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View John McKay Profile
Lib. (ON)
Then it comes out of general revenues, basically, as opposed to specifically generated revenues.
Mr. James Fortune: Right.
Hon. John McKay: I have a final question. I'll direct this first to Mr. Butler.
The CRA has had some enthusiasm, shall we say, for auditing environmental groups in particular but other charitable groups as well. I'm wondering whether your group has had any particular notice from the CRA, and whether you have adjusted any of your behaviours or activities with respect to the advocacy component of what you do.
Mark Butler
View Mark Butler Profile
Mark Butler
2015-06-16 10:18
The answer to the first question is yes. We were audited by the CRA. It began in I think the fall of 2011. Two years later, we successfully completed that audit. There are some I guess minor changes we have to make, particularly around tracking.
We don't mind being audited. The opportunity to be a charity comes with a certain responsibility. However, if we feel that the audits are being targeted or that there's some unfairness in the application of the law, I think that is discouraging and disturbing, because we feel that protecting nature and the work we do is important and of value to Canadians.
As a result, we still want to do the work we do. If we can't speak out for nature, then we have to ask ourselves why we exist. We're still trying to do that, but as a result of the audit, it is taking up more of our resources.
Hon. John McKay: In terms of—
Costa Dimitrakopoulos
View Costa Dimitrakopoulos Profile
Costa Dimitrakopoulos
2015-05-25 15:43
Good afternoon, Mr. Chair.
Thank you for the invitation to testify before the committee today.
I'm here today to answer questions relating to the CRA's work with the Department of Finance on tax-based expenditures, as examined in the Auditor General's report released on April 28, 2015. The CRA is pleased to note that no points of concern were raised by the Auditor General with our administration of tax-based expenditures and that there were no recommendations specific to the Canada Revenue Agency.
By way of background, the Canada Revenue Agency is responsible for administering Canada's tax laws, including the Income Tax Act and the Excise Tax Act. We undertake a wide range of activities to assess and process tax returns, information returns, and payments for individuals and businesses. Additionally, we are also responsible for ensuring compliance with tax laws, which we do through a variety of means, including risk assessment, third party data matching, verification, and audits.
The Canada Revenue Agency works with the Tax Policy Branch within the Department of Finance to provide administrative considerations on tax changes in two ways. First, when the legislation is being developed we provide analysis around administrative, compliance, enforceability, and costing matters. Second, once legislation has been implemented, we assess on an ongoing basis the administration of tax measures to identify any unforeseen consequences or issues in the practical application of the legislative measure.
An ongoing dialogue helps ensure that the Department of Finance is in a position to fully consider potential compliance issues and implementation costs of tax-based expenditures. To support this, the Canada Revenue Agency examines a number of operational aspects, including impacts on our internal operations, provincial or territorial tax administrations and, where possible, the number of taxpayers affected.
In addition to the information provided to support Department of Finance analysis, the Canada Revenue Agency's analysis also allows us to identify issues important to our effective administration of the tax change, including changes to our information technology systems, the expected number of inquiries the change will generate, and necessary changes to our publications.
After tax measures have been implemented, the Canada Revenue Agency provides the Department of Finance with further comments and analysis on issues such as compliance or additional costs related to the tax measure.
In closing, I would like to reiterate that the Canada Revenue Agency works closely with the Department of Finance to assist the administrative aspects of new tax-based expenditures. I'm happy to take questions on this process.
Thank you, Mr. Chair.
Cathy Hawara
View Cathy Hawara Profile
Cathy Hawara
2015-05-14 15:42
Thank you very much, Mr. Chair.
My name is Cathy Hawara and I am the Director General of the Charities Directorate within the Canada Revenue Agency.
As my finance colleague explained, it is their role to write the rules that support the government’s tax policy agenda. It is the CRA’s responsibility to administer those rules.
Let me start by saying that while the term “non-profit” is sometimes used to refer to both registered charities and non-profit organizations, there are some important differences. First, only charities are registered by the CRA. While both are tax-exempt, only registered charities can issue official donation receipts to donors. In exchange for the privilege of issuing receipts for donations, registered charities are also required to file a publicly accessible annual information return. Finally, while registered charities can carry on related business activities with the intention of making a profit, NPOs cannot have a profit purpose.
As the charities directorate of the CRA is responsible for the regulation of registered charities, that's where I will focus my remarks.
There are approximately 86,000 registered charities in Canada and these entities enjoy significant tax privileges. In 2014, the Department of Finance estimated that the fiscal cost for the federal government of tax incentives for charitable donations by individuals was more than $2.5 billion. As my colleague mentioned, when we take business deductions into account the fiscal cost is closer to $3 billion. These tax privileges come with the obligation to follow the rules set out in the Income Tax Act.
