I call this meeting to order. This is the 39th meeting of the Standing Committee on Finance. This is our second discussion regarding our study of tax incentives for charitable donations, pursuant to Standing Order 108(2).
We have a number of individuals here in person and we have one person by video conference.
First of all, we have Rachel Laforest, associate professor, School of Policy Studies, Queen's University. We have Abigail Payne, professor, Department of Economics, McMaster University. We have Paul Reed, Department of Sociology and Anthropology, Carleton University. We have Adam Parachin, professor, Faculty of Law, University of Western Ontario.
By video conference from Thompson Rivers University in Kamloops, British Columbia, we have Laura Lamb, assistant professor, School of Business and Economics. As you know, you each have up to five minutes for an opening statement.
Nous allons commencer avec Mme Laforest. We'll then have questions from members.
: Merci beaucoup pour me donner l'occasion de vous parler cet après-midi.
My name is Rachel Laforest, and I'm an associate professor at the School of Policy Studies at Queen's University. I head up the public policy and third sector initiative. Most of my research focuses on government and non-profit sector relationships. What I wanted to do this afternoon is to give you a broad-brush overview of some of the trends that I think are important for the work of your committee.
First, I would like to start out by acknowledging that since 1994 the federal government has adopted a number of initiatives to make the tax treatment of charitable donations more generous. I'd like to applaud the committee on these measures, for they have yielded some good results. According to data collected by Statistics Canada, Canadian tax filers claimed $8.3 billion in donations in 2010. This was an increase of over $500 million from 2009. There is reason to be pleased that Canada has one of the highest levels of charitable giving around the world.
However, that doesn't mean that we should be complacent, because this data obscures another reality: the base of donors in Canada has been steadily shrinking. The number of donors has actually declined from 30% in 1990 to 23.4% in 2010. Not only is the base of donors shrinking, but a high proportion of our charitable contributions are borne by very few individuals.
In 2004, the Canada survey of giving, volunteering, and participating showed that 9% of our donors are responsible for 62% of our charitable donations. Therefore, our donor base is fragile and precarious. I believe very strongly that there is cause for concern. The resource base in the voluntary sector is weakening, particularly in light of the current economic situation and the government cuts that are looming on the horizon.
For this reason, there is still more work to be done by your committee to create incentives to foster charitable giving. The voluntary sector is a significant social, political, and economic force in Canada. It accounts for 8.6% of the GDP and has a full-time equivalent workforce of over two million. More importantly, it brings value to all aspects of our communities, and it has a direct impact on the quality of life of Canadians.
The voluntary sector relies on three main sources for its funding. It relies on government funding, charitable donations, and earned income. I'm going to focus on the first two.
As we all know, the federal government and some levels of provincial governments are having to deal with serious budgetary constraints. Already, federal government expenditures as a percentage of GDP have decreased from 21.5% in 1992 to 17.1% in 2007. So in the face of the deficit reduction measures that are coming, we will most likely see reductions in contributions from various levels of government to the voluntary sector.
In addition, many of the services that were formerly provided by the federal government and other levels of government are being reduced or transferred to the voluntary sector. The assumption is that voluntary sector organizations will be able to pick up that burden. I think it's important to ask ourselves whether the voluntary sector actually has the capacity and the ability to take up this additional burden, because ultimately it will have an impact on our communities and our quality of life.
In the context of declining government resources, charitable donations will become even more important as a source of revenue. Already more than half of the $112 billion raised in this sector comes from private funding, and a significant portion of that comes from charitable donations from individual Canadians.
I want to come back to the original fact that 9% of our donors are responsible for 62% of our charitable donations. What this data indicates is that the measure of our society depends, to a large extent, on a small proportion of Canadian adults, who Paul Reed has described as the “civic core”.
I don't know if Paul is going to talk about that today, but the civic core means that there's a small number of individuals that account for more than two-thirds of all volunteering, giving, and community activities in Canada. These contributory behaviours are all linked, and they all come from that same small portion of civic donors. What we know about this civic core is that it tends to be older, religious, well-educated, in higher-status and higher-income occupations, with children between 6 and 12, and living in communities outside of major metropolitan centres.
Two of these characteristics are really important. The first one is the older population. Our population is aging, and the segment of mature donors—those born before 1945—who tend to be amongst the most generous, is rapidly shrinking. Secondly, we are facing a decline in religious belief. This decline may have implications for overall levels of charitable giving in the future, as we may lose more of our generous givers.
Because the donor base in Canada is neither wide nor deep, these trends place charitable giving in a precarious situation. If they remain unchanged, the long-term consequences will be a serious depletion of civic resources and a diminished capacity for voluntary organizations to support well-being.
To conclude, I invite the committee to consider tax incentives that can reverse the erosion of the donor base. We cannot take the health of the voluntary sector for granted.
Thank you very much for inviting me to appear before this committee.
My testimony is based on 20 years of research on charities and donations. I am a professor of economics and director of the Public Economics Data Analysis Laboratory at McMaster University. I have a Ph.D. in economics from Princeton University and a law degree from Cornell University.
