1999 and the future - Voluntary Sector Initiative

Reference Number
CES - 006

Date
April 14, 1999

Introduction

We should have an interesting discussion because up until now, 1999 has provided us with a great deal of material conducive to change and improvement in the voluntary sector as a whole.

I am therefore going to discuss the following topics: the roundtable report and some of the recommendations in it, including one in particular of interest to the sector, that is, the eventual creation of a voluntary sector commission.

I am also going to discuss the Division, what we work on, our expectations and in some cases, our fears.

Finally, I will briefly touch on planned donations because, unfortunately, I have nothing new to announce. This is not an area in which changes can be expected in the near future.

I can tell you that with all that is happening in the voluntary sector, the government, Revenue Canada, and, obviously, the Charities Division, there is still a great deal to be done.

One thing is certain: the type of meeting we are having today can only contribute to improving the system.

Part 1 - The "Broadbent" report: The Voluntary Sector Roundtable, Panel Report - Improving Governance and Accountability in the Voluntary Sector in Canada

Voluntary sector roundtable

1. I know that some of you have seen the report, while others have perhaps not had the time. I will therefore provide some background:

• The voluntary sector roundtable is a coalition of several national organizations representing the entire voluntary sector.
• The voluntary sector in Canada is comprised of some 175,000 organizations (of which about 76,500 are registered charities).
• The voluntary sector contributes enormously to Canada's economic health: it provides 1.3 million jobs and generates revenue and assets comparable to those generated by the economy of a province such as British Columbia.
• Created in 1995, the purpose of the first roundtable was to facilitate better communication between the government and the voluntary sector, and to ensure that the government took the interests of the voluntary sector into account.

Federal government (Red Book)

2. The federal government examined the issue, as we can see in the Liberal Party's Red Book, and it undertook to work with the sector and increase its capacity.

Panel on Accountability and Governance in the Voluntary Sector

3. In the fall, in October 1997, the Voluntary Sector Roundtable created the "Panel on Accountability and Governance in the Voluntary Sector".

4. The Panel was comprised of six individuals who had a three-part mandate, to:

• conduct research and present useful proposals for debate on the terms and conditions of promoting accountability and management in the voluntary sector;
• gather the sector's opinion through ample consultations; and
• submit a final report containing specific recommendations.

5. A discussion paper containing more than 40 recommendations was published in May 1998.

6. Discussions were held in 20 Canadian centres (cities across the country) and 90 collective briefs and a number of written comments submitted by individuals were gathered.

7. Two reservations were expressed on numerous occasions:

• excessive and costly accountability regulations and obligations should be avoided as they may jeopardize the very spirit of volunteerism;
• the considerable diversity of the sector should be respected and reconciled.

Final report: February 8, 1999

8. 41 recommendations (15 for the sector, the rest for the government - strongly stress the need or requirement to involve the provinces in any reform).

9. It is above all the sector's initiative for the sector.

10. Its main goal is the healthy management of the voluntary sector, then federal government recognition of the importance of the voluntary sector in Canadian society and acceptance of the recommendations on creating a voluntary sector commission and the implementation of a new process for determining which organizations should take advantage of tax benefits.

Four areas

11. The Panel examined four areas in particular requiring government intervention:

• access to the federal tax system (reservations concerning access to the tax system stem from the problems involved in the definition provided in common law of charitable organization and the registration process provided for in the Act),
• establishing a new voluntary sector commission,
• defining a regulatory environment, and
• financial management regulations.

Four priorities

12. These match the four priority items the Panel identified and strongly insisted be implemented as soon as possible, that:

a good practices guide be distributed to all volunteer organizations and their boards of directors which would cover the structure and internal management of organizations, protocols, planning, evaluation and financial management and public disclosure practices.

The Panel feels that its adaptation and adoption should be a top priority to ensure that volunteer organizations continue to enjoy public confidence with regard to their contribution and their merits.

The emphasis is placed in the code developed by the Panel on the importance of the participation of the organization's board of directors, which must be accountable for certain aspects of the organization's operations.

The Panel went as far as saying that as a condition for registering in the tax system, the charitable organizations should be obliged to subscribe to a code of ethics concerning funding and transparency (e.g., that developed by the Canadian Centre for Philanthropy or the equivalent).

• a new voluntary sector commission be created to complement Revenue Canada's auditing role.

The Panel feels that the creation by the federal government of such a commission is crucial to enhanced accountability and increasing capacities in the sector. We will come back to this.

• the Parliament of Canada decide on the status of charities, not the courts.

The Panel suggests that a new definition be adopted based on the "charity plus" model (criteria established by common law remain, but other categories are added, which means that other organizations benefiting the general public are added), which would broaden the current definition of "charitable" (would be established by Parliament and be subject to review every ten years).

