one way, but we need to try to move the definition so that some of those people are not seen as outsiders.
Senator Seidman: Mr. Wan, I saw you nodding, so I will ask if you want to add to that.
Mr. Wan: I think Mr. McRae was quite right in saying that. The museum has been established for 20 years, so we are somewhat mature in terms growth. Initially, it was the Chinese Canadian veterans. As I mentioned, we expanded to include other veterans activities, such as the Battle of Hong Kong. Canadian soldiers went overseas to help. We talk about Indigenous veterans. As they grow and have that foundation, they can build on expanding it to encompass all Canadians.
The Chair: I notice one of our researchers is Scottish, and I asked her if she was taking credit for your speech today, Mr. McRae.
Senator R. Black: I have a question for Mr. McRae. Looking at the current definition and the four heads of charity, if it was redefined, updated and brought into the 21st century and codified, how many additional points or opportunities do you think there might be? Is it 1 or 2, or is it 25 or 50 or somewhere in between? Will this be a big deal if it were ever done, or is it your idea to add two or three more and that might solve the problem?
Mr. McRae: First of all, we have what has happened in other jurisdictions where they looked at that. Catherine Chan said that England and Wales went through this for their charity commission and it took a long time and it was like giving birth to elephants. There was a lot of noise and stamping around, and they finally got to a place where they liked it.
I can’t give you an answer. There are certainly a lot of things that the Pemsel case never thought would happen. To be blunt, 20 years ago, LBGT and two spirited was off my radar. Things change, and I think that the definition needs to evolve to reflect some of those changes. There is no magic answer as to how many.
To give another example of why I think there are problems, the majority of charities created last year, so 441 out of 1400, were welfare organizations. There are about 70 or 80 charitable categories. Welfare categories are: welfare charitable corporations, welfare charitable trusts, welfare not elsewhere classified, welfare disaster funds, welfare organizations providing care other than treatment. For the largest growing area, we have five categories that tell you essentially nothing, except for disaster funds, about what the organizations are doing.
We have temperance associations as one of the categories. We have military unit funds as one of the categories. These are stand-alone things that are there. I’m not saying they shouldn’t be there, but I’m saying we need to move, and there are a whole lot of things that need to move.
Senator R. Black: Mr. Wan, I’m looking forward to someday seeing your museum, and I will get there. How many volunteers do you have?
Mr. Wan: We have a board of directors of 11 very capable, passionate and professional individuals. We are the working bodies. The museum society membership is at about 140, and most are sort of active.
Senator R. Black: Is that number growing, decreasing or static?
Mr. Wan: It is pretty static, but we are trying to expand the growth. It has not been growing that much. We don’t have a lot of resources to do the promotion.
Senator R. Black: Thank you.
[Translation]
Senator Maltais: Mr. Wan, let me congratulate you for keeping a piece of our Canadian history alive. Well done! I think that it’s very important for our nation to remember the people who built the country and who participated in its construction.
Perhaps the Canada Revenue Agency should distinguish between two types of volunteering. There are large foundations in universities, hospitals and colleges, which involve corporate volunteer work, and there are small foundations that don’t have substantial financial resources. You’re not alone in this case. We’re familiar with many of these foundations. Witnesses from some foundations have appeared before our committee. Would you be able to keep your goals alive if your conditions were different from the conditions of large foundations?
[English]
Mr. Wan: Thank you for comments, senator. Better access to greater funding would certainly help our organization, being a small museum, to grow and expand. I think that is very important. At the same time, it would require some effort from the government or some other organizations to make those things happen for us in order for us to gain access to this funding.
[Translation]
Senator Maltais: I think that one of the objectives of our committee, which is chaired by Senator Mercer, is to ensure the viability of small organizations that can’t afford to hire lawyers or chartered accountants on a permanent basis.
Mr. McRae, over the course of your research, what requests have you seen the most often from small organizations such as Mr. Wan’s society?
[English]
Mr. McRae: I think Mr. Wan has basically outlined a lot of challenges faced by organizations. To do some of the research that he is doing and to try to record what has happened, people’s lives in terms of helping defend Canada and its freedom, it’s labour intensive. It’s a work of love.
When I first started my job, I worked with a summer youth employment program. We would hire youth for museums. We hired youth to do snowball research on the history of Chinese-Canadians in Saskatoon, for example. It gave a student out of the University of Saskatchewan 14 weeks of work. It was right down their field. It helped the organization. It helped the Chinese cultural community in Saskatoon. Things like that for his organization would not only help him create new material for his museum, but it would make Canada richer by sharing it.
There are a lot of challenges. I certainly think that there should be at least a two-tiered public information return from the Canada Revenue Agency for smaller organizations. I think there should be two-tiered applications.
When I started work, we had something called grants and contributions. The grants were unconditional transfer payments. They were very low but unconditional. The federal government at the time said, “We will give this money to these organizations to carry out these projects.” If the organization did something with the money that was untoward, it was unconditional. You couldn’t do anything with it. In the department I worked in, we knew the organizations. We didn’t have organizations that frittered away the money. The organizations tried, to the best of their abilities, to do the projects. It was very little money in terms of the federal government budget, but it was money that helped those organizations thrive, helped them grow and helped them do things that affected other Canadians.
[Translation]
Senator Maltais: I don’t know how the Canada Revenue Agency would react if a foundation were to ask the government to cut red tape and save trees. When it comes to volunteer work, a great deal of paperwork is involved. The lawyers and accountants cost a fortune. By simplifying the process, we could save trees in Canada. David Suzuki would be happy.
The Chair: Thank you, Senator Maltais.