I encourage the committee to take a broad perspective when thinking about tax incentives for charitable donations. Whether and how much a donor gives depend on more than her preferences. Giving can depend on influences of other individuals, on the level of charity interaction with the donor, and on other funding sources such as foundation and government funding.
To understand these influences, my research focuses on the empirical analysis of large data sets. Canada has some of the best data for studying charitable giving. My background statement illustrates that we can observe using measures from these sources. Let me briefly summarize my findings.
To explore patterns of individual giving, I relied on individual tax returns that were aggregated and provided at a neighbourhood level. Between 1991 and 2010, the number of donors increased, but the number of tax filers also increased and at a faster rate. This faster growth rate in tax filers explains why we see declines in the share of tax filers reporting charitable donations. Put in this context, the question, should not be, “Why have people stopped giving?” but rather, “Why is the growth rate in donors slower than the growth rate in tax filers?”
One of the many plausible explanations is that as our communities have become more diverse, giving has fallen. While community diversity is a good thing, it is not uncommon to find that diversity leads to a decline in support for public and charity-provided goods. Our research finds that between 1996 and 2006, neighbourhood diversity increased an average of six percentage points, resulting in an average decline in donations of 12 percentage points.
Overall growth in donations in the last few decades has been in the higher-income areas. Giving by individuals residing in lower- and middle-income neighbourhoods has been declining. While part of this is likely attributable to economic growth during most of the period, the growth in giving in the higher-income neighbourhoods may also be attributable to changes in the tax treatment of donations such as publicly traded securities.
Next, what do we know about charities and their influence on private giving? Over the last two decades, the number of charities and total charity revenues from public and private sources has increased. Religious organizations count for the lion's share, both in terms of the number of charitable organizations and in the receipt of private donations. Charities involved in the provision of social welfare and community-oriented services are numerous, but they receive a low proportion of private donations, and while social welfare and community charities rely more on government grants, more government grants flow to charities in the areas of health and education.
Increasingly, foundation support of registered charities is important, especially for religious and health-related charities. But how do these other forms of funding affect private giving to charities? Much of my research has been focused on trying to understand how government grants to a charity impact private giving. The research suggests, at least for social welfare and community organizations, that charities play an important role in raising funds. Yet charities may care more about their mission than about things like maximizing revenues. We find on average that if charities receive an increase in direct government funding, private giving declines, but this decline in private giving is more attributable to a decline in charity fundraising efforts. There is some evidence to suggest that donors view direct government funding to a charity favourably.
For instance, the funding may serve as a signal of the important work being done by the charity, encouraging tax-receipted giving. Similarly, in preliminary work by one of my doctoral students, we are finding that if a charity receives funding from a foundation, the foundation grant may also serve as a positive signal and increase individual giving to the charity.
This leads me to my last finding. The number of foundations and their revenues have both grown significantly. Foundations represent approximately 12% of registered charities.
Between 1992 and 2008, reported tax-receipted gifts to foundations increased from $1 billion to more than $4 billion annually. This growth swamps the growth in tax-receipted giving to charitable organizations.
While revenues have been growing over the last two decades, not all charities have benefited from this growth. In any given year it appears that for every charity that experiences a growth in revenue, another charity is experiencing a decline. About one-third of charities experience a decline from one year to the next.
I recently conducted a survey of small to medium-sized charities. An increasing number of these charities reported a decline in revenue but an increase in demand for their services in recent years.
I have just provided you with a bit of information about charities and giving in Canada. I hope you can see how taking a broad perspective when evaluating tax incentives for donations will result in providing a stronger foundation to our charitable sector.
Thank you, Mr. Rajotte and committee members, for the invitation to contribute to your deliberations.
I am going to offer you a summary of a summary of a summary, and I may end up being cryptic, but there is a lot of material in my brief. In the next several minutes I'd like to hit some high points, some main items that I'd like to encourage you to consider.
At first glance, looking at tax credits for charitable donations may have the appearance of a routine administrative matter, but beneath it lie some profound issues, such as how to encourage Canadians to be aware of and contribute directly to the collective good, and what should be the nature and size of the government's role in fostering that contribution.
While there may appear to be a considerable volume of information in my brief to the committee, I now want to speak in support of only three or four straightforward points.
Before addressing the tax credit issue, it's important to recognize that long-term trends indicate that charitable giving in Canada is changing in a number of ways. I'm not going to cover the same ground that Professor Laforest did, but there are some very important developments there that I believe have to be taken into account.
Principal among them is a softening and possibly a weakening of charitable giving. Second, the evolving patterns and flows of charitable giving may be resulting in increasing financial support going to a limited number of large charitable organizations and a diminishing, disproportionately smaller volume of financial support going to the many thousands of smaller, often local, community-oriented ones, an important consequence of changes in the charitable domain.
