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C-33: Budget Implementation Bill, 2004, No. 2

Honourable senators, I faithfully attend every meeting of the Senate Committee on National Finance, of which I am a member. All the issues and all the bills that we study interest me. I share the views of Senator Massicotte and Senator Murray, and I also appreciate the comments of Senator Austin. However, there is information that I must provide the honourable senators.

I have attended all the briefings organized by department officials, but at no time was retroactivity or clarification addressed. The issue of non-profit charitable organizations and the fact that 81,000 of these organizations would be affected was never discussed.

All the positive aspects of the bill, and there are many, have been outlined, but I have difficulty with the fact that, after such positive measures for all our fellow citizens, military and disabled persons, a bill concerning multinationals was added, while I cannot say this was done deliberately.

Rest assured, I am not affected by multinationals. That is not to say I do not know any. I am what we call an "average citizen." However, the average Canadian citizen definitely has an interest in having legal and equity rules in place, regardless of his or her income.

My colleagues all commented on the issue of retroactivity. I have no legal training, but I can tell you one thing: a very simply logic underlies this issue. Indeed, based on the testimonies that we heard from departmental officials, the 1988 legislation is very clear. Therefore, if it is clear, why do we need to clarify it? And if it was made very clear in 1995 with the court's decisions, why do we need these two retroactivity elements? If it had not been clear, would you not have included these two elements in the 1996-97 budgets? There is something here that I cannot figure out and I find this hard to accept.

The other point that I want to bring to your attention has to do with clause 35, which deals with charitable organizations in our country. A letter was faxed to my office this afternoon, and I would like to read it to you:

Dear Senator Ringuette,

Re: Bill C-33: Disbursement Quota Income Tax Act Amendment.

We were heartened to see the interest taken by the Senate National Finance Committee on the effect of Bill C-33 on registered charities when we testified on May 2.

That brings me to another point. The Senate National Finance Committee was the only parliamentary committee that took the time and respected the non-charitable organizations of this country and heard their representations in front of it this week.

Your comments at the hearing and during the committee's subsequent deliberation on May 3 indicate a keen understanding of the difficulties this legislation will pose for charities. You plan comments on third reading.

That is what I am doing, honourable senators. The letter continues:

Bill C-33 contains the most significant changes to the regulation of federally registered charities in more than 20 years. This legislation profoundly alters the disbursement quota requirements. There is the obligation on charities to spend a certain portion of their receipted donations and/or assets on charitable activities in three specific ways:

(a) It makes charitable organizations registered after March 23, 2004, budget announcement date, subject to a requirement to annually disburse 3.5 per cent of its capital assets on charitable activity and imposes the same requirement on existing registered charities, starting in 2005.

(b) It makes both parties in interorganizational transfers between registered charities subject to meeting a disbursement quota requirement whereas previously only the funding charity had to count the transferred amount in its disbursement quota.

(c) It reduces the annual capital asset disbursement quota requirement for foundations from 4.5 to 3.5.

Let me pause for just a second. Department officials testified before the committee that clause 35 is meant to standardize foundations and charities. In my part of the world, there are not a lot of foundations. We are relatively poor. However, with clause 35, foundations go from an obligated disbursement of 4.5 per cent to 3.5 per cent, whereas non-charitable organizations, namely a normal community non-profit organization which previously had no disbursement requirement, go from zero to 3.5 per cent.

As well as the substantive changes, the bill introduces new concepts such as enduring property and a capital gains pool, which further complicates registered charities' compliance with the Income Tax Act. The disbursement quota requirements are now far too complex for the typical charity with less than half a million dollars in annual revenues and relying exclusively on volunteers to understand. Even where a charity has one or two paid staff, it will not possess the expertise to deal with this type of complex regulatory requirement. Indeed, there are even disagreements among lawyers and accountants as to the effect of these changes on charities, never mind volunteers.

Aside from the excessive regulatory burden this places on sector groups, it will result in some important negative consequences for certain charities. Specifically, the amount of funds many groups have available to meet core costs will be reduced, and cash poor charities risk erosion of their capital assets.

In the question you posed to us on May 2, you raised the issue of a charity that provides low-income housing. As we told you, we do not know whether that charity is going to have to worry about its repair and replacement reserves, or even the value of their housing in trying to determine whether it met its disbursement quota. Potentially, museums, land trusts and charities that operate sports arenas and others are going to be caught in an impossible position.

The original public policy rationale behind the disbursement quota, principally controlling fundraising costs and precluding unlimited accumulation of capital by foundations, has been superseded by court rulings and other measures. Arguably, these policy goals may no longer even be achieved by the current provisions.

At this stage, with respect to the bill becoming law, we are considering how best to move forward and maintain the liberty of contacting you.

This letter is signed by the three witnesses who came to us from Imagine Canada, Philanthropic Foundations Canada and the Muttart Foundation.

Honourable senators, the points addressed in that letter are cause for concern.

In my community, people work for youth organizations. They sell on a yearly basis in our small, low-income community tickets for a motorcycle so that they can support the local hockey rink. On a yearly basis, they may raise $25,000 to $30,000, which they need.

I am also familiar with non-profit groups that have built social housing for our senior citizens. On a yearly basis, they put aside a reserve. A reserve is a capital asset and, therefore, this provision applies. There are 81,000 non-profit organizations in this country and over 2 million volunteers. The other place did not even take the time to meet with them at their request. We did. I think that we also need to look further into this bill at third reading to see how we can accommodate and redress the concerns of various senators.