THE SPECIAL SENATE COMMITTEE ON THE CHARITABLE SECTOR
OTTAWA, Monday, November 19, 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, non-profit 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 welcome you to this meeting of the Special Senate Committee on the Charitable Sector.
I’m Senator Terry Mercer from Nova Scotia, chair of the committee. I would like to start by asking the senators to introduce themselves, starting with the deputy chair.
Senator Omidvar: Ratna Omidvar, from Toronto, Ontario.
Senator Duffy: Mike Duffy, from Cavendish, Prince Edward Island.
Senator R. Black: Rob Black, from Fergus, Ontario.
Senator Seidman: Judith Seidman, from Montreal, Quebec.
The Chair: Today, the committee will continue its study to examine the impact of federal and provincial laws and policies governing charities, non-profit organizations, foundations and other similar groups, and to examine the impact of the voluntary sector in Canada. For this evening, we will focus on the practical challenges for charities and non-profit organizations.
For our witnesses on the first panel, we welcome Gordon Floyd, retired head of public affairs for the Canadian Centre for Philanthropy; and from the Ontario Nonprofit Network, Lynn Eakin, Policy Advisor.
Thank you both for accepting our invitation to appear. I will now invite the witnesses to make their presentations, to be followed by questions from the senators. I remind everyone that we have asked you to give us five to seven minutes in length, and then we will get to questions. We ask that people be short in the questions and short in the answers so we can get as much covered as possible this evening.
Gordon Floyd, as an individual: Thank you, Mr. Chairman and senators. I do appreciate the invitation to speak with you this everything, and I hope my remarks will assist in your important work with this special committee.
I’m appearing here as an individual but I will be drawing upon my experience both as a lifelong volunteer and a paid leader for 20 years within Canada’s charitable sector. Although I am now retired, I continue to be active as a board member with Boys and Girls Clubs of Canada and Action Against Hunger Canada. I’m also on the boards of the Pemsel Case Foundation, whose representative spoke to you two weeks ago, and the Agora Foundation, which publishes The Philanthropist, a journal about Canada’s voluntary sector.
I have been asked to focus my comments on the practical challenges that charities and other voluntary organizations encounter. In my limited time, I propose to speak about three such challenges, namely, the lack of capacity that prevents many charities from fully serving the needs of their communities; the obstacles that limit the effectiveness of many charitable and voluntary initiatives; and finally the lack of respect that undermines trust in charities and contributes to their human resource challenges.
Insufficient capacity is a challenge for most charities and non-profits. This is, in large part, a funding issue, of course, but it includes much more. For instance, many organizations struggle to attract and keep volunteers, including board members. Senior staff often lack any management experience or access to relevant training. Technology is often primitive, if it is available at all. Innovation is avoided, often due to precarious finances. Inadequate human resource practices lead to excessive staff turnover, and efforts at collaboration, which have the potential to both increase impact and reduce costs, often have to be foregone or abandoned because of the time required from already overstretched managers.
At its core, this constellation of capacity challenges arises from a widespread failure to support the organizational infrastructure that is critical to the success of any enterprise. But unlike in businesses, these so-called overhead costs are demonized in the charitable sector, whether in the form of ridiculously low budget lines in government contracts or in the misguided ratings criteria of some charity watchdogs.
The Government of Canada is a relatively small source of funds for the charitable and voluntary sector, but it can and should lead change in this area by ensuring that its grants and contributions provide sufficient funding for these vital aspects of the sector’s infrastructure.
Of course, most donors want their donations to be used for direct program delivery, so charities need other unrestricted revenue sources that can be applied to their core expenses. The most promising of these sources is earned income, which is mostly derived from the sale of goods and services, but such social enterprise activities are currently discouraged by rules in the Income Tax Act that prohibit a charity from undertaking any business-like activity that is not directly related to its charitable work. In some other common law jurisdictions, charities can own and operate any type of business provided its surpluses are not paid out as profit but instead used to support the charitable work. Canada’s charities need the same opportunity to earn revenue that can help fund their vital core costs.
Let me turn now to effectiveness and some challenges there.
Especially in an environment of scarcity, which is the reality for most voluntary organizations, it’s vital that programs and services deliver the greatest possible bang for the buck. Beyond their underfunded and otherwise inadequate infrastructure, many charities and non-profits that seek to maximize their effectiveness face both additional barriers and opportunities. I will briefly mention just one of each.
A barrier: Although no longer universal, short term and stop-start funding remains the norm with most government departments and ministries. This inefficient approach to funding is particularly inappropriate for charities that are addressing complex and persistent challenges such as poverty relief or environmental sustainability. The impact on planning, staffing, consistency of service, partnerships, evaluation and more is a significant drag on charities’ effectiveness.
Now let me turn to an opportunity in this area. In this era of evidence-based programs and performance metrics, access to current and reliable data is fundamental to the effectiveness of any organization. Writing in The Philanthropist last month, Senators Mercer and Omidvar observed that “data on this sector is severely outdated,” but the sector’s data challenges run much deeper.
Just last week, The Philanthropist published another article about the unrealized potential to use data from charities and non-profits in order to create more effective social programs, whether delivered by government alone or in partnership with the voluntary sector. As the authors of that recent piece noted, the non-profit sector has a wealth of data on social issues, but it’s not feasible for every non-profit to have its own data analyst. They suggest that a system-wide approach will be needed and propose that Canada consider taking the best of the United Kingdom’s What Works model to make research knowledge readily understandable and useable. Of course, leadership by the Government of Canada would be critical for any such initiative.
Now, let me turn to the last of the areas of challenge, which I have called respect. Among the many practical challenges faced by Canada’s charitable and voluntary sector, a lack of respect is perhaps the most fundamental. When the Government of Canada signed an accord with voluntary sector leaders in 2001, it was said on the very first page:
The voluntary sector is one of three pillars that constitute Canadian society, together with the public and private sectors.
How ironic, then, that charities and other non-profit groups are so often treated as marginally relevant, somewhat incompetent and even dishonest amateurs who should stand aside while the experts in government make decisions and set priorities.
Here are three specific examples:
The regulatory approach of the Canada Revenue Agency toward charities is too often characterized by intrusive micromanagement. As Wendy Cukier of Ryerson University said to this committee last month:
. . . the federal government has focused more on the control of the sector and insufficiently on its growth and capacity building.
Why is it, for instance, that international development charities are required to exercise full direction and control over all aspects of their work with local partners, according to CRA, despite all the evidence that such a condescending approach undermines success and sustainability?
My second example is the appeals process for CRA decisions, which involves going to the Federal Court of Appeal instead of the far more accessible Tax Court and proceeds only on the basis of CRA’s written record without hearing any evidence from the charity. It is profoundly disrespectful and could even be called an obstruction to justice.
My final example in this area is that the structure of many government contracts with charities stipulates detailed procedures and excessive accountability processes, apparently assuming that government officials know how to direct and manage the work better than those on the front line or at the charity’s board table.
All this paternalism is not only offensive, but it promotes a false and damaging public image of charities. It undermines good governance at the organizational level, and it discourages senior volunteers and staff, employees, from stepping forward.
At the regulatory level, the contrast with the Charity Commission for England and Wales is stark. The essence of the British regulatory system is to provide guidance and support to board members, and it expects them to fully assume their role as trustees. Unlike in Canada, the U.K. government invests significantly in voluntary sector umbrella organizations like our Imagine Canada or onBoard Canada so they can provide ongoing training, governance and other key skills that ensure strong and effective charities and non-profits. Without similar respect and support, Canada’s charitable sector will never realize its full potential to engage citizens as volunteers, paid workers, advocates, innovators or donors.
I know I have run the limit of my time. I trust this brief survey of some of the significant practical challenges facing Canada’s charitable sector is useful, and I look forward to answering your question.
The Chair: Thank you, Mr. Floyd.
Lynn Eakin, Policy Advisor, Ontario Nonprofit Network: Good evening, Mr. Chair and members of the Senate. Thank you for inviting me to present today, and thank you so much for your leadership and concern for the well-being of Canada’s charitable and non-profit sector. This review is very timely and much needed.
As you know, I am currently a policy advisor with the Ontario Nonprofit Network. I have spent many years in the sector, first as an executive director and then as a consultant turning around non-profit organizations that were in trouble. This led me to an awareness of the difficulties of funding, and legislative and regulatory issues that interfered with the sector doing its work. I began to research and document these difficulties.