Increasingly, we hear references to the charity industry because it is becoming increasingly rational, seeking ever more efficiency and successful techniques of fundraising. A response to that is a growing sign of donor fatigue in reaction to aggressive fundraising.
Charitable donations to religious entities, such as churches and synagogues and related organizations, once accounting for well more than half of all charitable donations, are now less than half and in ongoing long-term decline.
Charitable giving is not a single, homogeneous, uniform phenomenon. It takes a number of forms that are quite different. Incidental and occasional or sporadic giving are the most common forms, in contrast, for example, to proactive planned giving, which is practised by a minority of Canadians but accounts for the lion's share of charitable giving every year.
Some forms of charitable giving are not likely to be responsive to increased tax credits, and analysis of Canadians' behaviour and views regarding tax credits shows this incentive to have modest effects at best. There are some hard numbers in my brief supporting that.
Yet another point is that a good portion of charitable giving—and I really want to underline this point—is strongly driven by particular values and ideals. It doesn't surprise us, but it needs underlining. This fact merits closer scrutiny in any consideration of how to strengthen charitable giving.
My final point is that encouraging and increasing charitable giving may benefit from considering other approaches in addition to changing Canada's charitable donation tax credit regime.
Thank you. My name is Adam Parachin. I am an associate professor at the Faculty of Law at the University of Western Ontario, where I research and lecture in the field of the legal definition and regulation of charity. Perhaps not surprisingly, then, I'm going to bring the committee a distinctly legal lens through which to approach this matter.
A useful starting point is to recognize that any tax regime providing for the recognition of charitable donations has to deal with three key issues. The first is identifying eligible recipients. That raises the complicated issue of the definition of charity, about which I understand there were some questions from committee members on Tuesday.
The second deals with the design features of a donation incentive. Should it take the form of a credit or a deduction, and if a credit, how much? Should it be a two-stage credit, as we have now, or a three-stage credit, as has been proposed with the stretch tax credit?
The final issue a regime dealing with charitable donations needs to deal with is what eligible donations are. What kinds of contributions to charities qualify for donation incentives in the first place? That's the issue I'm going to be making some submissions on.
In a simple world, we could confine ourselves to simple donations—unconditional cash donations. The law does a pretty good job of recognizing those, because frankly, you probably can't get that wrong. But we don't live in a simple world and we don't have the luxury of confining ourselves to simple donation arrangements. There are many other forms of donations that often arise. I can list some examples.
We can contemplate a person creating in his or her will a trust for a charity whereby the charity gets a fixed income entitlement for a period of years. That's not recognized as a gift under current regulatory publications.
We can also think of a scenario in which a donor contributes capital to a trust under which a charity has a fixed entitlement to receive that capital at some determined date in the future. That also might not be recognized as a gift under current law.
We can contemplate a scenario in which there's an estate dispute over the interpretation of a will, and the parties resolve in their resolution to the dispute that a portion of the estate proceeds be given to charity. That will not be recognized as a gift under current regulatory publications.
We can contemplate a scenario in which a donor forgives a debt owed by a charity. Rather than transfer funds, they forget a debt owing. It's not clear that this will qualify either. Neither will necessarily allowing the charity the temporary use of property, such as the free occupation of land, a leasehold, for no charge for a limited period of time. It's not clear that this will qualify under current law, nor will it when a corporation issues shares or stock options directly to a charity.
Until recently, when a donor sold property to a charity—for example, land worth $100,000 for a price of $10,000—most of us would sit here and probable instinctively and intuitively realize that it was the fundamental and functional equivalent of a $90,000 gift. Until recently, that was not recognized as a gift. It took draft amendments to the Income Tax Act to bring about that outcome.
Similarly, incurring expenses on behalf of a charity might not qualify as a gift. I have found this, as a legal analyst, somewhat perplexing.
I think three questions emerge. Why has this happened? Should we do something about it? And if so, what should be the something?
In terms of why this has happened, quickly, I will provide a statement: it is because the Income Tax Act does not define the term “gift”; it has been left to courts to define. The law in the area has developed somewhat haphazardly and somewhat reactively. I would suggest to you that there has been insufficient attention paid in the case law and regulatory publications as to why we have donation incentives in the first place.
The academic and theoretical literature on the point supports the view, and this is the prevailing view, that donation incentives exist to help raise funds for charities. If that's the case, then presumably all donation arrangements that essentially achieve that goal should qualify as tax receiptable donations. If that's what we're trying to achieve, then those are the kinds of donations we're trying to target. But all too often we miss the mark in the law by focusing on variables that frankly lack any policy relevance.
What to do, or rather, should we do something about it? In my submission, we should. Currently, a lot of charitable funds are used to support legal opinion work in this area, where answers should be clear. I shouldn't be complaining, because it means charities have to hire people like me, but that's probably not the best use of charitable funds.
In terms of what we should do, I've proposed in my brief a statutory definition of charitable donations, and I would be happy to take questions on that, should that be of interest to the committee.