[English]
It always amazes me how government can complicate the simplest things. The definition of advocacy is one that confuses me, as someone who has worked in this sector all my adult life. For example, let’s take a national charity, which will remain nameless for the sake of the argument, who wants to attack the cause of the disease that they work on and who wants to make sure that it becomes a number one issue because that disease happens to be the leading cause of hospitalization of people in Canada, happens to be the leading cause of adult amputations and adult blindness and two or three other things. To get that money, yes, they are out fundraising and doing that, and they are employing professional people to help them do that, but to get to the point where they make big leaps forward, they need the government at the table. So then they come to government and say, “Government, here is the story; here is the problem. We are doing our part, but if you came to the table with X number of dollars or certain programs, it’s going to give us that much of a jump forward.”
Mr. McRae, I don’t understand how governments or the agencies then turn around and say that’s advocacy when it’s hard work on behalf of charities and their people to come to the government and to make a case that the government should be redirecting some of their resources to attack serious problems of Canadians.
Mr. McRae: I was around the table in 1983-84-85 when the political activities amendment was being bandied about. I was representing one of the federal departments. There were several charities there. There was CRA and Finance. The Canadian Cancer Society was in its anti-smoking campaign, and they were told that their advocacy would put them offside. The Canadian Cancer Society at that time said, “So what? We’re going to go ahead with it. We consider it to be education.” It’s not advocacy. It’s education of Canadians. How I got the women’s centres’ charitable status was to use words like education, to use words like informing people of their rights in terms of marital property, or things like that. If we listen to the reports about how many years we have left before we reach that magic temperature rise, we need action, and action means advocacy. You need to talk about things and try to propose solutions. You have to be an advocate. I think that the political activities amendment will be changed. I don’t know if it will be changed far enough to allow some of the things that need to be done in areas like climate change.
The Chair: Thank you. Mr. Wan.
Mr. Wan: I agree with his comments. I think that, in our civil service, if I may use the term for those who are bureaucrats, there is a culture of risk aversion, I think, and they are afraid of doing things that would cause any further damage to either the government or whatever. I think they have to sometimes let go of some of those risk aversions to give a little more to see how those things work out. I think, as Mr. McRae mentioned, that research and those things would benefit all Canadians down the road.
Senator Duffy: Thank you both for coming. Fascinating. I would encourage our viewers to visit Mr. Wan’s museum online. I’ve had a look. The stories that you tell there are amazing, about amazing Canadians, including Douglas Jung, who was a war hero and a spy. They are phenomenal stories about how this country was built, and every Canadian, not just those of Chinese descent, should hear about these amazing people.
I have been pushing something here, and sometimes my colleagues on the committee laugh that I want more bureaucracy. I’ve been suggesting we need an advocate, perhaps a minister or minister of state, to get inside those meetings, Mr. McRae, where you were, to make the case that risk aversion has to stop. What do you think of that idea?
Mr. McRae: I started my career in Saskatchewan on January 2, 1979. I moved to Ottawa in 1983. My first meeting was a group of federal departments responding to the People in Action Report, which was released in 1978. It was a report of the National Advisory Council on Voluntary Action. It was a major report. The bulk of the recommendations were on the federal government’s relationship with charities and voluntary organizations. There was no mechanism at that time except a group of people meeting together in departments to try to move it forward. Even though the report was released late in 1978, by 1983, it was dead. The first meeting I attended was the last meeting of this organization.
Under Brian Mulroney’s watch, Walter McLean was named the Secretary of State for Voluntary Action. It was, again, the first government to do that federally. He was a very keen minister, but he was part of the Secretary of State. He was not Finance. He was not CRA. He was not PCO. The same thing happened: A couple of meetings, and it dried up.
The Voluntary Sector Initiative had the Reference Group of ministers. The same thing happened. When the Voluntary Sector Initiative was in its heyday, there was movement on some issues. It wasn’t the definition of charity or advocacy by charities, so there were a lot of things that still stayed behind. There were major ministers there, but people move on.
I don’t see any federal department that has a policy capacity right now to do that, but I think it would be interesting to have a special operating agency based on the Parliamentary Budget Officer that would report directly to PCO on the voluntary sector. It would be a small staff of seven or eight people, looking at the issues horizontally across the federal government, looking at Finance, CRA and looking at the definition of charity. That would be my recommendation.
Senator Duffy: Let me pick up on that, because I mentioned this at our first or second committee meeting. An SOA, special operating agency, would be an advocate, not a police officer looking to see if some charity spent $6,000 over how many years on coffee or whatever and writing 35-page letters denouncing them for that. If Canadians knew that, in general, I think they would be outraged. What we need — and I appreciate your testimony — is an SOA whose idea is to push out the boundaries so we can meet the need.
As a reminder — everybody here in this committee knows it, because we’ve heard the testimony — the number of donors is dropping and the demand for the various services is rising. We’re in a situation where we can’t avoid the issue any longer. That’s my view, and I think you both bring us important testimony to help us along that road. Thank you.
The Chair: It raises the question that if Banting and Best had been risk-averse, how many people worldwide would have continued to die of diabetes? You have to take a chance to succeed sometimes, and they took a chance. There may be somebody out there today ready to take a chance on finding a cure for cancer, and they might be successful. It’s amazing.
Senator Omidvar: Mr. McRae, I’ll get back to the second part of my question about charitable purposes and activities. I’ll ground it in an anecdote. In 2003, I created a not-for-profit focused on ensuring that skilled immigrants with qualifications and education could actually work in the jobs they were qualified for, somewhere in that ladder of the occupation as opposed to driving taxis if they were engineers, et cetera. You know the stories there. It was extremely successful. It was not-for-profit, and in 2009, we applied for charitable status. I was told by the CRA that we were refused charitable status because they parsed through the activities and noted that we spent some time with national employers persuading them to change, adjust and reflect their hiring practices. It goes to purpose versus activities. That’s why they denied us the charitable status. In a meeting, I was successful in getting them to change their minds, and so not only is there this organization in Toronto but there is a network of similar charitable organizations across the country. If we would have had to take the CRA to court, how would that analysis of activities versus purpose have impacted the court’s ruling or decisions? You say in your brief that it does have influence on them.