You have asked me here today to speak to a 2009 study I co-led, called Canada’s non-profit maze, a survey of key leaders in the sector about legislative and regulatory challenges. But that was 10 years ago, and the world is a different place as we approach 2019, so tonight I am going to update you on a few key priorities in the context of the current-day realities. It was actually interesting to read the study I did 10 years ago and find out how different it is and how, as a sector, we’re much clearer about what we want.
First, a key challenge on how we now understand the sector: We at ONN now talk about the public benefit sector. This is a refinement in thinking about the non-profit sector. The public benefit sector includes those organizations that operate for the public good: charities, non-profit organizations and non-profit co-ops that have as their missions a broader public good. This definition does not include trade and professional associations, private clubs and condominiums, which, while non-profit in structure, have different purposes and interests. Not being able to distinguish between these two groups is getting in the way of developing public policy for organizations serving the public good. ONN is asking that not-for-profit organizations be divided into member-focused organizations and public benefit organizations in the Income Tax Act.
Second, the key barriers to impeding public benefit work have not changed significantly since 2009. It’s astounding that, in 2018, charities are prohibited from collaborating to do their work. CRA guidance on direction and control specifies that charities must undertake their own activities. Gordon mentioned this. They can’t fund a trusted non-profit partner to divide up who does what, as the charity has to remain in direct control. We are the only country to do this; other countries use an expenditure responsibility test that holds the charity accountable for their funding decisions and their monitoring of outcomes without requiring the charity to do it all themselves. In today’s world, it is essential that charities can collaborate to get their work done, especially when you have multiple organizations coming together to try to achieve something.
Charities are still constrained by the related business limitations. Charities find it impossible to judge what a related business might be. You are likely familiar with the Habitat ReStores. They sell salvaged housing materials, and the proceeds go to building affordable housing. CRA found the ReStores were not a related business. At the Toronto East General, the old hospital building could not be owned by the hospital and renovated into doctors’ offices to generate revenue for the hospital, not to mention the synergies of the offices being so close. How does the sector move forward and become financially sustainable with these types of restrictions?
Public benefit non-profits are even more constrained than charities. Many are forced to choose between complying with CRA regulation or continuing to operate; they can’t do both.
CRA guidance defines “not for purpose of profit” as having each activity break even — not the organization but each activity. As the non-profits audited by the CRA explained to the auditors, they were not sustainable at break-even. They required contingency funds, funds to expand their programs and programs that made money so they could operate programs that did not. By the auditors’ own estimate, 40 to 46 per cent of the audited non-profits were offside this rule. So almost half the sector can’t comply with that CRA regulation.
The sector needs to be able to operate sustainably, and a destination test and asset lock, where those assets are kept in the public domain on an ongoing basis, like charities, where any revenue goes back into the organization, would provide sufficient proof of not-for-profit. I know you heard from Tonya Surman earlier about how this is limiting social enterprise.
The stakes are high to get the regulation of the sector right. The challenges facing the world, Canada and our public benefit sector are enormous. Around the world and within Canada, we are seeing a rise in populism and the politics of division, a crisis of income inequality, disruption due to climate change and a loss of trust in public institutions.
Across Canada, private capital’s role in building and operating community infrastructure is placing those assets at risk of sale for private capital gain and raising costs for government. The sector is key as we develop new ways to fund, build and operate facilities that remain in community control.
There is emerging literature on a new vision of how we can develop inclusive local economies and strengthen social relationships, and our young people are clamouring for it. Non-profits, alongside cooperatives, anchor institutions and other structures are creating new local economic ecosystems.
In Canada, we have a priceless resource. Highly skilled staff and millions of volunteers ensure a vibrant public benefit sector in every community, providing arts, sports, immigrant settlement services, disability supports, community enterprises and more. They are there in good times and bad to meet community needs, whether it is fentanyl overdoses, helping devastated communities get back on their feet or everyday summer camps and soccer clubs. There’s so much that needs to be done, and Canada needs its non-profit public benefit sector to be as strong and as nimble as possible.
To sum up the key reforms: Give us our public benefit sector. Give us a name for the sector so that we can begin to create policy that’s sector specific. Allow the sector to collaborate, modify direction and control guidance to an expenditure responsibility test. Support sustainability and innovation in charities. Fix the related business test and allow public benefit non-profits to earn revenues; change break-even to a destination of funds and asset lock. Support the development of new ways to fund community infrastructure so infrastructure and services remain community assets.
In 2018, the public benefit sector needs an enabling and regulatory environment, and they need it soon. The status quo is not working. Thank you very much.
The Chair: Thank you very much. You’ve outlined a number of things and made some suggestions. When I hear presentations like both of you made this evening, I want to ask Revenue Canada and other government agencies the real question, which is what would the country look like without the sector? I don’t think we’d like it, and I don’t think Canadians would like it, and I don’t think members of Parliament would like it. I don’t think they pay any attention to it and it’s about time they did.
First question, Senator Omidvar.
Senator Omidvar: Thank you to both of you. It is going to be difficult for me, but I’m going to focus solely on not-for-profits because we have heard a great deal about charities and it is important to focus on not-for-profits as well because they too provide part of that foundation of our society and they too get tax benefits, but it appears to us that the reporting and transparency requirements of charities versus not-for-profits are miles apart. I will try to focus in on this.
Mr. Floyd, I’m going to play around with your words around “respect.” I know that the Edelman TRUST BAROMETER, which comes out every year, one year rated not-for-profits as earning the greatest trust, but the trust doesn’t seem to translate into respect. I’m looking at the website of Industry Canada and the grants to small businesses. They have grants for business expansion funding, grants and loans; they have a capital investment funds; they have hiring and training grants; and they have research and development funding. Can you comment on the disparity between how we treat small business development and not-for-profit development?
Mr. Floyd: Thank you for that question, senator.
Certainly, as you’re implying, there is a gross disparity between the types of support available to charities and non-profits as opposed to the types of government support available to private businesses. Again, I referenced a comment that Ms. Cukier from Ryerson made last month when she was here that governments at all levels have focused hardly at all on building the capacity or supporting the capacity of charities and non-profits.
If it is true that this sector is one of the three pillars that hold up our society in Canada, it seems perverse that we would be starving these organizations from the kind of development opportunities that would enable them to serve their communities, to engage Canadians in community-oriented public benefit work and to provide all of the benefits that underpin not only our social systems in the country but, by ensuring that we have strong social systems in the country, also help underpin our economic strength in this country.
I do truly believe that it would be a wise investment by government to be looking at research and development funds, innovation funds, technology funds and other types of capacity-building support that would enable this sector to play the role that I think we all believe that it could play in Canadian society.
Senator Omidvar: Following up on that, to both of you, we’ve heard a great deal about anchoring respect for the sector in Ottawa, and one of the proposals that has been made again and again is that the sector needs a place. We have heard proposals ranging from a minister to the Governor General as the ambassador, to a department, to a standing parliamentary committee on not-for-profits and charities — I have used that word and I promised not to — to a proposal that we heard just a couple of weeks ago from the Mowat Centre that it should be embedded within the social innovation office at PCO. Do you have an idea about where respect would be translated into place and position in Ottawa?
Ms. Eakin: That’s something we’ve wrestled with at the provincial level and thought about somewhat at the federal level. I don’t think I have a solution, but it’s very important that, wherever you decide to put us, we are insulated from political shifts. In Britain, they had a big charity initiative with Tony Blair, and it disappeared as the politics shift. I think we do need something beyond interest in revenue out of the CRA, somebody who is interested in actually fostering a public benefit sector that’s vibrant. As we go forward and wrestle with some of the inequalities and the difficulties with businesses, it will become increasingly important, but it’s very important that it be done in such a way that it is embedded in the fabric of government as opposed to being something that can be shifted when different governments come into power.
Mr. Floyd: I think it would be a mistake to try to put responsibility for this sector in one place in government. The experience with the voluntary sector initiative of 15 years ago or so is quite instructive in this regard. There was no line ministry that felt that it had the scope to take on responsibility for the voluntary sector. The voluntary sector initiative ended up being housed in the Privy Council Office and was one of the projects that the PCO dealt with, but PCO has many fish to fry and didn’t continue on with its interest when that initiative ended.
The type of approach that is appropriate for this sector is similar to what’s being done currently with gender. There is a gender lens in the Government of Canada, and it’s something that every department is expected to apply on an ongoing basis. We’ve seen similar initiatives in terms of having an environmental lens in some other governments. I think the whole notion of respect is something that needs to permeate the government as a whole. It’s surprising the number of government agencies and government departments that are involved with the sector and have a real ongoing engagement where that respect needs to exist. The department of agriculture, for instance, is very involved with the voluntary sector through things like 4-H clubs and the like. That is not something that would be top of mind for those of us who live in downtown Toronto. I think that having that responsibility rest everywhere in government is much better than having it rest just in one place.