Thank you to the committee for inviting me to participate in this meeting today. I'm an assistant professor at Thompson Rivers University, in the Department of Economics. I have a Ph.D. in economics from the University of Manitoba.
A colleague of mine, Dr. Belayet Hossain, and I have completed a couple of empirical studies on the effectiveness of tax incentives on charitable giving by individuals in Canada. That's the information I'd like to present today—some of the results we found there.
As I mentioned, we've done two studies. The first focuses on an individual decision to give to charity, and the second is on the decision on how much to give to charity. Our studies used data from the public use microdata files of the 2007 Canada survey of giving, volunteering, and participating, published by Statistics Canada. The target population for this survey was all persons 15 years of age and over residing in the ten Canadian provinces.
Our first study explores two aspects of the Canadian tax credit system. First of all, it assesses the effectiveness of tax incentives on the decision to give, and, secondly, we evaluate and compare the effectiveness of tax credits across different donation sectors. The analysis includes the four largest donation sectors according to value of total donations, which are religious, health, social services, and international.
The empirical results indicate that the current tax incentive does have a statistically significant effect on the decision to give. For example, a 10% increase in the tax credit is expected to increase the likelihood of making a donation by 5%, on average.
The results of the second part of the analysis show that the tax incentive varies across the different sectors. It was found that the tax incentive does have a significant effect on giving to health, social services, and international sectors, but not to the religious sector; people give for other reasons.
Our second study focuses on the effectiveness of the tax credit on the donation expenditures themselves. Again, we extend the analysis to compare effectiveness across the same four donation sectors. The statistical significance again appears, and the tax incentive variable implies that the tax credit is effective in influencing the amount of total donation expenditures of an individual, as well as to each of the donation sectors. The results imply that a 10% increase in the tax incentive would cause a 17% increase in total donation expenditures.
The term “price elasticity of donating” is applicable here. It's a measure of the responsiveness of the donation expenditure to changes in tax incentives. It's considered price elastic because the expected increase in donation expenditure is greater than the proposed increase in the tax credit itself.
It has also found that the responsiveness of the different donation sectors varies to a given increase in the tax credit. For instance, a 10% increase in the tax incentive is expected to lead to an increase in individual donation expenditures of 17% to social services, 15% to health, 22% to international, and 8% to religious organizations.
The results imply that a marginal increase in the tax credit will result in a proportionately larger increase in the level of total individual donation expenditures and donation expenditures to the health, social services, and international sectors. The amount of tax revenue foregone will be less than the rise in donation expenditures for the three sectors, except for religion.
I'd like to ask all of our panellists a question. On Tuesday we had representatives from the Department of Finance who came forward to talk about the assistance from government for tax incentives for charitable donations. The testimony indicated the following: that for cash donations, governments pick up the tab through tax incentives, about 46%, but when we're talking about exemptions from capital gains tax, the rate of assistance on donations from listed securities is typically 60% and can be as high as 69%. So there is a very clear differentiation within the tax system of charitable donations cash, such as the donation from the widow who lives next door to me who gives a small amount because she's low-income, as compared to donations of listed securities.
I'm wondering if you can give us your opinions on that structure and how you feel about it: whether you feel that it's an appropriate structure, whether you feel that it's out of equilibrium in some way, and whether changes would need to be brought to how that differentiated treatment is in place.
Yes. I have two points, just quickly.
On the difficulty with the calculation regarding the tax expenditure for the capital gains exemption for gifts of capital property, it's very difficult to determine what revenue would have otherwise been realized, because the donor may well have sold at a time when the price was depressed or further elevated. It's a very speculative calculation that actually elevates the tax expenditure to that precise degree.
Second, just quickly, the tax policy question is whether or not donating shares is a realization event that's indistinguishable from selling the shares to purchase a new home, or some other form of personal consumption. I think there's at least a policy case to be made that when someone gives shares to charity, that's not an indistinguishable form of personal consumption, and we may well want to treat that differently for tax law purposes.
I would like to thank all of the witnesses, of course, but I do have to acknowledge Ms. Lamb from Kamloops, my hometown.
It's really great to have you join us from not just British Columbia but Kamloops.
First of all, to Mr. Parachin, I really appreciate your comment regarding the definition of gifts. I think it's something that makes perfect, logical sense. If we're struggling with the definition and it's creating a lot of challenges, then I think that's an important point.
Maybe I can let the academics debate this a little bit, but I think Mr. Reed said that tax credits had a modest effect at best. I think we heard from the research coming from Ms. Lamb that it seemed to have some significant impact in terms of giving. One of the critical things we need to understand is the effectiveness of the current system, so perhaps you could elaborate and we could have a bit of back-and-forth on that issue.
Our study was based on behaviours rather than on the survey question directly asking individuals whether a tax credit was important to them. I agree that statistically it's a difficult thing to test.
The Canadian survey of giving, participating, and volunteering asks a specific question about whether tax credits are important to you and if you plan to claim for a tax credit. That wasn't the measure we used in our study. We used a regression analysis, where the price of donation was a variable. So we included a variable that represented the tax credit, and that was shown to be statistically significant.