• a more open and transparent registration process be implemented to ensure that all applications for registration and decisions are made public.

• the federal and provincial governments should start re-acquainting themselves with the sector by entering into discussions with all those concerned that could lead to the negotiation of a joint pact on good practices or the creation of other means likely to re-open dialogue, stimulate understanding and a real partnership.

Priority 1

13. Since the voluntary sector is comprised of independent organizations, transparent and accountable management starts within one's own organization.

14. This priority is for the sector itself, as opposed to the other priorities that are for governments.

15. Better management therefore means increased accountability and more transparency.

Accountability and transparency

16. Accountability and transparency mean having to explain and accept responsibility for carrying out one's mandate.

17. This is particularly important in situations involving public confidence.

18. This is why the voluntary sector attaches such importance to this issue.

19. Accountability cannot be improved without ensuring that the sector has the capacities to enable it to face current and new demands placed on it.

"Capacity building"

20. We're talking about "capacity building" here.

21. By capacity, we mean the "assets, strengths, qualities or characteristics" that enable a volunteer organization or the voluntary sector to survive while overcoming challenges and continuing to develop and prosper by examining new opportunities.

22. In addition to what is commonly referred to as infrastructure and which includes funding, technology and human resources, capacity includes learning, knowledge and comprehension.

23. Strengthening capacities therefore involves the support of business, governments, and contributors to intermediary associations, research and training assistance, technological adequacy, and board of director and management consolidation.

24. This support can take various forms, including direct financial assistance and contributions in kind (transfer of expertise, for example).

Provinces and federal

25. The provincial governments are starting to recognize the importance of "capacity building" in the voluntary sector.

26. British Columbia recently created a Minister responsible for the Voluntary Sector position.

27. This is one of the Panel's recommendations: that governments ensure that the voluntary sector has a voice in the development of policies by assigning responsibility for the sector to a Minister and by creating on a horizontal level, policy units to assist in coordinating the activities of departments that are involved with the sector.

28. In Ontario, in its 1997 annual report, the Premier's Advisory Group on the Voluntary Sector recommended that the government enter into a partnership with the sector.

29. Aside from Quebec, which implemented social economic initiatives, little has been done by most provinces.

30. Little progress has been made federally further to the Liberal Party's Red Book (improved tax provisions for charitable donations in the 1996 and 1997 budgets).

31. The Government also undertook to promote understanding of the sector by encouraging employees to participate in volunteer programs.

Priority 3

32. A debate that has been raging for a little while now is far from being resolved.

33. The Panel feels that legislative assemblies, not the courts, are responsible for designations.

34. It suggests that Parliament approve a "charity" model with common law criteria and add other categories of public interest organizations to it.

35. The following process would be used to define the new categories: a working group would be created and asked to develop new policies; Parliament would be asked to debate the issue and enact legislation amending the Income Tax Act, if necessary; it would be followed at ten-year intervals by periodic examination of additional categories.

36. The provinces are strongly encouraged to adopt this same definition for control and coordination purposes.

37. The Panel also feels that an open and transparent registration process should be implemented where all applications and decisions would be public knowledge.

38. The question that must be asked is: is it really necessary for all organizations that apply for registered charity status to be subject to public scrutiny, particularly since a number of them will never be registered?

39. There is also the issue of section 241 of the Income Tax Act concerning confidentiality. It should be amended.

40. The Department feels that the courts demonstrate that charity legislation continues to evolve and that the Act allows the Department to be flexible and even creative when new social needs are demonstrated (look no further than the Supreme Court decision in Vancouver Society of Immigrant and Visible Minority Women v. M.N.R., which was rendered on January 28, 1999).

41. This does not mean that the system is perfect. Far from it. There are many grey areas, and the public understands little about charity law.

42. We must be realistic. There will always be organizations that will not be able to be registered.

43. The tax implications of broadening the definition and having more organizations with registered charity status must be taken into account.

Priority 4

44. The federal government is already working on it.

45. An interdepartmental committee on the voluntary sector was created (comes under the Privy Council Office).

46. It includes 17 departments with significant interests and current relationships with the sector and 25 other departments having more peripheral, indirect and sporadic relationships with the sector.

47. The purpose of the committee is to coordinate government initiatives and assist the government to meet its obligations in the Red Book (the mandate includes transparency and review of the regulatory framework of charities).

48. The committee established three roundtables:

• one on sector regulation (chaired by our Assistant Deputy Minister, Mr. Bill McCloskey, and by Mr. Gordon Floyd, Canadian Centre for Philanthropy - contacts : Privy Council Office, Mr. James Wheelhouse and Ms. Susan Fletcher); this specifically involves the Department, which sits on it (as does Industry Canada: Canada Corporations Act);
• one on technology (e.g., Internet services ); and
• one on the partnership between the sector and the government which explores relations between the two, how these relations should be governed, what financial assistance and support should the sector be provided.