Senator R. Black: Ms. Eakin, you have given us a recommendation summary, and number five is to support the development of new ways to fund community infrastructure so public and community assets and services remain community assets and build community wealth. Could you expand on that? What do you mean there?
Ms. Eakin: ONN has a new paper out called Not for Sale: The Case for Nonprofit Ownership of Community Infrastructure and Services, which I have given the reference for at the back. What we were looking at is what has happened in Britain, where they have used the private sector to build and operate many of their social services.
There is a problem that has occurred with the private sector. For example, 23 nursing homes in B.C. — the single largest nursing service provider in British Columbia — were bought by the Anbang Insurance company as a real estate play last year. They committed to providing three years of continuous nursing care for the residents. Anbang has since gone bankrupt and been taken over by the Chinese bank, but that is another issue.
The issue is you have private ownership of what are, in essence, public assets, and they get sold out. In Britain, they had 750 nursing homes go bankrupt. What happens is you buy the company. What will happen in B.C., probably, is they will then load the debt they have bought onto the real estate company and try to raise the rates that government pays as it goes until government says, “No, we can’t.” By that time, you have no assets, so you have a huge problem.
We have seen it in the U.K. where they sold services, even. Foster care has been sold three times in the U.K. The foster mother and the foster child have had no change in what they actually do, but it has been sold and loaded up with debt to the point where you have these services bogged down.
It is the kind of capital practices that we have in communities now that are different from what they were 20 years ago, where you built a nursing home and operated it, and it was a good source of revenue and everyone was happy. Today that doesn’t happen. We just had 53 methadone clinics in Ontario sold to, I think, a group in Texas. That is because they are a good business.
Part of it is governments say, “We don’t have the capital like we used to.” What we have to do is get creative about how to find the capital that can build infrastructure that will be held in the non-profit forum, whether it’s a co-op, non-profit or public ownership, that we put our heads to it and find some way to finance it. I’m sure if we put our heads to it, we can figure out how to do it without just relying on the ready capital that comes from the private sector, but you pay for it down the line.
Senator R. Black: Thank you.
We have heard witnesses in the past talk about the duplication of reporting requirements from different levels of government. You didn’t speak to that, Mr. Floyd, but it has something to do with capacity and having the time to do that and everything. Is there an issue there — I would like to hear from both of you — and are there any recommendations or suggestions that might mitigate that?
Mr. Floyd: There are constant complaints about the T3010 annual report that charities need to complete. I have been part of three efforts to change that form. At one point, we actually got it down to four pages, and then CRA kept adding more and more. We are back up to 13 or 15 pages now, I believe. It is a compliance report, and charities do get significant tax benefits and significant contributions from government.
The report is probably not inappropriate for the mid-sized and larger charities. However, when one bears in mind that 50 per cent of the charities in Canada have no or only one staff person — they are essentially entirely volunteer-run — I think one could argue that the T3010 reporting is excessive for those small organizations, and they should have a lesser burden.
Non-profit organizations, on the other hand, hardly report anything. Many of them don’t report anything at all. Many of the non-profit organizations in this country that do not pay taxes fly under the radar completely, and we don’t even know where they are. Certainly those organizations, I would say, are not too heavily burdened and should probably have to step up to the plate a bit more.
The other place where there is excessive paperwork to be done is around the accountability procedures for government contracts. The Auditor General has terrified everyone in this city to such a great extent that the reporting procedures around contracts are excessive and crazy. For a $25,000 contract, you need to do full accountability reports quarterly, and they go on for pages. Certainly that type of red tape or burden is excessive.
Senator R. Black: Ms. Eakin, would you like to add something?
Ms. Eakin: That is a toughie. We had a summer student this summer, a law student, looking at grants and contributions and the complexity of it. We have been at funding reform provincially for the last six or seven years and have made virtually no progress. The conclusion of the summer student was that it is a top-down relationship. The government has the money and they give it to you, and the best thing that the organizations can do is continue to schmooze their grant giver to enable them to get their work done.
A number of organizations will have 15 different grants, all with different definitions of what a youth is and different budget lines. The problem is that, provincially, we got as far as coming up with a master template. There is always the provision, “It’s a master template, but you can vary it in your department if you need to,” and, of course, everyone needs to. To be fair to the government departments, what they need to report on, depending on what they are doing, is very different from the department next door.
We reluctantly came to the conclusion that we are not spending any time on that issue right now because we don’t see how we will be successful, having batted our heads against the wall for a number of years.
Senator Seidman: Thank you both very much for your presentations.
I might start with you, Mr. Floyd. In your presentation, you identified three challenges. I would like to start with effectiveness, if I might. You quite rightly identified the necessity for an evidence-based approach to any organization, which means data. You brought to our attention an article that appeared in The Philanthropist where authors noted that there is a wealth of data on social issues in the non-profit sector. It is true that it is not feasible for every organization to have their own analyst, of course not, so you suggest a system-wide approach, and you say that the Government of Canada is critical to any such initiative. I would like to know what you mean by that. What role would the government play?
Mr. Floyd: The approach being suggested by the authors of that article was to collect and centralize data collection and analysis around social issues in the country, whether that data is coming from a non-profit organization or from government bodies that are even more engaged in social initiatives. Of course, there is a jurisdictional split on that too. The federal and many provincial and territorial governments are involved in many aspects of social policy, and local governments are involved in many aspects of social policy. Very little of this data is being pulled together. There are exceptions. We do a pretty good job in Canada on much of our health data, for instance, but in other areas of social policy, not so much. What is being suggested here is a national effort, a Canada-wide effort, that would engage many players. Given the scope of the effort that is being suggested here, the logical leadership would come from the Government of Canada.
Senator Seidman: When the authors say that the “non-profit sector has a wealth of data on social issues,” does that mean they are already collecting the data or that they have the potential to produce the data?
Mr. Floyd: There is a lot of data already being collected. It doesn’t get well analyzed. Much of the data that is being collected now is about inputs and outputs rather than outcomes and the real impact that the work has. But yes, a lot of data is being collected.
Most funders are asking organizations such as non-profits and charities for information about the numbers of people they see and how they report and gauge the results of their work, and organizations routinely collect that information and report it back to their funders, but it never gets rolled up in any bigger way so that we can see how the efforts of one organization working on food security contribute to the broader picture of everyone’s work in that particular area of food security.
Senator Seidman: That is interesting. Actually, I was quite surprised to hear that, because you talk about the insufficient capacity in these non-profit and charitable organizations. Technology is often primitive, senior staff lack any management and it is hard to keep volunteers, so how is this data collected?
Mr. Floyd: It is collected usually in fairly primitive ways. I will give you an example. The field I worked in for the last 10 years was the sector of children’s mental health in Ontario. Each of the treatment centres in Ontario needed to do an assessment of a child when they came into service and an assessment when they went out of service and make some indication of what the impact of the work had been. Was the kid doing better after their treatment? They would also be collecting data on things like how long the child had to wait in order to access service. There were a lot of basic indicators like that that were being collected and used within the organization to some extent, but never being rolled up to improve the design or the delivery of children’s mental health services across the province let alone across the country. They were not being used sufficiently even within an organization to enable them to improve the work they were doing. The data was there, it was being reported and collected and the numbers were being added up, then people would look at them and send them to someone at Queen’s Park and there it ended.
Senator Seidman: That is helpful.
I have a question for you, Ms. Eakin, if I might. It follows from Senator Black’s question about your fifth recommendation where you talk about new ways to fund community infrastructure. You talk about emerging literature on a new vision of how we can develop inclusive local economies and strengthen social relationships, and that our young people are clamouring for it. Can you give me a concrete example of this new vision?
Ms. Eakin: An example of that would be Scotland. Scotland is doing very good work within communities. In Scotland, for example, they have a bill where, if there is a resource such as an old school that isn’t being used and the community wants to put it to use, they can approach their local council and they have a right to buy the school for a pound. They have support to get it going. They have converted things into local pubs where the community can meet again. In one case, they created a power dam that makes them some revenue every year. They took those power dam revenues and rebuilt the local school. They are now refurbishing a lighthouse so they can have tourists come, and from that revenue they will do other things in the community. You begin to get community ownership of assets and community wealth developed.