Mr. McRae: My interpretation is that they fall in the same trap in terms of how they have to, as I call it, parse out what an organization does. It’s following each little tentacle as it goes out to see whether the charitable activity is charitable in and of itself and that it doesn’t lead to something that could be non-charitable or for personal benefit.
Senator Omidvar: I’m torn, because as I told the story, I remembered how angry I was. That was good, because I got them to change their mind. But how would the CRA then determine that, in fact, the charitable dollars are being spent charitably? What is the other route? Can you clarify that?
Mr. McRae: My understanding of what they are proposing for the political activities amendment is that it’s about what they would be doing without looking at the activity. Together with Finance, they’ve already decided they can do that for political activities.
Senator Omidvar: Given the fact that advocacy will be dealt with because of the decision of the federal government —
Mr. McRae: The majority of advocacy will be dealt with, but I wouldn’t say all of it.
Senator Omidvar: Do you still think we need a redefinition of charities given that most of them —
Mr. McRae: Yes. It’s not only advocacy. Like I say, in dealing with the organizations that I dealt with, we had programs — women’s programs, native women’s program, Aboriginal friendship centres, all the different programs. These were people who were trying to help people on the margins and, by and large, I found they didn’t just help the people in the Aboriginal friendship centre; they welcomed all people.
We need to find ways to include those people. Canada is a welcoming country, but we still find with the Yazidis that there aren’t many of a particular people. It could be Nepalese or whomever. We are welcoming more people coming with different things, and we need to try and tell them that we appreciate what they are doing for their community but, by doing things for their community, we appreciate what they are doing for Canada.
Senator Omidvar: Thank you.
Mr. Wan, I want to stick with your money, because I’m concerned about it. You do wonderful work. Would it help if the Government of Canada had an across-government website that listed every program for grants and contributions, and it reviewed and updated that every quarter?
Mr. Wan: It would be wonderful for small museums like ours to have access in one place to find those grants, applications and so forth, yes.
Senator Omidvar: Thank you.
The Chair: Thank you both, gentlemen, for your presentations this evening. As you can tell from the questions, you have sparked a good deal of interest. What I’m impressed by with my colleagues and our witnesses is the fact that we are not following one course of discussion at these meetings. You have added a lot to it this evening. We’d like to thank you for that.
Mr. Wan: Mr. Chair, I hear a lot about appreciating museums. Let me extent the invitation to all of you to visit us when you can. You are always welcome.
The Chair: For those people watching this evening, if you are in Vancouver, please do drop by the museum. They’d love to see you.
We welcome our second panel of witnesses, which includes Adam Parachin, Associate Professor, Osgoode Hall Law School, York University; and from The Pemsel Case Foundation, Peter Broder, Executive Director.
Thank you both for accepting our invitation. We will hear from you now. I would remind you that you have five to seven minutes, and then we will go to questions. I continue to remind my colleagues to be succinct in your questions and remind you to be succinct in your answers so we can get as much covered as possible.
Adam Parachin, Associate Professor, Osgoode Hall Law School, York University, as an individual: Thank you very much. Normally I lecture about these things in time spans measured by hours and not minutes, but I will do my best to have a point, make it succinctly and leave time for questions.
As was said, by way of background I am a professor of law specializing in the law of charity. I am currently at Osgoode Hall, but prior to that I spent 14 years researching and lecturing on this area of law at the Faculty of Law at Western University. I have written extensively on the political advocacy topic so, if you have questions, that is an area of interest and expertise of mine.
My value to you, in as much as I have any, is what I bring to you as a dispassionate but rigorous analysis of legal systems with a view to trying to find the fault lines in legal systems.
My general observation to you is that we have what I would describe as a comfortable status quo with fault lines. There has never been a legal review of any system of law that concluded everything was in perfect coherence. The question is whether there are fatal flaws or fixable problems at the periphery.
Let me be clear on one point from the outset: I am not an advocate of codification. I think the results internationally are mixed and, to the extent that international jurisdictions are codified, they are heavily tethered to the common law in any event.
I want to bring your attention to something that came up in a historical research piece I did recently. Our current system in the Income Tax Act Act dealing with charities dates back to 1930. To give you some sense of what you might be flirting with or inviting if we move in the codification direction, under income tax reforms in 1930, one of the more protracted debates was related to this very topic. The initial proposal was to have a particularized list of deductible donations to a small list of any church, university, college, school or hospital. This was seen as controversial because it was too particularized and, after several days of debate, they wound up deliberately and intentionally with the common law.
Here is what R.B. Bennett, who was in opposition at the time, said with respect to what was captured in what they had decided upon: “. . . every species of benevolence that any citizen of Canada may desire to indulge in . . .” has been captured by this. He went on to say that what they had deliberately and intentionally adopted was so broad that: “ . . . there is no field of human endeavour which he . . .” referring to citizens “. . . may desire to assist that is not open to him . . .”
This was intentionally meant to be a broad, open-textured and adaptable concept, not a closed list. I think there is tremendous strength to that, at least in principle.
Where, though, are the fault lines? Let me say a few words about that. One of the challenges that we face in this area of law, quite frankly, is there are not enough cases. When you intentionally decide upon the common law as your frame of reference, the common law requires cases to move forward and adapt and evolve. The common law doesn’t evolve in the absence of cases. We have too few cases. The cases that we do have — perhaps because they are not always the best cases being brought, but perhaps for other systemic reasons we might want to be alert to — are overwhelmingly decided against charities. That is noteworthy.
What that means from a broad, macro-perspective is that the CRA is left to do too much soft lawmaking on its own, unassisted by helpful legislative intervention and unassisted by cases. That raises not only some practical administrative problems for the CRA, but also some rule of law questions about where reforms and advancement in this area of law should originate, with the CRA or with the CRA with better and more judicial assistance. We can dialogue about that.