49. The roundtables must meet three times before the summer. They must then submit a report to Cabinet on progress made and suggest research avenues.

50. For example, the roundtable is examining the possibility of having a charity commission created.

51. The first meeting of the roundtable on regulations was held at the end of March, early April.

Other recommendations

52. A number of other interesting reforms, or at the very least, worth discussing, were proposed:

• Requiring different reports depending on the size of an organization (not the same requirements for small organizations, $200,000 - many suggestions already about the T3010, which is revised every year - revise the T3010 in conjunction with the sector).
• That more specific guidelines be established concerning business activities, that is, when are they complementary and when are they not. The Department would like to see the provisions concerning business activities clarified. The Division is working on this (suggestion: do like in the United States: pay tax on business activities).
• Confirm and maintain the legitimacy of non-partisan political activities. The Division is working on it. Brochure published in 1998: "Registered Charities: Education, Advocacy and Political Activities" (RC 4107).
• Review the issue of the disbursement quota; is the 80% rule appropriate? Are there any alternatives? The Department would like to see the disbursement quota overhauled.
• Increased consistency of accounting practices.
• Implement intermediate steps or sanctions (other than revocation, fines) in cases of non-compliance with the Act. The Department would like to see intermediate sanctions introduced.

Comments

53. A number of criticisms are appropriate: in fact, the Department would support a complete review of the provisions involving the organizations (and NPOs), removing obsolete provisions, certain useless complexities, legislative vacuums and a few problems stemming from the impact of certain provisions on the provisions involving charities.

54. The voluntary sector is too diversified and any reform will have to take this into account (particularly the reasons why charities are entitled to be treated differently than other voluntary organizations, a distinction that is not often understood).

55. Other interests must be taken into account in all proposals from the sector which will perhaps not have the support required (not widespread) even within the sector - echoes: non-profit organizations and religious organizations.

56. Constitutional issues must not be overlooked. The separation of powers limits what the federal government can accomplish alone without the agreement of the provinces. Any federal initiative for meeting the sector halfway involves the provinces (for example, provinces' requirement to establish an integrated regulatory institution).

57. Please also bear in mind that a number of the reforms suggested will never occur until the Act is amended. Would the Department of Finance be ready to amend section 149.1 of the Act to implement reforms that will have little impact on the tax system?

58. Administrative feasibility must be taken into account in any reform: sector, Division.

Part 2 - Voluntary sector commission

59. The institutional structure governing the sector needs to be restructured to better respond to the new realities with which governments and sector work are faced.

60. The Panel therefore proposes that the federal government create a new semi-independent voluntary sector commission to complement Revenue Canada's auditing role, which it would continue to play more or less in the same way.

61. The four main duties of the commission would be to:

• provide support, information and advice concerning the best practices involving the management and accountability of volunteer organizations;
• collect and provide the public with information already collected by Revenue Canada from the T3010, and which could be incorporated into the commission's bank;
• assess and make recommendations on the registration of new applicants. The Panel claims that Revenue Canada's strength is auditing, not determining what constitutes charitable purposes. Auditors also have little experience in the area and do not stay in the Division very long = this is false.

The Panel recommends that the commission review applications for registration and determine what is eligible for registration. This will mean having people with more expertise in the area.

I would like to point out that according to the proposal, the decision to register and revoke an organization's registration still lies with the Division. The commission would recommend registration or revocation.

Then, the applications and grounds for the commission's recommendations would be made public.

Appeals to Revenue Canada could be made to the Tax Court of Canada, not the Federal Court of Appeal (less expensive).

An administrative or other tribunal before the Federal Court of Appeal? Other court, more administrative burden. Tribunal selected does not have the expertise, but would acquire it over time.

• Assist organizations to meet Revenue Canada requirements and other regulatory requirements and investigate public complaints.

62. As an advisory body, the commission would be accessible to all volunteer organizations, but the bulk of its functions would involve registered charities.

63. The members of the commission would be appointed by the federal government. About 100 employees, five or six commissioners appointed by the federal government. Who would be responsible for what?

64. The Department recognizes that it would be a good idea to establish an institution to provide the sector with support services. Question of credibility. In order to be credible, an institution must be impartial and independent of its clients, but in order to do its work properly, a service institution cannot distance itself from those it serves and it cannot be committed to advancing their interests.

65. This will not be for a number of years.

66. At any rate, before creating the commission, the federal and provincial governments must discuss and decide what roles can be combined and which must remain separate.

67. In theory, the provinces and courts have extensive authority with respect to surveillance (property seizure, replacing administrators). In practice, this authority is not used very often. The provinces have not created a regulatory body for charities (except Ontario and Alberta, which regulate fund-raising). The reaction, therefore, is to turn to the most visible authority: Revenue Canada.