In Italy, for example, they have community care that is run as kind of a cooperative in the community where they provide supports in the community through a local community care system. In Britain, there is a whole move called Locality. In the handout I gave you, there are some early references to it. Nonprofit Quarterly in the United States is running a series of six webinars on initiatives where worker co-ops are becoming more popular in terms of workers owning and improving the co-ops and the co-op legislation.
There is a whole movement at the grassroots that is beginning. It is very early days, but we want to enable that because we think it will produce more resilient communities that will be less impacted by the kind of comings and goings of some of the big businesses and some of the larger company approaches.
Senator Seidman: Thank you very much.
Senator Duffy: Thank you both for coming here tonight. This is very interesting, and there is lots for us to digest.
I would like to ask about the difference between the England and Wales Charity Commission and the kind of regulatory burdens and other barriers they face there compared to what we have here. You seem to suggest that theirs is a model we might want to look at. How much better off are charities and non-profits in the U.K. under this model than they would be here?
Mr. Floyd: To go back to the reporting issue that Senator Black asked about a moment ago, in the U.K, smaller organizations and charities are only required to file a brief annual report, so the burden on them is much less.
As I was suggesting in my remarks, senator, the significant difference is that the Charity Commission in England and Wales believes that the responsibility for keeping a charity onside rests with the charity’s trustees, or what we would often call board members. They invest their efforts in ensuring that those board members have the knowledge and skill to run the charity properly and keep it onside, rather than having the kind of bureaucracy we have at CRA, which is trying to do the micromanagement at that level.
Senator Duffy: I appreciate that answer; it helps.
My larger concern, since we have begun this inquiry under the esteemed leadership of our chair who worked in this sector, is that the demographics we have seen from some of our witnesses suggest that the number of donors to charitable and other such activities in Canada is dropping as we boomers pass on. The younger generation doesn’t seem to show the same interest. I have a feeling that, sooner rather than later, we will come to the crunch where the donor dollars will not be there.
Getting back to a minister responsible, I was reminded that Reverend Walter McLean, in the Mulroney years, was a Minister of State. Looking back, though, he was a bit of a lost soul, because he didn’t have a department other than a small secretariat to back him up.
It seems to me that if we are to really change things, we should take it away from CRA and create an SOA, a special operating agency, whose mandate is not only to regulate this sector as lightly as we can but also to advocate for it, and that there be a minister or other prominent person whose job it would be every week to be out across the country telling Canadians why it is important to give, get involved and for this sector to thrive. In the current media age, if we don’t have somebody pushing the message all the time, it gets lost in all the noise. We know there are some people who take up a lot of air time. We have to get this sector back on the front burner, because it is critically important to our country’s future. Is that idea doable?
Mr. Floyd: Our most recent past Governor General was a real champion for the sector, in particular for people becoming active as volunteers.
I agree, senator, that this sector needs a champion, and it needs more than one champion. It needs champions who can capture public attention and tell the story of why it is so important that this sector be supported and that Canadians from coast to coast become involved in the sector in whatever way.
The idea of creating a special body at the federal level, though, is a bit tricky because of the way our Constitution is written and because the constitutional responsibility for charities is so clearly assigned to the provinces, which, with the exception of Ontario, have not stepped up to the plate on that. An appropriate body would probably look something like the national securities regulator that some people are trying to get in place.
Senator Duffy: Still trying to get in place.
Mr. Floyd: It may not be any easier to get than that. But it would be a body that crossed jurisdictions and took on that role of champion.
Whether or not there is something that looks like the charity commission or some special purpose body created at the federal level, regardless of what is in the Constitution, there is scope at the federal level for some department to take on the lead responsibility for ensuring that our non-profits and charities are strong and well equipped.
In days of yore, the Secretary of State had that responsibility and exercised it well. We don’t have anything like that now, and we have not had that for about 30 years in Canada. It would be a good thing for something like that to happen again.
Ms. Eakin: To add to what Gordon is saying, there are two issues you have to be clear about. There are the organizations that do not pay tax, which are charities and non-profits. Then there are organizations that give out tax receipts. We have been pushing for shared platforms, where you can nurture a small group that wants to get a grant. To get a grant from a foundation now, you have to be a charity, so there are organizations registering to be a charity where, if we had different regulations, might not need to because they are not actually that. Right now, the ability to raise funds is complicated, especially since we have big philanthropy now. If you are U of T, you can raise funds. If you are the little garden group in Creemore, you might not need to be a charity. If you can get that Trillium Grant or the grant from the foundation, you might not need that. That’s why I talked about the public benefit sector, and thinking about that as a frame is important.
Senator Duffy: That is the law related to foundations. If foundations had more flexibility, people wouldn’t have to be charities in order to be funded.
Ms. Eakin: Absolutely. They could be non-profits.
Mr. Floyd: That is a slippery slope.
Ms. Eakin: They could be non-profits.
Senator Duffy: There is no easy answer.
Senator Maltais: Mr. Floyd, you said that Newfoundland, Nova Scotia, New Brunswick, Quebec, Manitoba, Saskatchewan, Alberta, British Columbia, the Northwest Territories, Yukon and Nunavut have not stepped up to the plate? You said that only Ontario has stepped up to the plate. What did you mean by that?
Mr. Floyd: Thank you for that, senator.
The constitutional responsibility for charities rests exclusively with provinces. The only reason the federal government is involved at all is because of the tax credit that is given through the Income Tax Act. The federal government has established a whole regulatory regime around the rules an organization must follow if it is to have access to that tax credit, so by default, the federal government has become the regulator for charities in Canada, with the exception of Ontario. Ontario, in their Office of the Public Guardian and Trustee, which is part of the Ministry of the Attorney General, exercises some active oversight of charities.
The constitutional split happens because charities, as you know, are created as trusts. Therefore, a charity is really about charitable property. Property is the business of provinces, not the federal government. Ontario ensures that the money put into a charity is used for charitable purposes. The Office of the Public Guardian and Trustee ensures that the charitable property is being used for charity. No other provinces have put in place any mechanism to do that.
The only other regulation that you see at the provincial level happens in Alberta and in Manitoba, where there is some regulation of fundraising activity, and there is some attempt to licence fundraisers and ensure there is not fraud going on in fundraising, but that’s only dealing with that little piece, and none of the other provinces exercise their authority at all.
Senator Maltais: Allow me to partially disagree with you. In Quebec, the consumer protection bureau comes under the Minister of Finance, who issues permits to charitable organizations to ensure that the money given to an individual or a corporation is indeed used for the intended purpose. Quebec’s consumer protection bureau comes under the Department of Finance when it comes to the management and transparency of those donations. I think the same mechanism exists in Nova Scotia.
Senator Omidvar: I have one short question for Ms. Eakin. Not-for-profits, unlike charities, are able to engage in political activities — partisan or non-partisan. I think we’ve all heard the stories about the not-for-profit in British Columbia, and today we heard about a not-for-profit in Toronto, that are engaged in partisan political activities. In your scheme of public benefit versus member-focused organizations, where would these distinctions rest?
Ms. Eakin: In our scheme, our position is that you can have a non-profit structure if you want but, if you’re exempt from tax, you ought not partake in partisan political activities whether or not you’re a member base. Remember, the member base are professional and trade associations, all of those. They ought not participate, if they are going to be exempt from tax, in partisan political activities.
One of the reasons we want a public benefit frame for the sector is so that we can have the kinds of policies that we need to enable public benefit organizations to have those kinds of supports but also to be transparent. We think they should be transparent. If you’re going to be exempt from tax, you should be transparent.
The Chair: Ms. Eakin and Mr. Floyd, thank you. You have stimulated a good deal of discussion here tonight and added a great deal to our study, and I’m sure that, as we reflect on our recommendations, your names will come up several times at that meeting. We’d like to thank you.
We will now hear our next witnesses. We have Mark Blumberg and Cliff Goldfarb, both as individuals. Thank you for agreeing to appear. I would ask the witnesses to make their presentations for five to seven minutes, to be followed by questions from my colleagues, and I remind everyone to keep your questions short and witnesses to keep your answers as short as possible so we can get as many questions in as possible.
We will start with Mr. Blumberg.
Mark Blumberg, as an individual: Thank you for the invitation to speak today. I will focus on the regulation of non-profits and registered charities.
The charity sector in Canada is very large, with revenues and expenditures of over $250 billion every year. Registered charities are not just the stereotype of small volunteer groups of well-meaning people who deliver food to the needy, but they cumulatively have access to a large amount of resources and are, at the same time, dealing with some of the most vulnerable people we have in our society.