The second fault line I see is we still haven’t gotten right how, when and why to supplement the common law with legislative interventions. There is an irony to people moving a codified definition. When I stand back and look at the status quo dispassionately, I see what few legislative interventions we have as one of the big sources of the problem.
I can give you a few simple examples. One of the sources of the problem that we have had with political activities are the provisions in the Income Tax Act that were well-intentioned and meant to be enabling of political activities but were poorly drafted. Much of the difficulty there was caused by the Income Tax Act’s interventions.
Another way to frame the point is there were some questions earlier about the synergy between charitable activities and charitable purposes, with the question being, “Why is there such a sustained emphasis on activities? I thought the common law was concerned with purposes.” You are quite right. The common law is concerned about purposes, but the fixation on activities comes from the Income Tax Act because it was decided long ago, for better or for worse, that we should have two categories of registered charities: charitable organizations and charitable foundations. I think the idea was we have the doers and we have the funders. The way that found expression in the act, though, was the doers, the charitable organizations, were legislatively defined as organizations all the resources of which are devoted to charitable activities. Right there was the gateway for both courts and the CRA to fixate on activities, often at the expense of purposes. That is one of those situations in law where we see a small fault line yield a huge negative consequence because it takes analysis oftentimes in the wrong direction, asking the wrong questions, causing people and analysts to fixate on activities while leaving aside and losing sight of what we should care about, which is purposes.
Those are just a few descriptions of some of the problems I see. The point I am emphasizing is that one of those categories of problems that I mentioned is originated in failed attempts to supplement or codify, to one extent or another, charity. To some extent, that informs my skepticism as to whether or not that is the best way forward. I will leave time for questions on that and defer to my co-panellist to maybe build some similar ideas.
Peter Broder, Executive Director, The Pemsel Case Foundation: Thank you, Senators Mercer and Omidvar. Senators, good evening. Thank you for inviting The Pemsel Case Foundation to appear before your committee.
The Pemsel case was mentioned in the earlier panel, and our foundation is, of course, named after that 1891 English House of Lords decision. That judgment established in Canada and elsewhere the four principal heads of charity in the current legal classification. Its findings remain, even in those jurisdictions where the definition of charity has been legislated, a touchstone for this area of law. The case is central to the points we want to make tonight.
What it gave us wasn’t really a definition, but a method for determining what is charitable. At present, as my co-panellist has mentioned, that method is not being used adequately in Canada.
That brings us to our recommendations: Rely on the common law, not a statutory definition; amend the appeal process to permit tax court appeals for CRA decisions on registration and revocation; consider the “qualified donee” category if there is a need to provide special tax status to entities that would not be charitable at common law; and, finally, implement a regular review of the statutory provisions in the Income Tax Act dealing with charities.
The meaning of charity is a central question that has been grappled with both in Canada and in other places over the years. The foundation has researched the approach taken in various jurisdictions. In Pemsel’s view, getting this aspect of charity law right is integral to fostering a robust and sustainable donation and volunteering environment in Canada.
The foundation has examined the use of statutory definitions compared to using the common law. Pemsel thinks that relying on the common law is the preferred option. The common law is decided by the courts saying what qualifies as a charity. As a result, the system needs appropriate judicial and administrative processes that encourage the meaning of charity to evolve in keeping with societal values and norms. We have decades of court decisions from Canada and other Commonwealth countries to build on.
A legislative model that could become politicized and be amended with changes in government is undesirable. This is both because it would be difficult to administer and because regulatory uncertainty could undermine organizational effectiveness. The loss of continuity, disruption and litigation costs likely to result from a major legislative revamping of the registered charity regime also need to be appreciated.
We cite four other issues with a statutory definition: Society evolves and the concept of charity also needs to evolve; especially in Canada, charitable issues often are not given a lot of legislative attention, so there is a risk that a statutory definition would stagnate; the realm of charity is extremely varied. The courts are better placed to assess whether particular initiatives are charitable — governments are more apt to act in broad strokes; the diversity of the charitable sector and the nature of it are at risk if governments respond to the issues of the day by reshaping what is charitable.
Where a legislature enacts a charity statute, it generally restates the law with a few minor changes. These statutes are intended to replicate the common law. To the extent that they do not conflict with statutory provisions, past common law decisions remain relevant. This approach has been taken in the United Kingdom jurisdictions, Ireland, Australia and New Zealand. In England and Wales, where the statute sets out a number of “additional” heads of charity, some suggest the decisions of The Charity Commission before the legislation was passed had effectively established most or all of these areas as charitable. This highlights the difficulty of attempting to separate statute from its common law origins.
Canada is different. Under the Income Tax Act, the tax authority plays a dominant regulatory role, relying on what the common law determines to be charitable. That needs to be taken into account when thinking about the statutory versus common law question in Canada.
On balance, in the Canadian context, The Pemsel Case Foundation prefers to look to the courts rather than statute for the meaning of charity. As we explain in detail in our brief, this common law approach essentially entails relying on reasoning by analogy to develop the meaning of charity in a way that keeps pace with changing times.
The committee has heard recommendations that appeals of registration and revocation decisions ought to go to tax court rather than — as currently — to the Federal Court of Appeal. When doing so, procedural changes also need to be made. The foundation agrees with these recommendations. Pemsel believes that these changes are key to reinvigorating the common law process in Canada. A faster, cheaper, fairer and more accessible appeal mechanism will make for better law.
Of paramount importance is refreshing the meaning of charity in a way that has happened outside the context of those cases and decided with an eye towards tax expenditure. Elsewhere, that has happened through a willingness of courts, and in some cases charity commissions, to embrace the evolution of the common law. A change to the tax court and a different trial procedure are needed as a catalyst for this in Canada. The Canada Revenue Agency should also be encouraged to develop its interpretation of the law in keeping with shifting societal norms and values that we think will be reflected in the decisions of the tax court.