Under the basic statutory framework, there are three types of registered charities: charitable organizations; public foundations; and private foundations. Regardless of the designation, the Income Tax Act requires that all registered charities operate in one of two ways: they can carry on their own charitable activities; or they can make gifts to other “qualified donees”. In this context, the term “qualified donee” usually refers to other registered charities, but it also includes low-cost housing corporations for the aged, municipalities, municipal or public bodies performing a function of Canadian government, prescribed universities, certain foreign charities, registered Canadian amateur athletic associations, the United Nations and its agencies, and Her Majesty in right of Canada or a province.
In order to finance their charitable programs, whether they be through direct activity or funding of other qualified donees, registered charities need to generate revenues and do so in a number of ways.
The first is through fundraising. Most registered charities rely on fundraising to generate revenues. In 2013, registered charities reported $14.79 billion in tax-receipted gifts according to the information reported in their annual information return, the T3010. The recent budget proposal to exempt capital gains tax on gifts involving real estate and private shares adds a new incentive with respect to fundraising efforts.
Second, most charities can conduct related business activities. Under the Income Tax Act, there are two basic types of acceptable business activities: businesses that are related to a charity’s purposes and subordinate to those purposes, and businesses that are run substantially by volunteers. An important caveat is that private foundations are prohibited from engaging in any business activity.
Third, registered charities can generate revenues by making prudent market investments, which may include investments in separate taxable corporations or trusts established by the charity.
A charity’s board of directors would need to ensure that the investment is a prudent use of the charity’s assets. It must also ensure that no benefit of a private nature is conferred on the corporation or the trust.
Charities can also make program-related investments, commonly referred to as PRIs. A PRI is not an investment in the conventional financial sense since it would not necessarily yield a market rate of return. If a PRI furthers the investor charity’s charitable purposes, it could be considered a charitable activity. Common examples of PRIs include loans, share purchases, and leases of land or buildings.
An additional point to note, as my colleague has already, is that the recent budget announcement relating to investments in partnerships increases the flexibility charities have in structuring their investments.
Finally, registered charities can generate revenues through their charitable activities. Registered charities can charge fees for the services they provide.
In closing, while the common law and the Income Tax Act place certain restrictions on the use of charitable assets, Canadian registered charities can and do play an active role in addressing pressing social problems, as service delivery agents, as funders, and as investors.
Registered charities can also work together with the business community to deliver programs that are designed to achieve social outcomes, for example, educational activities relating to employability training, career counselling, entrepreneurial training, or on-the-job training in vocational or work skills; running social businesses with individuals with disabilities; and preserving and maintaining high standards of practice within an industry.
The CRA is committed to helping registered charities understand the rules and for that reason, publishes a variety of guidance products on a wide array of topics. Our website contains information of interest to charities, donors, legal representatives, and researchers.
You can also find the annual information return for each of Canada’s 86,000 registered charities. The return contains a wealth of both program and financial information on charities.
As we add new information to our website and develop and refine our tools, we continue to be interested in receiving feedback from external stakeholders.
I would now be happy to take any questions.
Cathy Hawara
View Cathy Hawara Profile
Cathy Hawara
2015-05-14 16:35
I would just add that, because the charities directorate works so closely with registered charities in particular, we do have mechanisms in place to ensure ongoing consultation and engagement with them, and we do it in a variety of ways.
We have a working group with representation from different types of organizations, including umbrella organizations we meet with twice a year to discuss a range of issues that relate to the regulation of charities in Canada.
Whenever I refer to policy documents that we prepare and publish on our website, those documents we consult on as well before we finalize them to make sure that we understand what the impact of them might be on the ground, and so that we can adjust them as we go. We continually receive feedback on those and update them.
Those are just two examples of the ways in which we engage with the charitable sector.
View James Rajotte Profile
CPC (AB)
I call this meeting to order. This is meeting number 81 of the Standing Committee on Finance. Orders of the day are, pursuant to Standing Order 81(4), the study of the main estimates for 2015-16, votes 1 and 5 under the Canada Revenue Agency, referred to this committee on Tuesday, February 24, 2015.
We've very pleased to have with us this morning three officials from the Canada Revenue Agency.
We have Roch Huppé. Did I pronounce your name correctly?
Roch Huppé
View Roch Huppé Profile
Roch Huppé
2015-05-12 9:15
Yes, you did.
Roch Huppé
View Roch Huppé Profile
Roch Huppé
2015-05-12 9:16
Thank you, Mr. Chair.
Good morning, and thank you for the opportunity to appear before the committee to present and to answer any questions that you may have on the Canada Revenue Agency's 2015-16 main estimates.
Mr. Chair, The Canada Revenue Agency is responsible for the administration of federal and certain provincial and territorial tax programs, as well as the delivery of a number of benefit payment programs. Each year, the CRA collects hundreds of billions of dollars of tax revenue for the governments of Canada, and distributes millions of benefit payments to Canadians.
In order to fulfill its mandate, the agency is seeking a total of $3.8 billion through these 2015-16 Main Estimates. Of this amount, $3 billion requires approval by Parliament, whereas the remaining $800 million represents statutory forecasts that are already approved under separate legislation.