With non-profits that are not charities, which we heard a little bit about earlier, there is almost no regulation or transparency, and this needs to improve. The rules and transparency have not changed since 1917.
With the registered charity sector, however, and despite all the complaining you might have heard about the CRA and regulations, we have a relatively good system, but we need to strengthen it as we continue to provide generous tax incentives to donors. While there is some transparency with registered charities, we need more transparency.
One of the most valuable assets of the non-profit and charity sector is public trust. We need regulation of this very important sector, or it’s possible that public confidence in charities will evaporate, and perhaps tens or hundreds of billions of dollars may be misspent. Although I like voluntary standards, they are not a replacement for regulation when the stakes are so high and the charity sector involves so many different people, groups and stakeholders. While some call any regulation or requirement red tape, I want to be clear that there is a difference between reasonable and proportionate regulation and red tape. We have little red tape compared to other countries. If you don’t understand why a regulation or requirement is in place, any requirement seems too much.
In terms of transparency, I will talk about the non-profits that are not charities and how there is basically no transparency relating to them. Remember that these non-profits get the same tax benefit in terms of not paying taxes at the end of the year if there is a surplus. They don’t issue tax receipts but still get some beneficial treatment.
I suggest that the T1044 form — which is already filed by 20,000 to 30,000 of the bigger non-profits — which is already filed and processed by CRA, should be made public. It’s no further a bureaucracy, because, in fact, it’s already filed. They are already given the form, and it is prepared and put on a database by CRA.
Finance has been dealing with this Non-Profit Organization Risk Identification Project, NPORIP. Their report came out over five years ago, and there has not been any progress on that. The report talked to some of the points that Lynn Eakin mentioned earlier around quite a few non-profits not complying with the basic rules of being a non-profit. We are not talking about registered charities here.
With registered charities, you have a different story when it comes to transparency. There is some transparency, because the T3010 is publicly available. I’m sure that many of you have used it. However, the CRA is not allowed to say anything about any registered charity because of taxpayer confidentiality requirements in the Income Tax Act, until the registered charity is revoked, which, in some cases, can take 10 to 15 years. There should be an exception to these requirements when there is a serious non-compliance and it’s in the public interest for CRA to disclose the information.
What is good regulation and a good regulator for non-profits and the charitable sector is very complicated. There is no silver bullet in charity regulation. Some people are asking for even more tax incentives for donations to charities. Therefore, the likelihood is we will need more regulation, not less.
Canada has one de facto regulator, and it is the Charities Directorate of the Canada Revenue Agency. We have basically backed into the situation, and it seems to be working. Those involved with securities regulation would die to have one regulator. We heard about that earlier. We in the charity sector have it. Australia, on the other hand, has been working hard for over the last decade, and will probably spend another decade going from what is now currently eight regulators down to one or two regulators. Just keep in mind that if we had every province and territory, 13 additional regulators jumping in, then it would have to be the lowest common denominator for a national charity. It could get quite complicated, although a great business opportunity for large national firms, law firms especially.
We have attached as Schedule A 17 factors to consider in determining whether a charity regulator and regulation is appropriate. If you have questions on how the CRA is doing compared to other regulators, I would be pleased to try to respond to that.
Whether it is a charity tax regulator or a charity commission, in my mind it makes little difference compared to other factors. Form is far less important than the content, strategy, people, resources, et cetera. We don’t need a new regulator, which will take 10 or 15 years to establish and get going, and then, perhaps as in the case of New Zealand, quickly be taken down. Even though people said it was a very successful regulator, the decision was made to get rid of the Charities Commission and move it into the Department of Internal Affairs.
There are a lot of suggestions for modernizing charity law, but be very careful. One of the most benign suggestions is to have a statutory definition of “charity” rather than a common law definition. Even such a suggestion can be very complicated. If all you are planning on doing is encapsulating the current common law definition of “charity,” then you are really achieving nothing. Are you planning on taking away something that is charitable, such as advancing religion? If that is the case, you could cause a culture war, which would be very disruptive to the charity sector. Are you planning on adding something like sports? This could double the number of charities we have in Canada. I hear all the time from people that we have too many charities in Canada. So would we go from 86,000 to 150,000? If you add sports, you might end up with that.
There has been some references to rolling out the red carpet instead of the red tape for the charity sector, which is a really punchy line. However, the truth is probably closer to there is a red carpet, but only a small number of special interest groups and certain umbrella groups get to use it. There should be more diversity on the red carpet and many more voices from the charity sector reflected.
We have had some red tape and duplicative procedures, which are a waste. There was discussion earlier, especially about government funding. I won’t even go into that. I’m not an expert in it, but it is over the top. I laugh when I look at CRA’s T3010 — which is only 10 pages, not 15 pages — 10 pages, of which a typical small charity only fills in four pages. That’s not much, but when you have government contracts sometimes of 150 pages, it’s complete overkill.
Some of the duplicative procedures that are being carried on right now are Revenu Québec requiring filing a form every year that is almost identical to the T3010, so groups that are issuing receipts to people in Quebec are filling in almost the exact same form. If they would just ask a few questions and maybe get the information from CRA, it would save some time for some charities. Alberta had a fundraising regulation for those who raise over $25,000 a year, and it is questionable if it adds a lot. The Ontario Public Guardian and Trustee, as was mentioned earlier, is also involved. Most of the unnecessary regulation or red tape is at the provincial level or created by funders.
Some have suggested that the CRA should look only at purposes and not activities. However, then it’s easy for an organization to just cut and paste in standard purposes without disclosing what their actual activities will be. Some groups will say, for example, that they are interested in researching immigration policy, and then we will find out three months after they are registered that it’s really a White supremacist group, and all it wants to do is talk about how we need to stop Muslims and Jews from immigrating to Canada. How many neo-Nazi or alt-right groups do we want to be registered as charities in Canada? In the U.S., where they have largely removed any application barriers, 99 per cent approval rates, you have tons of these groups that are very questionable.
The debate about charities and political activities has consumed a lot of space since about 2011. The Liberal government put forward legislation on October 25, 2018 — which I think is quite dangerous — to allow Canadian charities to conduct unlimited political activities as long as they are non-partisan and connected with the objects of the charity. Unlike donations to candidates and political parties, which are capped, there are no caps on amounts that can be donated to a charity.
I am sure you have been looking at the situation in the U.S. with some concern. I’m afraid that this change by the Liberals is not going to empower your average charity to be involved in political activities where they could already be involved, but it will help a few wealthy people or large companies essentially dominate the discourse in our country, as has happened in the U.S. after their Citizens United Supreme Court decision.
We have a large number of assets in the charitable sector, but it is deceptive because it is a very small number of charities that have almost all of the assets, and they are well represented in the people who have come to this committee.
There are trends such as an increase in donor-advised funds. Donor-advised funds can be quite useful, but the lack of regulation may result in another 20 or 30 charities accumulating huge wealth instead of it going to operating charities and being spent on actual charitable activities.
In Schedule B, we have set out a list of recommendations. In summary, it is very important that the non-profit and charity sector — it’s a large sector — have good regulation and more transparency to improve its work and minimize the misuse of resources.
Thank you very much.
The Chair: Thank you, Mr. Blumberg. You mentioned providing more work for lawyers. That’s what we do in the Senate: provide more work for lawyers. If you think we’re working hard, you should check the House of Commons. It’s a much bigger deal over there.
Mr. Goldfarb, please go ahead.
Cliff Goldfarb, as an individual: Thank you for inviting me. I’m going to try to simplify work for lawyers, if I can, in my submission, and narrow it down and give you something you can recommend in fairly specific items, if I get it right.
The perspective I want to bring is of someone who has been practising law for quite a few years. Over the last 20 years or so, more and more of my work has been in the charitable and non-profit sector. I want to talk about some of the issues that we as lawyers face in that sector. I also want to talk about volunteers, because most of us who practise also volunteer. The concerns I’m expressing are not just my concerns as a lawyer but also the things I see as a volunteer as being difficult for the sector.
The area I want to focus on is corporate law that applies to non-profits and charities, which are a type of non-profit, and the federal legislation that I want to mention is the Canada Not-for-profit Corporations Act. In order to get my submission under five minutes or so, I will call it the CNCA. It has been in effect since 2011. Mark can correct me, but originally, they were about 47,000 corporations under the old legislation, the Canada Corporations Act, most of which — the ones that wanted to — continued under this new legislation. Any former corporation under the old legislation is now under the CNCA.