Common law development of charity is, by nature, incremental and fact-specific. This is its strength. That said, areas like amateur sport, at present not generally considered charitable in Canada, may not be dealt with satisfactorily. In those situations, we recommend a consultative process to consider changes to categories of qualified donees. That process should be on the level of principles and look at the range of possible tax treatments.
As well, like for many other statutes, a regular legislative review of the Income Tax Act, charity and related provisions should be undertaken. This would keep the meaning of charity and similar tax-assisted organizations well-grounded in principle. Together with accessible court proceedings and administrative processes in which reasoning by analogy is sanctioned, this would create a healthy system in practice.
The strength of the common law is that it deals on an ongoing basis with new fact situations, and reasoning by analogy determines whether they should be afforded the status of charity. Currently, sector response to the question of defining charity is apt to be more driven by the reaction to court or regulatory decisions than considered in the abstract. An example of this is the controversy mentioned earlier over the determination in Canada that alleviating poverty is charitable, but preventing poverty is not. The Foundation thinks that a system more open to addressing the roots of problems, as well as their consequences, is key to revitalizing, particularly among young people, interest in giving and volunteering.
Again, thank you for the opportunity to speak, and I would be happy to take any questions you have.
The Chair: Thank you, gentlemen. I am sure that you will stimulate a fair amount of discussion by our committee members.
Professor Parachin, you said you were not in favour of codification, but there are not enough legal cases based on common law. If there were more legal cases, would that not lead to a codification in one way or another?
Mr. Parachin: Perhaps I get at that by being clear about what I mean by not being in favour of codification. What I am talking there about is my assumption that it would mean a codified or legislated definition of charity in the Income Tax Act. That is what I am talking about. Presumably, that would be the lever at the disposal of the federal government. As you know, property and civil rights are a matter of provincial jurisdiction. The federal government’s primary foray into this field is through its preferred tax treatment of charities.
Why is it that I’m not a proponent of a codified definition in the Income Tax Act? One of the problems we have to be alert to — and it is one of the frustrating things of living in a federal state — is that we have divided jurisdiction. We need to be realistic about what a codified definition would achieve from the federal government. We would, at that point, have a bifurcated or differentiated meaning of charity: one for the purposes of the income tax law and one for purposes of provincial law, which would not necessarily follow in kind. As a matter of course, it would not follow in kind. The federal government can’t dictate the law of property and civil rights to the provinces. Where that would take us is towards the federal government moving the definition of charity forward for tax purposes, but for trust law, property law and other purposes it would get implicated in estate planning and planned giving, and the provinces would still be stuck with the common law. That is part of why I am not in favour of codification.
In direct response to your question, I see the better path forward as more cases. More cases wouldn’t lead to codification; more cases would be a better substitute for codification. Additional cases, through maybe an alternative route to a judicial review of CRA decisions, would give us more data points before courts, more opportunities for the common law to advance and more opportunities for the common law to live up to its aspiration to adapt in a way that would make codification moot. If the common law was continually adapting through judicial interventions, then I don’t think we would even be discussing the need for a codified definition.
The Chair: You didn’t comment, though — and perhaps it was the order in which everyone spoke — on Pemsel Case Foundation’s recommendation that appeals go to the tax court as opposed to where they go now.
Mr. Parachin: One of the unique things about our system in Canada is that decisions by the CRA that are adverse to the charity in the area of registration and deregistration proceed by way of appeal to the Federal Court of Appeal. As I understand it, that is on the record of correspondence established with the CRA. That is somewhat unique internationally, because other jurisdictions have increasingly moved towards an appeal to a tribunal. Lawyers call these appeals de novo, meaning they are new and fresh in relation to evidence. There is an opportunity to establish evidence before the tribunal rather than bring into the tribunal the facts as established on the record with the regulator. That translates to a more robust hearing of the facts, a more contextual analysis and more opportunities to move the law forward than what we see in Canada. In fact, our direct appeal to the Federal Court of Appeal based on the record of correspondence established with a regulator might be one of the reasons the cases are so resoundingly decided against charities.
Senator Omidvar: I will stick with the evolution of the law through common law, and maybe a question to both of you.
I look at the charities who are refused. I think we are all familiar with the case of the B.C. Immigrant Women’s Society that went all the way up the ladder. The only way that society was able to pursue the case was because pro bono lawyers surrounded it and argued the case. I look at the little charities and the little not-for-profits who have been refused charitable status. I don’t think they can take the federal government to court.
You are basing your recommendation — both of you are — saying to let the common law evolve. Should we, alongside that recommendation, look at one that says there should be a special charity challenges program established that would help small charities take the government to court? I don’t think you can do one without the other because, again, it is the small charities that will be impacted. They would be better off with a definition that would embrace them. Response?
Mr. Broder: That is an excellent idea in terms of having the two as complimentary. The idea of the tax court is that it is cheaper and much more accessible than the Federal Court of Appeal is currently. If we got a body of case law coming out of there that wasn’t overly focused on the tax expenditure issue, there would be an opportunity to develop the kind of body of case law that Professor Parachin mentioned.
Mr. Parachin: If we are juxtaposing two reform options, one being codification and one being an alternative and more efficient route to a judicial review, I think we need to be honest and recognize that neither are going to be particularly accessible to small charities in the ordinary course. It is not as though lobbying the federal government will be within the means of small charities.
As for whether or not we would want to subsidize those appeals, I think my instinctive answer is I am generally in favour of anything that brings more cases. Cases are the lifeblood of the common law. You can’t move the common law without cases.
My concern is that we ask too much of the CRA right now without judicial intervention. The CRA has to address questions in the absence of an evolving common law while being criticized, in some quarters, for moving too quickly, in others for not moving quickly enough. More cases would help that.