Granted, it's a difficult variable to measure, and I'm not sure what the statistical expertise of the committee is, but we have to deal with endogeneity issues. You probably work and consult with Statistics Canada people as well, but it's a difficult variable to measure, and we use a proxy variable to measure it.
There is a little bit of uncertainty, but there is whenever you're dealing with survey data. The specific study we have done has been recently accepted for publication in a peer-reviewed economics journal, Applied Economics Letters, in the U.S., so it has gone through a peer-reviewed process as far as statistical technique.
In addition to that, in one of our papers we compared our results with some other results done in different areas. For example, a couple of studies done in the U.S. have also found.... And I understand their tax credit system is different. Instead of using a tax credit, they use a tax deduction. A study by Brooks in the U.S. from 2007 also found the tax incentive to be effective. The two former Canadian studies we found that go back a little ways—Kitchen and Dalton in 1990, and Kitchen in 1992—also found tax incentives to be a statistically significant variable.
Although there are some complications and difficulties in measuring such a variable, our results did appear to be in line with some other studies that were quite similar.
Something that's coming out in all of this, which is being missed, is that there have been two events, the effects of which we could measure if we used individual tax returns. There's a longitudinal administrative data set through Statistics Canada that you could get private access to, so you guys could request that.
The first thing is the change in the treatment of publicly traded securities. You could actually look from year to year for individuals who used those types of deductions for their giving mechanisms, and you could understand better who was motivated by those changes.
The other big thing, more for the small or the bigger donor tax base, was the Haiti earthquake. If you remember, there was a big push put on regarding the government matching funds if people started giving. You could look at individual tax returns and ask who started giving to Haiti as a result.
There's potentially a lot of information you could gather to try to see whether a matching grant motivated people. That would help inform you whether doing something in terms of tax credits would be sufficient to motivate the donor base.
In my specific proposal in terms of actually identifying what donations qualify, the provinces typically piggyback the federal system. In terms of gifts that are recognized federally, they're also recognized provincially. So that's one of the talking points.
The second is that Quebec historically has had a broader definition of “gift” applied, because Quebec law actually recognizes split transactions as qualifying as gifts under provincial law. So in the kind of example where a donor sells property for less than its fair market value, it's actually recognized as a gift under Quebec law.
The problem with the rest of the country is that it wasn't a gift at common law, and that's one of the issues that the law has sort of tried to reconcile. We have a bijural state. That's been one of the other talking points that the proposed split receipting rules were meant to remedy, but of course they're not enacted, and they may not even be in draft form before the House anymore.
That started in the early nineties with the program review in the first restructuring of the federal government, and then there was a gradual shift in the system of grants and contributions. A blue-ribbon panel studied and assessed the fact that government funding is less functional. There are a lot of accountability rules, so it's not a useful mechanism for supporting organizations. That's part of the story.
It has also shifted since 2006 with the election of the Conservative government. There has been a shift away from funding groups that do political representation, that engage in that form of advocacy activity. That has created some strain, certainly on national organizations, but it has trickled down to provincial organizations as well.
Then, at the provincial level, it varies from one province to another. In Quebec, the voluntary sector, the community sector, is actually quite strong, because the provincial government continues to fund through grants and contributions but they also have special funds set aside for advocacy and political representation, and then it varies from one province to another. But there has been a shift since the early nineties.
It's an amazingly simple number that you would think you should be able to get.
Part of it, if you think about it, is that in tax return data, not everybody identifies that they have been giving to charity. Plus, not all giving is tax-receipted. If you attend a gala, is that a donation? It's not tax-receipted, but you are giving. You are supporting that charity. Or you give $5 to somebody in the subway who is collecting money for a charity. I think the better source is to actually look at the charities, the registered charities, and ask them how much they are bringing in. Even then, you're not able to value the volunteer time.
Nobody has really done anything to ask, if we look across all the charities in Canada, the U.S., and the U.K. for stuff like that, how we compare. In the U.S., if you're a religious organization, you don't have to file a tax return. If you're a charity that has a low level of revenue, you don't have to file a tax return. Canada is the only one that requires all charities that issue tax receipts to file. That's in part why Canada actually has really good data to study this. To make us comparable is very difficult.
Good afternoon, Mr. Chair. Ladies and gentlemen, we are pleased to have you here.
According to my sources, the CMA, the organization of management accountants, and Mr. Papillon and Mr. Morin, two authors on tax matters, if I, Alain Giguère, donated $1,000, as a Quebecker I would be entitled to a tax refund of $494 according to current tax regulations, that is to say if I added up the federal and provincial tax returns. If we applied the improved tax credit regulation, according to these same sources, for a $1,000 donation I would receive a return of $574.
My question is quite simple. What is the point of giving to these charitable organizations, substituting ourselves for the government, if the administrative and funding costs of these campaigns to obtain charitable donations are over 50% or close to it?