I’m only going to talk about federal corporate law, but I will be happy to answer questions about provincial law to the extent I can.
The old Canada Corporations Act goes back to the years of World War I. It was archaic, it was limited and didn’t cover a lot of things, but it was very flexible and allowed charities to structure their boards and memberships to suit their needs. However, there were a lot of things we wanted to get out of modern legislation that it didn’t provide. We wanted modern enabling legislation.
Then we got the CNCA, and the initial reaction of most of my colleagues was disappointment. What we got is a very mixed bag. It’s a modern and helpful statute in some ways. It filled in a lot of the blanks, it gave us things we didn’t have before, and it was welcome for that. But it’s overly prescriptive in some areas. It’s patronizing, and it’s philosophically unrelated to the culture that had already evolved in the sector over many decades.
It was based on the existing Canada Business Corporations Act — business corporation legislation — and it was drafted in a way that whenever there was a concept that was in the business corporate legislation that didn’t exist or wasn’t applicable, they would come up with a concept that they would replace it with in this section.
One of the differences between the two is that under the business corporations legislation you have shareholders who actually own the equity in the corporation. In the not-for-profit section, with very few exceptions — and most of the exceptions are things like private clubs — you have members, and the members don’t own the equity in the corporation. The equity is either a public asset, as Lynn Eakin described, or it could go back to the members afterward, at the time of the dissolution. Except for private clubs, most of those organizations don’t distribute. Even the ones that are member benefit organizations, like trade associations, when they wind up, they try to put their money into other organizations that have similar purposes. So you have very few organizations under the CNCA that would ever give their money back to their members.
Unfortunately, the legislation that was drafted is drafted on the basis of trying to create concepts in this new legislation that didn’t exist before to replace the concepts in the business corporations legislation.
I want to focus on three areas where the CNCA does not reflect the needs or the wishes of the not-for-profit sector and where it impedes the non-profit sector’s ability to function efficiently and in the ways it should.
I want to mention, also, that the courts, unlike business corporations legislation, right up to the Supreme Court of Canada as recently as this past summer, have effectively said that, really, the legislation, the government and the courts, have no place in the governance of non-profit corporations. They are outside of the kind of governance that you would get in the business sector where you have contracts and economic interests. The courts would have a limited role to play, but the legislation itself is much more prescriptive than that.
The first area I want to talk about touches on one of the things Lynn Eakin talked about, which is the distribution of assets to members or to other non-profits. The current regime is artificial, complex and based on irrelevant business law principles. Under the business corporations legislation, you have the concept of a distributing corporation, one that takes money from the public and sells shares. The people who pay that money to the corporation and get the shares own the corporation.
That didn’t exist or was not a concept that you could put into the CNCA, so they came up with a concept of a soliciting corporation, which is essentially a corporation that receives donations or contributions from the public, from governments or from another soliciting corporation. That’s all well and good, but that’s a very disruptive and inappropriate way of dealing with the situation. It catches some charities, but it doesn’t catch private foundations for the most part. It catches some non-profit corporations it should not catch. It can flip-flop from year to year. We get what we call the “yo-yo soliciting corporations.” Some years you’re a soliciting corporation, subject to those rules, and other years you’re not. It can catch corporations that receive funds from other soliciting corporations that you don’t even know are soliciting corporations. So you become a sort of stealth soliciting corporation; you didn’t know you were.
I can give you an example. Let’s say the Olympics is being run in your city, and they go to a golf club that happens to be incorporated under the CNCA. They say, “We would like you to run some events for us, and we will give you a grant.” You have just become a soliciting corporation. You had no intention of doing that, and members of golf clubs have paid good money to belong to the golf club. All of a sudden, if that golf club were to be dissolved, that money could not do back to the members. It would have to go to another qualified donee under the Income Tax Act. It has some untoward effects, and these are extreme examples, but it has these effects that were never really appropriate.
You can become a soliciting corporation if you receive more than $10,000 a year in revenue other than from your members. Under those circumstances, you can raise the amount. You can go to Corporations Canada and ask to raise the amount, but it’s a low starting point, and you’re putting organizations through hoops to comply with it. It also prevents the distribution of assets to members in member benefit corporations years after they have satisfied the test — five years.
It could have been solved by simply allowing self-determination at the time of incorporation. A public benefit corporation, as Lynn Eakin was describing, would get an asset lock. It would build into its charter documents a statement stating that when it dissolves, its assets go back into the public sector, either to a qualified donee under the Income Tax Act, including registered charities, or to a similar organization with similar purposes. The other type of corporation, the member benefit corporation, like trade unions, golf clubs and trade associations, would simply have the ability when they wound up to dispose of their assets — whatever is left over — to their members, or however they see fit. That’s one issue.
The second issue I want to talk about is corporate democracy. Under the Canada Business Corporations Act, you have shareholders, and under the CNCA, you have members. They have an equivalent role: Both elect directors, both receive financial statements, both appoint auditors and both approve fundamental change. The major difference is that unless you’re a private club with initiation fees or other non-charities where the members might have some kind of personal economic interest, members of all other types of non-profits have no economic stake in the corporation, and yet the whole shareholder democracy concept has been imported into the CNCA without the proper consideration of its effect on the sector.
It had been functioning very well for the most part under the existing, but very limited, Canada Corporations Act, and many organizations had multiple classes of members. They had honorary members, life members and student members. These classes either didn’t vote at all under any circumstance or, if they voted, they all voted together. Now, we have a shareholder democracy concept where we have separate classes with rights to vote separately, which means any class can veto any kind of major change and, in some instances, non-voting members can vote on these changes.
We have a situation under which the reaction of the sector was to get around all of this. We now have less corporate democracy than we had before. Many organizations have eliminated all their non-voting members, so student members, life members and honorary members are no longer members. They are now subscribers, friends, adherents or whatever term they want to use because they don’t want them voting. Many organizations collapsed two or three classes of members into one class and have complicated dues structures to account for that. In Ontario, we will get similar legislation someday, if they ever get their act together. At one point, one organization that we act for had 38 different membership classes. They now have one because we are anticipating that we don’t want to have separate class votes.
The solution is a simple one. It is simply to eliminate the rights of non-voting members to vote under any circumstance, to allow an organization to select, at the time of incorporation when it sets up its charter documents, whether separate classes have a separate vote, and only give separate classes a separate vote if they have an economic stake in the corporation, which is a very small number of non-profits.
The third and last area I want to talk about is financial accountability. The cost of an audit review engagement type of financial report can be very expensive, and it can eat up a significant part of the budget of smaller non-profits.
There are limited exemptions, but the level of revenue that you can get an exemption with is low, so it is hard to access. The most important exemption for soliciting corporations is an audit exemption, and you have to have the unanimous vote of all your members. You can imagine that smaller organizations have eliminated their memberships for that reason alone, many of those.
The other problem is it is also a major source of non-compliance. It is partly due to the complexity and partly the external uncertainty. People don’t understand it. They can’t get legal advice because it is expensive to get legal advice for small organizations.
I want to summarize my recommendations. Corporations Canada is supposed to do a review of the CNCA in 2020, and I think some of these points need to be made to them.
They need to reconsider the concept of soliciting corporation and replace it with self-selection at the time of incorporation and an asset lock for public benefit corporations.
They need to remove all separate class votes except for the limited cases where a member’s personal economic rights in the corporation are affected.
They need to remove voting rights of non-voting members entirely and provide for much higher levels to trigger for audits and for easier exemptions to higher level requirements.
The Chair: Thank you both, gentlemen.
Senator Omidvar: Thank you to both of you. It is a pleasure to get testimonies with clear, succinct recommendations attached to them, so thank you for them.
Mark, I will not ask you about your recommendations because they are so clear and succinct. I’m going to go off script. Your organization, Global Philanthropy, recently published a list — and I have it here — of total revenue received from all sources outside of Canada by Canadian registered charities in 2015. The latest figures, I believe, are an astounding $1.9 billion received from overseas funds by Canadian charities. There have been questions raised around this committee on undue foreign influence in the charitable sector through these donations. Can you tell us if, in fact, your evidence bears out that there is undue political influence of Canadian charities? Can you give me your point of view on whether if there is, then the solution to that, as we heard two weeks ago, is not in charity law or regulation but in electoral law, which we have before us in the Senate at this point?
Mr. Blumberg: Thank you, Senator Omidvar, for the question.