However, I should also qualify that with the caveat that I also worry about the government making too robust an investment in the charity program for the following reason: There is a saying, and it’s the golden rule, that whoever has the gold sets the rules. One of the benefits of charities as a way of achieving public benefit privately is that it’s independent of government. I’m not speaking critically of the proposal, but I do worry that the government investment in the charity program at some point reaches a tipping point where politicians start asking the sorts of questions we would anticipate them to ask, such as, “Where is our return for investment?” That starts to take on a life of its own, and I think it can yield to greater regulatory interventions in ways that work at cross-purposes from what we are trying to achieve with charities. That’s my qualifier to the idea. It’s not fatal to it, but I do worry about it.
Senator Omidvar: “Make it easy, but not too easy, for the small charities.” Is that what I heard you saying?
Mr. Parachin: I can understand why you would frame it that way. I would say to make it more accessible than it is right now. That alone would be a victory. Reasonable people can agree to disagree as to what level of accessible is too accessible or not accessible enough.
Senator Omidvar: I believe I have heard you both say on the point of access that a more reasonable recourse would be the tax court. You are both citing that it’s cheaper, easier and less expensive, but if new evidence is introduced, is it not possible that that trial will also become very expensive? Again, I’m sitting in my little mindset here of small charities.
Mr. Parachin: I want to be clear. I’m not able to tell you, because I don’t have the knowledge, that that would necessarily be cheaper. I don’t know that to be true. But let’s assume it is more expensive. Let’s run with that hypothesis. I don’t know that to be true, either, but if it is true, sometimes you get what you pay for. Leave it to the lawyer to defend lawyers’ fees, right? I’m not defending a high-cost access, but one of problems with the status quo isn’t just the cost, but the fact that appeals go to the Federal Court of Appeal without the opportunity to adduce new evidence and, for a law that turns on nuance, that’s fatal. That alone, to my mind, is fatal, leaving aside from the cost question.
Senator Omidvar: That’s an excellent point. Thank you.
The Chair: I’m not surprised a lawyer would be defending lawyers.
Mr. Parachin: Nor should you.
The Chair: Especially those of us who are not lawyers.
Senator Duffy: I have a supplementary to the professor. Just following up on that de novo idea, do you have to change the CRA Act? How do we get it out of the Federal Court of Appeal and into the tax court, with a mandate to the tax court that allows them to take off the blinkers — not just be confined to the correspondence but that they can actually look at cases? On the cost question, I would think the first few cases might be expensive, but they might break new ground that would be helpful and prevent future cases, if you know what I mean. It would create new laws.
Mr. Parachin: On the cost question, I will elaborate. It’s not as though the status quo is costless, either. As a former lawyer and as a law professor, a lot of billable hours are spent trying to fill the gaps and connect the dots that you can’t connect given the absence of cases. That’s not a cost saver for charities. A lot of legal opinions in this area read as follows: “The matter is not free from doubt” and “The better view is . . .” Those kinds of opinions are costly to write. As to how you get there, it’s presumably a simple amendment to the Income Tax Act that would provide for and prescribe an alternative appeal mechanism.
Senator Duffy: Is it just bureaucrats? Who makes that determination, the 35-page letter, that says you are not a charity? Is there no internal CRA appeal process where people could — or is it done totally by the bureaucracy and the minister has no say?
Mr. Broder: There is an appeal process separate from the charities directorate that’s available as a preliminary step before you to go to the Federal Court of Appeal.
Senator Seidman: Thank you both for your interesting presentations.
My question is to you, Professor Parachin. As we are all discussing here, you said that there are not enough cases in common law so the law can’t evolve, and that’s a challenge. Then you alluded to the fact that you could supplement common law with legislative intervention. So you’re saying there’s the role of the courts, but there’s the role of Parliament. Could you expand on that for us, please?
Mr. Parachin: One of the interesting things about the common law is that it’s intentionally enabling. In fact, the common law actually says very little about the activities charities can carry on. The common law regulates activities of charities through the requirement that charities be established for exclusively charitable purposes. The touchstone for whether any activity meets that standard is whether it further a charitable purpose. That’s a remarkably enabling standard. That can be both a strength and weakness. Overwhelmingly, it’s a strength, but perhaps from time to time we might regard that as too enabling. I wouldn’t want to provide you with an exhaustive list, but there might be some instances in which certain activities raise policy sensitivities that we might want to legislatively target.
The problem that we have in the Income Tax Act is that when Parliament seeks to intervene, they do so ineptly. I say that not disrespectfully, because I’m not pretending the answers are easy. I have a lot of time to think about these issues, and I don’t have the answers. But when we do intervene, such as was done with political activities and business activities, the activities aren’t defined. That causes an adjectival problem. At common law, an activity is a charitable activity if it furthers a charitable purpose. Applying the same logic, a political activity would be an activity in furtherance of a political purpose.
It can be difficult to try and reconcile political activities or business activities — or insert any other adjective — with common law analysis, given that when the Income Tax Act intervenes, it does so without intervention. Why we might want to intervene legislatively is to rein in certain activities where the common law is too enabling, but you have to do it surgically, not the way we do it. When we’ve done it, it ends up inspiring more questions than it answers. So there are better and worse ways to intervene.
Senator Seidman: When you say that we would have to do it surgically, could you give an example?
Mr. Parachin: You would find a particular category of activity that’s causing a policy concern. For example, there may be concerns that charities are furthering their charitable missions through business activities, which we might want to permit within limits but within clear limits. A better way to do that would be to define what constitutes a business and concretely define the limit.
A similar analysis went ahead with political activities. It’s difficult for the CRA to administer a provision that limits political activities, as was done until recently, without a legislative definition of what qualifies as a political activity or without a clear expression, legislatively, of a limit.
Those are the kinds of examples. Those may sound remarkably trivial to you, but I can tell you that hours and hours of billable time are spent trying to parse the CRA’s parsing of the act. To some extent, they are working in the same void as the lawyers.