Addendum

68. In common law countries, regulatory bodies have five key duties or functions:

• determining the charity status of an organization for tax purposes;
• providing semi-legal services to organizations, such as reviewing their charity objectives;
• providing advice and other support services;
• monitoring to prevent abuse; and
• providing the public with information on charities.

69. Revenue Canada is responsible for 1, 4 and 5, for tax purposes, while the provinces and courts are responsible for 1, 2 and 4, for other than tax purposes.

Part 3 - The Charities Division

Overview of the Division

70. Just over 130 employees:

• Office of the Director (2)
• Technical Interpretation and Communications Section (15)
• Application Review Section (55)
• Client Service Group (18) and Information Return Group (15)
• Audit Section (15)
• Program Planning and Development Section (9)
• Administrative Services Section (6)

71. There are about 76,500 registered charities.

72. The Division receives over 4,500 applications for registration a year (about 60% not controversial, about 15% rejected and the rest must be determined).

73. About 1,500 organizations have their registrations revoked every year for failing to file an information return (T3010).

74. The Information Return Group reviews the T3010s. Information sessions to assist people to fill out the return have also been provided across the country since 1997 as part of the "Roadshow".

75. The registrations of about 900 organizations are voluntarily revoked.

76. Auditors conduct more than 600 audits annually; about 15 involve non-compliance with the Act and are therefore liable to revocation.

77. The Division looks after appeals when a registration is refused or revoked. Department of Justice counsel plead the cases in court. The Division has lost only four appeals out of 18 heard in the past 14 years.

78. The Client Services group receives about 100,000 calls annually, and responds to more than 10,000 pieces of written correspondence.

79. The Division sends speakers across the country.

80. The Division responds to access to information requests.

81. The Division revises publications on charities.

82. The Division also develops new policies or re-works old ones (e.g., new publications in 1998 on educational and political activities, activities outside Canada (RC 4106) and on Registered Charities and the Income Tax Act (RC 4108).

83. The Division responds to more than 350 pieces of ministerial correspondence, and to more than 1,800 calls from MPs. We also respond to requests from the media.

84. Major changes are coming: we are moving at the end of May, and Revenue Canada will become an agency on November 1.

Recent changes

85. Bill C-28 and amendments to the Income Tax Act now allow the public to have access to more information on registered charities.

86. Under subsection 241(3.2), Revenue Canada is authorized to disclose the following additional information to the public when requested:

• an organization's governing documents - letters patent, incorporation documents, trust deeds or constitutions that create the organization and provide information on its official aims and objectives, its structure and internal working;
• the application for registration or re-registration;
• the notice of registration (letter from the Department);
• the letter of revocation;
• the names of the directors and periods during which they served as directors.

87. The following information is already available to the public:

• T3010 (except schedules);
• List of all registered charities and charities that have already been registered (name, location, registration number, registration date, and date of revocation).

88. The names of donors or beneficiaries are confidential information.

89. The findings of audits must remain confidential because their disclosure would hinder the Department's effectiveness.

90. Some risks:

• organizations are less likely to confide or request assistance when they have problems if it is not confidential;
• in the case of an organization that has been refused registration, there is absolutely no public policy grounds for subjecting it to public review;
• that the registration and revocation process will become more contentious.

Part 4 - Planned giving

91. Unfortunately, I do not have any good news to announce about planned giving. As I said at the beginning, there is nothing new and there is also nothing planned for the time being. I can confirm that that is part of the Department of Finance's agenda, but it is not a priority for the time being.

92. There are also no plans to revise any interpretation bulletins in the near future. You must therefore continue to use the current bulletins. It is quite simply the status quo. Since the questions raised are generally fairly complicated, I can only advise you to write to the Division when a problem comes up.

93. Obviously, you can always telephone, and if it is possible to provide an answer on the spot, we would be happy to do so. If you have any specific questions today, come see me afterward and I will do what I can to assist you.

Conclusion

94. Sector initiatives are always welcome, regardless of the form they take (e.g., meetings like today's).

95. I can only speak for the Division. We are always happy to participate in discussions like today's because we learn more about what is happening in the sector, hear your concerns and see if we can do something.

96. Some will say that it takes too long, and I agree completely. It does, in fact, take a long time.

97. However, it is better that it takes time and that the work is done properly and does not become a source of other problems.

98. I can tell you that we are doing what we can and working with other departments and the sector to remedy existing problems.

99. We completely agree that a number of reforms are required and that others must be studied more closely before changes are made that could have a significant impact.

100. Finally, as I said at the beginning, there is still a lot to be done and with a little luck, or should I say with a lot of work, we will perhaps make it one day!