First, we have slightly updated statistics because the article you are referring to was published in 2015. We just came out with a sector snapshot for 2016 where the amount is now $2.6 billion coming in from outside of Canada to Canadian charities. That is fantastic because it means that, for example, University of Toronto, which has a budget of $3 billion a year, gets $400 million from foreign sources. By the way, if you wanted to get rid of this, as long as you are ready to come up with the $2.6 billion and fund these institutions, maybe that is okay.
In terms of the undue influence issue, I did another piece that you may be referring to where, essentially, just less than $1 million of that money was earmarked for political activities. I think that was part of the issue of the undue influence. You have $2.6 billion and less than $1 million coming in, so it is a small amount of money. I think there are some concerns because maybe some of that is with environmental groups and some is with other groups. I wouldn’t be shocked if many more times that amount is going from Canadian donors or entities to American charities to influence things that go on in America. That there will be some money crossing the border on political activities is inevitable. I am not worried about it. For-profit companies can push money into Canada to deal with political things; charities can too. It is a tiny amount of money.
In fact, when we looked at the stats, I told you I am concerned about the current Liberal opening up of charities to spend 100 per cent of their resources on political activities. In the old days when you were capped at 10 per cent, which means you could spend $25 billion as a sector, because it is a $250 billion sector, they only spent $25 million. That is how much Canadian charities spent on political activities, which is one thousandth of what they could.
The average charity is not that interested in being involved in political activities. Some will occasionally get involved. Their idea of political activities is meeting senators and MPs and that type of thing; it is nothing too provocative. I am all for charities being involved in political activities, but I am worried that if we allow unlimited political, it will mean 20, 30, 50 or 100 charities spending hundreds of millions or billions on political activities and there is no charity going on there. I am all for political activities as long as there is actually charity in the same organization.
Senator Omidvar: I will get to Mr. Goldfarb. I am trying to get my head around your brief.
Mark, why do you think the federal government is continuing with its appeal of Canada Without Poverty v. the Attorney General of Canada when Bill C-86 reflects the decision of Justice Morgan? Can you tell us why?
Mr. Blumberg: The CWP decision was a poorly written piece that basically went into a lot of different issues, not just political activities. Justice Morgan made a statement in his decision that you can’t tell any activity apart from a different activity, so terrorist activities are no different than charitable activities and political activities are no different than fundraising activities. He took it to such an extreme level that I don’t think any government — it doesn’t matter who is in power — cannot appeal it. They will have to appeal it.
Political is one issue, but there are a whole lot of issues. We treat fundraising activities differently than administration or charitable activities. There are reasons for it. There are rules that are different for it, and we can discuss those further. That is why I think they had to appeal it.
This particular government decided, after they literally did a 180-degree turn from a 10 per cent rule to making a new rule called ancillary and incidental, which means maybe even less than 10 per cent, to allow 100 per cent political, and all within the span of five weeks. This is more like the Trump White House than what we expect from Canadian politicians. It was a complete reversal. I have no idea what’s going on, but I am worried about one thing. After watching what happened since Citizens United in the United States where they unleashed basically freedom of speech and you can spend as much money as you want, we’re going to have a few people with some very peculiar views in some cases, but they’re very wealthy, spending large amounts of money, and the charity sector will be used basically like a proxy war like they have in some countries where different powers are fighting each other. It’s very unfortunate because this will not have much to do with charity, it will have to do with political influence and stuff like that.
Why? I have no idea. You would have to talk to the Department of Finance as to why they came up with such a formulation. One of my recommendations is that they tap it down a little bit so that a charity can do up to 50 per cent political but they have to do at least 50 per cent charitable. I don’t think that’s too much to ask for a registered charity. I’m not a fan of the current finance proposals.
Senator Seidman: Mr. Blumberg, I will continue along this path because it’s extremely provocative. If I look at all of your recommendations, they are virtually all about transparency. You said at the outset you were going to talk about regulation, and you focused on transparency. This is your area of specialty in your legal practice, I believe. Given your work, do you see a serious issue with transparency? You talk about the necessity for public disclosure of financial statements of all Canadian charities and public disclosure about lack of information or fraudulent information produced by a charity. Are you giving us a loud message that there are serious problems with transparency?
Mr. Blumberg: As you know, there are 80,000 to 100,000 non-profits that are not charities. They file a two-page form once a year with the federal government that no one gets to see, including you can’t see it. This is one of the things I find scary: I get the fact that the government doesn’t trust the people, but they don’t trust you guys, they don’t trust MPs and they don’t even trust the RCMP. Unless a person’s life is at risk, the CRA is not allowed to share even with police forces.
In Toronto, we had the St. Michael’s College School matter. If CRA was auditing that, they would not be able to tell the police that there was a problem. Maybe I’m exaggerating, but the fact is unless it involves the possibility that someone will get badly hurt or killed, essentially the CRA is precluded from telling anyone about it, and this makes so sense to me.
You have two problems: One is on the non-profit side. CRA can’t release these two-page forms, which really tell you very little but they tell you something. Wouldn’t you like to know if a particular non-profit has $100 million in revenue or assets or whatever? They can’t release that.
On the charity side, they can’t tell you if a charity is involved, for example, with terrorism. They can’t tell you if a charity is involved with massive child abuse scandals or any of this sort of stuff. Also, $7 billion worth of receipts improperly issued in the last 10 years; if you were to ask them about a particular charity, for example, one that was based a few kilometres from this place we’re talking in now, why they issued $60 million or $70 million, well, now that they are no longer a charity they can talk about it, but while it’s a charity they can’t.
We’re making it very difficult for donors. We’re basically saying if you want the financial statements of a charity, you can request them from CRA. Technically it’s provided and it can be requested, so then two or three months later you will get your return. We have encouraged the charities, although it’s not a legal requirement, to put up their financial statements on their website, if possible. I’m talking about bigger charities. The little group that has a $10,000 budget I’m not worried about at all in terms of that sort of thing. In fact, many of them are very transparent about everything that goes on in the organization.
I feel like we need to do more to allow CRA, when it comes to serious abuse, to be able to say something, as we have with the U.K. The Charity Commission for England and Wales can do it, and the Australians can do it. There is no reason it can’t be done and non-profits to have a bit of transparency so we know about these groups that we know so little about.
Senator R. Black: I will direct my short question to Mr. Blumberg. Recommendation No. 7 is that the government consider the pros and cons of implementing a system where the ability to issue tax receipts is not based on being a registered charity but rather a narrower category of deductible gift recipient. Can you explain that more for me?
Mr. Blumberg: This is the situation in Australia. I’m not saying we should adopt it. I find sometimes that people pick and choose things from other jurisdictions. My view is I’m happy to take any charity system from Australia, the U.K. or whatever. Let’s just take the whole thing. But to just take little pieces can be an issue.
In Australia, you can be a charity — and there are lots of those — but deductible gift recipients are the guys who get to issue the receipts, like what we would call a registered charity. They just exclude huge groups of people. For example, all the churches, the synagogues and the mosques are excluded. In other words, they tailor the benefits very much more precisely to exactly who they want to provide it to.
I’m not saying this is a good idea, but maybe we need to think about a different system. That is just one angle one can think about. More importantly, if we’re spending all our time talking about what is the definition of charity and should it be a statutory definition and all this, we get into some heavy issues around who really gets a lot of tax benefits, and that’s something we really need to think about.
Senator R. Black: Thank you.
Senator Duffy: Thank you both, gentlemen, for coming here tonight.
Picking up on your comments, Mr. Blumberg, on the wild west of giving and spending that is foreseen under the bill that’s currently before Parliament. Under Citizens United, the free speech decision of the United States Supreme Court, we saw the proliferation of PACs, political action committees, which buy negative ads that bombard viewers in Canada. If they’ve been watching television from the United States in the last couple of months, they’ve seen a proliferation of negative ads. A lot of Canadians think we’re better than that and we don’t want that here. Is it realistic to think that that will come?
Mr. Blumberg: As I like to say, I think Canadians are 10 per cent better than Americans, so not much better. Quite frankly, we’re not so superhuman. I predicted that we will have a prime minister in ten years that will be something like Ezra Levant. That sounds shocking, but if you had predicted Donald Trump ten years ago, that would have been shocking too.