The statutory items include children's special allowance payments, employee benefit plan costs, and the spending of revenues received through the conduct of CRA operations pursuant to section 60 of the Canada Revenue Agency Act for administered activities on behalf of the provinces and other government departments. Disbursements to the provinces under the softwood lumber agreement are also statutory, although the amount has fallen to $0 for 2015-2016 as I will explain next.
These main estimates represent a 1.5% net decrease of $56.4 million when compared with the 2014-15 main estimates authorities. The largest component is an $80 million reduction in the projected statutory disbursements to the provinces under the Softwood Lumber Products Export Charge Act, 2006. The CRA’s 2014-15 main estimates included an amount of $80 million as the forecast disbursements to the provinces. The Department of Finance revised the forecast to zero for 2015-16 based on changing prices and volumes in the Canada/United States lumber market.
Other changes to the agency budget include a $14 million adjustment associated with the implementation of efficiency measures in CRA operations introduced as part of the 2012 economic action plan. This amount represents the incremental change between the 2014-15 and 2015-16 fiscal years. Most of these measures can be categorized under two broad themes, namely: making it easier for Canadians and businesses to deal with their government, particularly through the provision of faster, more efficient online services, and modernizing and streamlining the CRA’s back office. Forecasted payments under the Children’s Special Allowances Act have also fallen by $9 million.
These measures are partially offset by new funding approved in a number of areas. First is $29.3 million for enhancements to non-audit compliance programs which will be used to implement and administer measures aimed at improving the fairness and integrity of the tax system, as well as strengthening tax compliance. Second is $14.1 million for the administration of tax measures affecting individuals and businesses as announced in the 2013 economic action plan, as well as the administration of the harmonized sales tax and harmonized sales tax credit in Prince Edward Island, that came into effect on April 1, 2013. Third is $4.6 million for the administration of tax measures announced in the 2014 economic action plan, primarily to develop online registration systems for charities and to strengthen compliance with goods and services tax/harmonized sales tax registration.
The incremental funding for tax measures announced in both the 2013 economic action plan and 2014 economic action plan will be used to introduce information technology system modifications, develop and implement business processes, develop forms, and update publications and information products related to these measures. Please note that announcements made in last month’s budget are not reflected in the main estimates.
In closing, the resources sought through these estimates will allow the agency to continue to deliver on its mandate to Canadians by ensuring that taxpayers meet their obligations, Canada’s revenue base is protected, and eligible families and individuals receive timely and correct benefit payments.
Mr. Chair, at this time, my colleagues and I will be pleased to respond to any questions you may have.
View Pierre Dionne Labelle Profile
NDP (QC)
Thank you, Mr. Chair.
Good morning, gentlemen.
I see that there is a decrease of $56.4 million in the budget. I am looking at your table and I see that the “returns compliance”, according to last year's and this year's main estimates, has been reduced by $9 million.
Can you justify that decrease?
Roch Huppé
View Roch Huppé Profile
Roch Huppé
2015-05-12 9:22
That $9-million decrease has to do with the Children's Special Allowances Act.
This is a legislated item. Each year we estimate how much of these benefit payments will have to go out. Basically, this is an adjustment to this benefit payment. Based on the number of children out there who are in the care of foster parents, we estimate the amount of benefits that will need to be paid out. As I said, this is legislative in nature.
View Pierre Dionne Labelle Profile
NDP (QC)
You mention an amount of $29.3 million for non-audit compliance programs. What does that amount include?
Roch Huppé
View Roch Huppé Profile
Roch Huppé
2015-05-12 9:22
This amount was given to us for different reasons. One was to do a little bit of what we already do, for example, to ensure that we tackle non-compliance, non-filers, and excessive contributions to RRSPs. Basically, we receive funding to do a little bit more of what we've done with regard to non-filer activities, to make sure we identify the folks who are not filing.
Ted, do you have anything to add on these programs?
Ted Gallivan
View Ted Gallivan Profile
Ted Gallivan
2015-05-12 9:23
It would be a matter of consistency, so we're looking at non-registrants, or people who are filing corporate income tax returns or personal income tax returns but not filing GST. They're filing a T2 and they're not filing a GST return. It's not an audit. It's basically looking at our programs to see if that individual or business is filing consistently across the programs, and if they're not, we contact them and obtain the information.
View Pierre Dionne Labelle Profile
NDP (QC)
Could you tell us how much those additional amounts could mean in income taxes? Have you estimated how much money that could bring in?
Roch Huppé
View Roch Huppé Profile
Roch Huppé
2015-05-12 9:24
We have received funding for three years. The $29-million amount is for 2015-2016. That money was allocated to the agency in 2014-2015. It was not included in the main estimates because it was announced in the budget and accepted through this year's supplementary estimates. That is why there is a difference between last year's amount and this year's amount. The agency has received about $99 million over a three-year period to generate those funds. It's a matter of approximately $600 million in additional revenue on the federal level.
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