The second obvious problem is the following. If, for instance, the government reduced its support for healthcare by a billion dollars, even if there were $1 billion dollars in gifts to charitable organizations, that amount would not necessarily be used to compensate the loss of health care services.
Indeed, that billion dollars could be allocated elsewhere, for instance to political or pseudo-political or religious organizations. It would not necessarily go to the sector where the government has withdrawn its support.
Ms. Laforest and Ms. Payne, could you answer that question?
You come from Quebec. The Quebec reality and Quebeckers' perceptions regarding these matters are very different from those elsewhere in Canada.
I've had the opportunity to work with Paul. We interviewed people who make charitable donations. We asked them why they made those donations, what their thinking was, and the reason behind their gift. Often, Quebeckers replied that they preferred to give their money to the state, since they felt it was preferable that that decision be made by the state so that the resources would be well redistributed. They had a preference. They associated the idea of paying income tax with that of charitable donations. In Quebec, the percentage of charitable donations is considerably lower than elsewhere in Canada because Quebeckers prefer to give and get involved in the public sphere in an informal way and not through charitable organizations.
For my part, I am a Quebecker and I share that vision. In an ideal world, I would have preferred a strong state that would deal with the redistribution of wealth. However, since that is not the case, and since the federal government is cutting back on its support and funding for these organizations, and in the context of a resource and capacity shortage within the voluntary sector, one of the solutions in my opinion is to increase those donations. It is not the ideal solution, but I believe it is the most realistic one.
I'll just add that I do have some sensitivity for the perspective that at some point the income tax subsidy for charities becomes so extensive that the sector actually will become somewhat indistinguishable from government. That is a relevant policy consideration to take into account.
But I'll counter that with this observation. Just because it might be more efficient to provide a particular program through a direct state subsidy does not make it a preferred program. Nor does the fact that a particular tax subsidy is inefficient. For example, if each dollar of foregone tax revenue only generates 60¢ of donations that would not otherwise have been made, and if that's the case with a particular tax credit, it does not mean that the tax credit should be abandoned, for the very reasons Professor Reid referred to: that foregone revenue is an investment in a particular kind of society and a particular kind of program delivery. It fosters competition among charities to provide better services. People want to support it. It fosters a pluralism of services that might not otherwise exist. There's a wealth of literature that supports this.
So I would emphasize very, very strongly for the committee in deliberating on the various proposals that efficiency is not a predominant consideration. It's relevant, but it's not determinative.
I want to make a quick comment on different types of charitable giving. Traditionally we recognize moneys or we're recognizing a few others.... I'm familiar firsthand because my wife spends a lot of time in a thrift store, and they raise money for third world countries. Sometimes I'm amazed at the people who give their time, and I don't see a need for them to be compensated. More and more people seem to be giving, and people from the community are giving things too. That doesn't seem to be a problem. There seems to be something else.
Mr. Reed, do you think governments should tag on to what is obviously a very popular, very successful giving mode?
Ms. Payne, you talked about the U.K. I could be wrong, but I think they have an equivalent to CIDA, and I'm not sure what it is. Don't they allow people to target where they want to give their money through NGOs, and use that as a charitable giving? Is that possibly a good solution?
We saw, for instance, the success in Haiti. We saw the success in Pakistan. Especially in Haiti at the time of the earthquake, people were just so generous. Should governments start to look at that? Obviously—and this might seem a little crass, but this is factual—the money these charities raise and where that money is spent is money the government doesn't have to spend. Is that something you would recommend governments look at more closely?
Based on your experiences and the fact that the core is shrinking, do we think that can be attributed more to the fact that there's more household debt, that people have less disposable income, that they're working longer hours for less remuneration, or more to societal shifts?
I remember when I was a child we were individually referred to as citizens, which implied a sense of community and responsibility towards each other, whereas now we're all just simply referred to as taxpayers and brought down to that lowest denominator of money. We're a combination.
It will wrap up my five minutes, I'm sure, but if each of you has a comment to make on that, as to whether it is one or the other or both, I'd be interested in hearing it.
Thank you, Mr. Chair. Thank you, witnesses.
I have some questions in relation to Gift Aid. I'm using that in context out of the U.K. I know that originally when that was started in 1990, they required it to be a gift in cash of more than £600. My understanding is that in essence it adds approximately 25% to the value of the gift to the charity and gives a refund of 25% to the giver. They've changed that policy dramatically since its introduction in relation to the minimums, etc.
I do agree with you. My understanding is that there was a report by the National Post or The Globe and Mail four months ago to the effect that conservative Protestants give more. I was quite surprised by that report. The people who do give are usually making substantial incomes of over $1 million, and they give tremendous amounts of money. I know some people who do that kind of thing; they usually give about 10% of their income because of religious and other views, but they usually give it to non-religious organizations in developing worlds.