We’re heading down that road, and in fact it’s a slippery road we’re going to slide down, whether we like it or not, if we allow charities to receive unlimited donations for political activities and give, in some cases, 70 per cent tax benefits. We’re not talking about what average people get in tax benefits. We’re talking about sophisticated legal schemes and also just regular donations of publicly listed securities where you’re getting 70 per cent. If we allow unlimited donations and unlimited political activities, remember it won’t be partisan activities. They just won’t mention the names of the politicians, but they will mention taxes need to be at a 10 per cent cap and we need to have no minimum wages and we need to have all this other stuff that certain people believe, which is non-partisan political types of things. I’m worried that if we have a flow of hundreds of millions or billions of dollars, yes, exactly what happened in the States will happen here. It will be slightly different, but I am very worried about that, yes.
Senator Duffy: Jane Mayer is an American journalist who wrote a book called Dark Money that is detailed on how these kinds of pressure groups are structured. One of the biggest things parliamentarians are getting emails about these days is gun control. We get stacks and stacks of not only email but also letters through the regular post, when it’s running. Would you think I’m out to lunch here? I can think of gun control, abortion rights, environmental issues/pipelines, immigration, reduction of welfare payments or other social assistance to vulnerable groups. Will these all be targets or potential targets if this legislation passes?
Mr. Blumberg: Absolutely, and more. It will depend on which billionaire is really unhappy with something. Unfortunately, they call it Citizens United, as you mentioned, the U.S. case. I don’t think American citizens are that united right now.
This is called “Canada Without Poverty,” and my fear is that in 10 years time we will have double or triple the poverty we have now because we will have certain special interests fighting with huge amounts of resources and people being bombarded with this sort of stuff. All of the things you mentioned in terms of gun control, abortion and environmental, absolutely, these will become fields of warfare. But there are other ones. Israel will be one where hundreds of millions of dollars will be spent by those who criticize Israel and those who defend Israel. There will be huge amounts of money. I cannot tell you on what topics exactly because it depends on which rich people or corporations decide they will spend $100 million or bombard the airwaves with this stuff, absolutely.
The Chair: What if those donations were ancillary to charitable purposes?
Mr. Blumberg: If it was incidental and ancillary, which was the Liberal government’s position five weeks before they put out this new position, then you could argue it means they can do even less activities than the 10 per cent rule we have now because there are some cases that say incidental and ancillary is limited.
I was not saying we should do that. I actually like the rules we have now. I think they should appeal the case and ultimately it will go to the Supreme Court and then see what the court says. I think the Supreme Court will take the position at the end that this is not an infringement that is unnecessary and that it is appropriate for registered charities. We are not imposing it on individuals. An individual can still say whatever they want. We are talking about expenditures of charity money that is tax subsidized.
By the way, if you want to do unlimited political activities, it is so easy. Just set up a non-profit, which is tax-exempt, and you can do unlimited partisan or non-partisan political activities and no one will bug you. Should we be allowing some research institute to spend 100 per cent of its money on purely political? Someone will mention the Fraser Institute or the CCPA, I know, and yes, and there are ten or twenty of these organizations, but if you read the public vitriol directed to some of these organizations, you realize if we have 20 or 30 of them right now, when we have 300 or 500 of them one day, it will not necessarily be a better sector. There is just going to be more people thinking that charities are partisan groups, and that is unfortunate.
The Chair: Having done some political fundraising in my day, it seems to me that it skewers the system. The fact of the matter is that someone in the House of Commons is introducing this bill. Thank God it has to come through the Senate. That is all I can say.
Senator Duffy: It is the ultimate irony, Mr. Chair, that special interest advocacy groups would use charitable legislation to turn it back against the government and the institutions that Canadians hold dear. Talk about the law of unintended consequences.
Senator Omidvar: Mr. Goldfarb, thank you so much for coming and talking to us. To be perfectly frank, we haven’t heard before about the Canada Not-for-Profit Corporations Act, but we’re trying to get our heads around it. It is not that we are not interested, but it is just a little dense. Let me ask you a simple question. We heard from previous witnesses that not-for-profits should be divided into those that operate for a public benefit and those that operate for private benefit. How would that recommendation fit into the CNCA?
Mr. Goldfarb: That is actually a good question, and there is no easy answer to that. I know some organizations are saying we need to have separate legislation for member benefit organizations, non-profits, and another set of legislation for public benefit organizations. I think most of the people I speak to think you could do it in one statute. It is not a sexy topic, unfortunately, like this issue of political advocacy, so it’s hard to deal with, and it is part of the problem that we feel the sector doesn’t get the respect it needs, if I can pick up on what someone said before.
It is quite possible to build a statute using the existing statute as a base and fixing it so that they recognize if the ultimate purpose of the organization is to deal with something of interest to the public as a whole, like art galleries, education or medicine or something where the members don’t walk away with something in their pocket or don’t put their own money in and get a benefit out of it. Golf clubs are a perfect member benefit.
You can build in a mechanism within the statute that will allow you to say that in the case of member benefit organizations, you are not restricted in certain ways with what you do with your money at the end of the piece, and this is self-selected on day one. You become a public benefit organization on day one. You will not go back and forth like a yo-yo, as I said. You will not find out you were suddenly made into a public benefit organization because someone gave you some money. That simply won’t happen. You are either one or the other from day one, which is all we ever asked for and didn’t get and weren’t taken seriously when we explained what would happen.
Again, it is the same with corporate democracy. If you have no personal benefit from the corporation or an economic stake in the corporation and the people who found it want it to be set up in a way that doesn’t give their members negative control or vetoes where a small group can effectively thwart the majority, then they should be able to do that. That is all we are asking.
Senator Omidvar: To further my understanding about this, do you believe that private benefit not-for-profits should enjoy some tax exemptions? Why should they? They provide a private benefit.
Mr. Goldfarb: Currently, under the Income Tax Act, they are not-for-profits because they are not allowed to make a profit. There is a distinction between a not-for-profit that ends up at the end of the day with a profit, and that is tax legislation. They can lose their non-profit status. CRA can go to them and say, “Sorry, you are not allowed to make a profit. You will now have to file a tax return and pay on it.” Some of those organizations do pay taxes on some of their operations.
What Lynn Eakin said was instead of looking at an organization that has 10 different types of activities, and each of them has to balance to zero at the end of the year or you are in trouble, look at the bottom line. If they can’t function on the basis of at the end of the year having enough money left over to cover their operating expenses if they have to wind up or have a reasonable reserve fund, then they lose that status.
Senator Omidvar: Thank you.
This question is for Mr. Blumberg. What do you really think about donor-advised funds?
Mr. Blumberg: I use them all the time. I have clients, sometimes, for example, who want to make that large contribution. It is December 20 and the charity application will take another three months. Then the donor-advised fund is helpful to take in money for a period of a few months and then move it over to the entity once it becomes a registered charity.
I am not for or against donor-advised funds. It is more about setting ground rules. Most that I have seen in Canada seem to be responsible and they encourage people to push out 3.5 or 5 per cent or more per year, but there are stories of some people who put money in and who have been assured they will never have to spend any of the money because there isn’t a disbursement requirement on each of the funds.
There is also a concern that, for example, a private foundation is giving money to a donor-advised fund and then accumulating it there, so they are meeting their “disbursement requirement” but not actually spending any money on charity.
There is also the delay concern. Is it delaying money getting into the hands of little groups? Another argument can be made that having some of these banks and community foundations hassling big donors or individuals, wealthy people, to put money into a donor-advised fund may increase the amount of money coming into the sector.
It is hard to know, but I would say that as the Americans have stringent requirements, it is not a bad idea at least to look into the possibility of some requirements. Some of the ideas in the States have been that you put money in, and within five years it all needs to be out, so that means 20 per cent a year. That is one option. There are many options.
I think it is more than just the issue of donor-advised funds. It is also the issue of money moving from one registered charity to another. In some cases it is not always for the simple, obvious reason of just helping a charity. Sometimes it is circuitous and there are all sorts of games being played by a small number of people that one wants to also think about and have rules about.
The Chair: I jokingly said that what we do here is provide more work for lawyers, and we’ve spent the last hour proving exactly that.
Regarding your comment, Mr. Blumberg, about the need for some appeals in the courts, an appeal needs somebody to take the risk of doing that. It is not a cheap proposition, as you would know. If some of these go without appeal, you know what happens — it stays on the books. However, when the legislation gets here, you’ve converted six of us, anyway, who will be on the list speaking on that subject.
I’d like to thank both of you. You both brought different perspectives to our study, and Mr. Goldfarb, Senator Omidvar is right. You have provided an interesting angle for us. It’s the first time we’ve heard it, so you may have generated some more thought.
Mr. Blumberg, it’s always good to see you.
(The committee adjourned.)