One of the things that informs my skepticism of codification is that a lot of the debates we have right now are inspired by legislative interventions into the common law. What makes us think that doing an entire codification would lead us anywhere but down the same dark path?
Senator Seidman: Thank you.
Senator Duffy: I’ll yield my time to Senator Omidvar, as I slipped in my stuff earlier under the guise of supplementary.
The Chair: If it’s a guise, Senator Duffy, the chair will take that as notification that future interventions are a guise.
Senator Omidvar: I wonder if there is middle ground here. I would love to get Mr. Broder’s reaction as well as that of Professor Parachin. I hear you both saying to let the appeals go to the tax court and, through that system, hopefully accessible one way or another, case law will evolve. But I make a reasonable assumption that this will take time.
In the meantime, there is pent-up demand from not-for-profits and organizations that are not getting registered because the only way they fall into the current definition is under the title “other.” Do you think it would be useful to take a look at that particular “other” category and expand on it a little so that human rights organizations, poverty alleviation, reduction and eradication organizations and environmental organizations, which are all, at this point, having a very difficult time, would find a place in there? It’s a bit of both.
Mr. Broder: I think that there is hope. I draw your attention to one of the few cases where the organization was successful at the Federal Court of Appeal, where the judge considered a non-profit Internet provider giving access to the information superhighway and likened that to maintaining roads and bridges in Elizabethan England. So you can use the analogy. There is a lot of breadth within the common law if it’s used creatively to bring in very modern purposes. There is a real opportunity here. That case was in that “other” category.
Senator Omidvar: Let me reinterpret what I hear. You are a lawyer and I am a simple person, so let me put it into simple language. You are saying there is no need to further clarify the “other” category because it’s broad enough to catch a whole range of organizations as it currently stands. Is that what I heard?
Mr. Broder: Yes. It’s a cost benefit too, because we have a series of cases that grapple with the problem of public benefit versus private interest, and that is something that has been largely solved through the case law. If you get into a statutory definition, what you do is you are starting again from scratch and you are going to be grappling with that problem going forward. If we can get a creative use of the common law, I think there is a lot of opportunity within that. That fourth head is a residual head, so it is for other purposes beneficial to the community.
Mr. Parachin: I’m not opposed to that idea. I do take your point that that’s a comfortable compromise. It’s not an A-to-Z codification that’s meant to completely displace the common law. It’s meant to supplement it and perhaps by doing so it would inspire more cases.
There is a “but,” which is we always have to be mindful of this question that comes up all the time in a federal state. You would only be clarifying for income tax purposes what qualifies as charitable under the fourth head of charity. That would still leave all of the problems that we’re discussing about the common law not evolving. That would still apply with like force for property and civil rights purposes, which I don’t think we can assume is the tail wagging the dog. That’s the difference between a trust in the residue of a will being valid or struck, because the consequence of trying to settle a purpose trust for a non-charitable purpose is that the trust is void. I worry about whether your suggestion would allow us to conclude that we have solved the problem when what we’ve actually done is frustrate the common law from what we common law lawyers call working itself pure. The common law eventually works itself pure, and yes, it takes time.
Senator Omidvar: I think I’m hearing you both loud and clear: it is the common law, and the witness previously had a different point of view.
Professor Parachin, I am going to ask you about human rights organizations, which have been frustrated in getting charitable status because their purpose is inherently, to a certain extent, political. Do you think that the proposal of the federal government to enable organizations to engage in mission-specific public policy advocacy will take care of this?
Mr. Parachin: It will take care of it, but it will take care of it in the same way that amputating an arm cures the need for stitches on a finger. I think it goes too far. I don’t say that disrespectfully. There is a real problem with the status quo. I think everyone who has looked at this issue agrees that charities can enrich public policy. Charities have first-hand and grassroots experience with demographics, and often vulnerable demographics that aren’t likely to avail themselves of access to traditional means of influencing policy. What the proposal effectively says is that whether some or all of a charity’s activities include advocating for law reform, you are still established for exclusively charitable purposes, and I worry that that goes too far.
I also worry about how we determine, under the current proposal, whether a given law reform is connected with a charitable purpose. I say that because charity has historically and traditionally existed alongside government as a non-governmental method of achieving public benefit. Once you start trying to achieve your charitable mission through government by suggesting and advocating to the government how it intervenes — and I might be the only one asking this question, I have to be honest; I don’t think I’m reflecting the majority view on this — I start asking, “Are you doing charity when you are asking the government to intervene?” By definition, that’s not charitable; that’s lobbying. I worry about us having gone too far. I would have preferred a more moderate solution.
Senator Omidvar: Can you describe the more moderate solution? If it’s not 10 per cent, it is maybe something else. What is that?
Mr. Parachin: The initial proposal the Department of Finance released in September was to have no legislative input whatsoever, which meant their legislative strategy was to have no legislative strategy. I don’t think that’s strategy. In fact, that would take us back to pre-Income Tax Act case law that said that charitable organizations could do no political activity, and nobody thought that was the right answer.
After the September 14 Notice of Ways and Means Motion, the CRA dutifully prepared draft guidance that contemplated a proportionality standard, which I thought had some merit in principle. The problem is that it was not based on any hard law. I would have preferred landing on a proportionality standard but with a legislative foundation for it. The problem with proportionality, in other words, is that you could devote a proportion of your resources to advocacy, but it couldn’t be disproportionate. It’s not 10 per cent, but it’s not 75 per cent either. Maybe it’s 49 per cent. Again, it is somewhat imprecise and it’s open-textured. The problem with it isn’t that it is the wrong standard, but that it was administratively created in the vacuum of cases and legislation.
I think having opened up the field with no restriction is a mistake. We are going to have a successor investigation by the Senate 15 or 20 years from now — and people would not be prudent to not go down the path I’m about to say — and discover people will start lobbying under the guise of registered charities. Why wouldn’t they? I would if I could do it with the benefit of a tax concession.