I'm wondering if you would recommend an encouragement to give more through an escalating percentage based on a certain amount given, such as $10,000 per year, but escalating over time. Most of the people I know who give these amounts.... I'm from Fort McMurray, and I know that the United Way gets more per capita from Fort McMurray than from anywhere else across the country. Many charities tell me that we give more than anywhere else.
It would be an escalating value over time, and it would identify blue-ribbon charities, which are charities that specifically have low delivery and administration costs. That's what I hear most from people: that they want those kinds of things and that they want more money getting to the end people in need. Would you encourage something like that through an escalating value? Would you encourage a particular set of charities receiving a designation by the government based on certain criteria?
I do have a number of questions, but I'd like to get clarification on something Madam Laforest said.
I personally am very proud to be part of a government that chooses not to provide funding for political advocacy when the money is really supposed to go to the grassroots level. I'm curious to know where you got your information that funds for charitable organizations under this government have gone down. Simply looking at our record since 2006, it's increased substantially. When we look at Haiti and the money that was provided by the government to match, when we look at Japan and the tsunami and the matching of dollars there, when we look at the fact that we are the first country to actually double aid to Africa at $5 billion, it's incredible. We actually have the highest amount of funding for women's programs in the history of government.
So I'd like you to tell me what you were talking about when you referred to the funding going down. I would note that we did see, in the charts provided by Statistics Canada, that 2007 was the peak of donations at $9 billion, which clearly shows that under this government donations have gone up substantially.
I'd like your proof on that afterwards. You can send that to the committee. Our documents actually show the opposite, so I'm interested in your proof on that.
Going to bequests, Mr. Reed, thank you for that submission. I'm going to ask the clerk if we could get some further information, because I do want to ask you about page 7 of your submission on bequests and matching contributions and whether you actually have perhaps some projections on what we might actually gain by going that way. I think it was an interesting suggestion.
Perhaps I could ask the clerks, through you, Mr. Chair, for a note on the U.K. Gift Aid system—Mr. Jean talked about it also—so that we understand it well. Ms. Payne mentioned it, and I think it's interesting. I'd also like to see how the split receipting that was mentioned works. I thought that was interesting.
Then let's go to the bequests. Perhaps you could explain to us what you said in your document about matching contributions and how that might help us increase donations.
I've already said more than I know. I'm simply dropping this out for discussion.
There is an incredible pool of capital in the baby boom generation. There has been, to my knowledge, close to no research on this, on how it's going to be used. There has been some excellent research done in the United States at Boston University.
We are also, however, looking at the coinciding of two things. The first is the end of what is called the “long civic” generation, people who grew up during the Depression and World War II and who learned to participate in civic life. You needed to. You had to. Combined with that is the arrival of the baby boom at retirement. As the long civic generation is passing and the other is coming in, how we as a society make the connection between those two is perhaps the reason why we're here.
The Chair: Ms. Glover, you have one minute left.
I have some concerns over this particular proposal.
I think, as it's already been published in the media, it could trigger some potentially abusive planning in terms of people just aggregating donations into a single year, giving nothing in other years, or combining spousal donations. I can tell you, as a certainty, that will be the tax advice that will be given. There will be ways to draft around that. There will be anti-avoidance rules to prevent that, but what that will make the rule complicated.
I don't have empirical data for this, but I suggest that the more complicated a tax incentive is, the less likely it is to act as an incentive. If you don't know the baseline above which you have to give, how is it going to incent more donations? I think the bigger the tax incentive, the more the government's likely to take a stronger regulatory posture in relation to charities. That concerns me in terms of preserving the independence of the sector.
I also have concerns regarding the tax equity of treating two donors, who donate the same amount in the same tax year, differently. Two taxpayers give $5,000 under that proposal, and one taxpayer might get a 10% greater incentive, even though they've behaved identically. Tax policy has a rule called tax equity. We typically try to treat taxpayers identically when they behave identically, and this particular proposal departs from that tax policy criterion.
I don't think any of those are fatal to the credit, frankly, but they're at least talking points to be taken seriously.
I'm going to take the next round.
Mr. Parachin, I wanted to ask you two questions, and then hopefully I'll have time for another issue. I'll ask both of them at the same time.
You talked about the stretch tax credit and how it becomes then a three-stage credit. We have a two-stage credit now. What are your thoughts on moving then to a single stage, for which it would be the same percentage with respect to donations under $200 and over $200? That's the first question.
The second one is that I have the same reaction Ms. McLeod has. I like the fact that you're recommending clarifying the term “charitable donation” or replacing the term “gift”. I like that on the face of it. The concern I have is whether there are going to be unintended consequences that we are going to have to clarify through the legal system. If this legislative change is enacted, are we going to then have a whole new series of clarifications through the legal system regarding “charitable donation” that we have had to this point with respect to “gift”?
Could you please address those two points?
On the first issue of the single credit, there are other people making that submission before the committee. There's certainly something to be said for it. I don't think it's going to solve the revenue dilemmas that charities are currently facing, although it does have the benefit of simplifying the law. The other potential concern is that if you look at what that actually does, depending upon the value of the credit, donors are receiving more back in the form of a credit than they're actually contributing, which currently goes on, to some extent, depending on the tax bracket you're in.
That causes me some concern in terms of how we actually approach charities from a policy perspective. Are charitable funds public funds? Are charities public? Are they different from the government? That causes me some concerns, because it'll have impacts on how the government regulates charities. What hangs in the balance there is whether or not we actually lose some of the innovative potential of the sector if it's regulated too rigidly on the theory that this is all public money. I think that's a relevant concern.
On the other topic on unintended consequences, the big potential unintended consequence is regulating abusive donations. One of the advantages of the ambiguity of existing law is that regulators always have in their back pocket the ability to say that if you participated in an abusive arrangement you lacked “donative intent”, and because of that you made no gift. In theory, “donative intent” has no relevance. It's just something that's out there in the case law to give courts and regulators a safety valve to pull the plug on those schemes. But there has been some published literature on better ways to target them.
So there are concerns, but they're answerable, and they're answerable in a way that is better than the current way.
If you have anything to submit as follow-up to that, and certainly on that point, I'd appreciate it.
The second issue I wanted to raise was that of tax filers and charitable donors.
Ms. Laforest, you said that the number of donors actually declined from 30% in 1990 to 23.4% in 2010.
Mr. Reed, you stated that the incidence of income tax returns that report charitable donations for tax credit purposes has been falling since 1982.
I asked Statistics Canada about a chart that showed the tax filers going from about $18 million to $24 million and the charitable donors staying constant in terms of numbers. My recollection of what they said to me on Tuesday was that I shouldn't be reading too much into that, and in fact they used the example of a couple, where one person may donate for the couple. I can certainly follow up with them on that, but they seemed to indicate to me that it wasn't too much of a concern that I ought to be looking at, whereas I think both of you are saying something opposite. So I wanted to give you the opportunity to expand on that point.
I have about a minute between the two of you.
Who would like to go first?
Good afternoon, and thank you very much for appearing today. I want to start by apologizing. I had a speech in the House on the old age security issue today. I would have been here earlier.
I really appreciate the onus and the insight that you've provided to the committee, which will no doubt help guide our deliberations.
I want to start with a quick question. We met with Department of Finance officials earlier this week, and they were discussing the issue of a term of tax expenditure, which they use to describe what they perceive to be a cost as a result of a tax change or a tax benefit that leads to charitable giving. They had attributed, I think in 2011, $36 million as a cost of the exemption of capital gains tax on gifts of publicly listed securities.
I'd appreciate your input on this, because their assumption is based on—and I'll give you an example—somebody giving $100,000 in gifts of publicly listed securities. If you were to calculate, depending on inclusion rate, depending on their tax bracket, say, a $20,000 capital gains tax that would have been paid had there not been the exemption of capital gains tax on gifts of publicly listed securities.... The Department of Finance looks at that and says that's a tax expenditure. That cost us money. It's like a line item in the budget. I was looking at that and thinking, well, that's assuming the contribution would have occurred in any case notwithstanding, and my feeling is that in a lot of cases it wouldn't happen. Capital gains tax kind of locks up capital, and the tendency is to hold on to it, and you may never divest yourself of it, or it might be something that's so far into the future that it's hard to put a cost on that.
So is it accurate to say that the $36 million figure that the Department of Finance applies as a tax expenditure for this is a bit of a specious or at least questionable figure in terms of actual cost to the government?
Thank you very much. I think it's important, because when Finance tells us that these kinds of measures are a tax expenditure, we need to consider the degree to which they represent an expenditure like any other expenditure or in fact are something that is attributed to that which may in fact may not be the case in terms of cost to treasury.
I have a question on the proposal to eliminate capital gains tax on gifts of private companies. I'd like to seek your input. I represent a rural and small-town riding. In my riding, and I think in rural and small-town communities across Canada, there's a fair bit of wealth in small businesses and small-town millionaires who have done very well over the years. In many cases they have succession issues. They've run these businesses successfully, they may be approaching their seventies, and their children are off in cities doing something. There could be a real unleashing of capital.
The Chair: Question....
Hon. Scott Brison: I just would appreciate your view on the potential of unleashing a lot of potential philanthropic capital and charitable giving in rural and small-town Canada if we were to make changes on the tax treatment of small businesses.
I want to thank you all for being with us today.
Ms. Lamb, I want to thank you for being with us from Kamloops, British Columbia.
If you have anything further in response to any of the questions you've been asked today, anything further you wish the committee to consider during our deliberations on this issue, please do forward it to the clerk, who will ensure that all members get it. I want to thank you so much for being here.
Colleagues, I have just a very brief administrative note. We did have a subcommittee meeting this morning. You have the first report before you just identifying what the subcommittee agreed to. Please take a look at that and be aware of those issues.
The only other item we should address on here is the visit to Cisco to see the TelePresence issue. We will add that for the next one.
Thank you, all. The meeting is adjourned.