Senator Martin: First of all, I’m not a lawyer myself. I’m just trying to follow what both of you are saying, following our previous presenters.
All of us want to move forward. My colleague asked you to be a bit more specific regarding what you mean when you say that we have to legislatively intervene surgically. If you were working as a lawyer for the CRA and looking at assisting the minister with legislation that’s very surgically drafted to help us move forward, could you just give an example of one or two or more legislative interventions we could make?
Mr. Parachin: The political activity is the one I keep returning to if only because it’s a contemporary topic, but it is also one that’s caused a lot angst. The common law’s dealing with political purposes is quite frankly a fail. Any rational person who read what courts said about the distinction between charitable and political purposes probably wouldn’t believe it. They would say that no, a court would not say that. The reasoning is superficial. It’s thin. It’s hair splitting. It’s an area of law where the courts haven’t served us well. I would look at that as one context where a surgical intervention could be helpful.
What I mean by that is you surgically intervene by creating a tight box of a particular activity that you want to authorize or limit within express limits, but that’s not the way it normally works. The way our Income Tax Act interventions work is they try and solve a body of law that’s open-textured, meaning amorphous and not tightly crafted, with amorphous and open-textured interventions. Frankly, that’s not helpful. It’s predictably not helpful too.
So to be more specific, if we want to authorize political activities, I don’t know why our only options are a poorly drawn indecipherable provision, no provision, or a provision that sets no limit. Why can’t we stand back and stay that charities enrich public discourse? They should be permitted to have a seat at the table of public policy development, but within limits. That doesn’t strike me as too big an ask, as an undeliverable. That’s the kind of thing I’m talking about.
Senator Duffy: Professor, you ask us to look at the law of unintended consequences if this is left wide open. Thinking on a broad scale for a moment, could you foresee someone setting up a charity that would, in the end, buy ads, much as we see in the United States under the Supreme Court decision they had there called Citizens United, which are partisan without mentioning a specific party label? Are you concerned that if we don’t have any definition, that we could see that sort of thing under the guise of political activity?
Mr. Parachin: That is one category where we will be quite specific in the Income Tax Act and say you can’t do any of that. I’m less concerned about the intervention into partisan electioneering. I’m more concerned about questions like this, and I’ll ask the question rhetorically: You tell me when advocacy for law reform dovetails with the advancement of religion. How do you advance religion through law reform? Do you meet the test if your advocacy for a particular change to the law is religiously inspired on a single issue? I can tell you the cases don’t address that question. How is the CRA supposed to craft administrative guidance? They are working in a vacuum.
Senator Duffy: Are you talking about advocacy for things like pro-life or anti-abortion?
Mr. Parachin: That’s always the go-to example with religion, but religion covers a lot of things, and the advancement of religion is a charitable purpose and, in my view, properly so. I could pick another example. You tell me when a particular law reform proposal achieves the advancement of education. Does it have to relate to education policy, or would it be educational because it was educating the public about a law reform proposal having nothing to do with education? I’m not putting to you that there is a right or wrong answer; I’m putting to you that there is no answer. What we are asking the CRA to do is to connect the dots and provide answers without guidance.
Senator Duffy: But a lot of Canadians are concerned that charities are being hijacked to be used for a political agenda. My question to you really is, how far could that go down that road if there is no legal prohibition, if it’s left wide open?
Mr. Parachin: If it’s left wide open, I think we know the answer.
Senator Duffy: Isn’t that the government’s proposal?
Mr. Broder: The government’s proposal includes a provision that says there is an absolute prohibition on indirect or direct partisan activity.
Senator Duffy: What about guns? What about if there is a charity set up that advocates that guns are a good thing and people should be able to own guns, like the NRA, only a Canadian version? If they were able to collect money under charitable status, wouldn’t this wide open field allow them to be on TV every night promoting gun ownership?
Mr. Parachin: That’s the downside of going down the path of upholding human rights and constitutional rights. Maybe the argument would be that some feature of our Charter of Rights protects that right and that that’s the advocacy that’s being brought. Maybe someone would bring it as test litigation. That’s probably a little hyperbolized because the reality is the constraining factor is your advocacy has to further and be connected to and support a charitable purpose.
My point is we don’t have case law on what that means, and there is a good reason we don’t have that case law. Charity is something that’s pursued typically outside of government, not through government. You’re asking what are the limits. Well, they are undefined. Quantitatively, there aren’t limits, and qualitatively, I don’t think we have the answer as to how you connect a particular reform agenda to a charitable purpose, particularly when it’s a law reform agenda. We don’t know the answer to that. And if anyone is coming to you and telling you we do, I think they are being optimistic.
The Chair: I would suggest the ultimate question is what is the public good of that supposed charity? It’s difficult to define the public good of —
Senator Duffy: Given the divisions we now see in politics around the world, given a blank slate, you can be sure someone will test the limits.
The Chair: Let’s hope they test it somewhere else.
Senator Omidvar: This is not a question; it’s a request. You are both expert witnesses in this matter. This is not a place to discuss political advocacy and political activities. I would appreciate a brief from both of you on your opinions and recommendations to the Senate committee on that particular question.
Mr. Parachin: On political —
Senator Omidvar: Activities.
The Chair: On that note, I wanted to end with this request that I make of all of our witnesses. If at some time in the future as you watch our proceedings you see that you want to make a comment or we may have missed something, please feel free to communicate with us via the clerk. The clerk will make sure we get that information.
I want to thank both of you for being here. It stimulated a fair amount of discussion. It reconfirmed the decision I made many years ago of not going to law school. I’m sure there are many other lawyers and judges who are very happy that I made that decision. Thank you for that. It has been stimulating, and it will certainly add to the knowledge base of this committee.
(The committee adjourned.)