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| Path: Main Street : Resources & Library : Research Articles : Feature Article |
Is the Ontario Public Trustee driving money out of the province?October 23, 1995; Canadian FundRaiser
Susan Himmel, the Ontario Public Guardian and Trustee, told the delegates at the 1995 CAGP Annual Conference that she sees no conflict in the Public Guardian's role arbitrating between the goals of private philanthropy and of society at large. Philanthropy and charity, she pointed out, are often interchangeable, but legally are quite different. The courts have developed an elaborate and extensive case law around the term charity. Philanthropy, on the other hand, is a matter of subjective motive, which, she says, is irrelevant to the courts. One important element of a "charitable purpose," she reminded the delegates, is that it "must be beneficial to the public."
Philanthropic, but non-charitable giving
Appeals on behalf of individuals (such as burn victims, for example) are not charity, said Himmel, simply because they are for an individual, rather than society at large. This difference has led to a government role to protect the legal rights of individuals to ensure that gifts given to them are in fact used for their benefit. A "charitable purpose," she stressed, has no intrinsic rights attached, which leaves a vacuum. The public benefit thus needs government supervision to ensure that charitable property is applied to the charitable purpose for which it was intended, and that a public benefit is achieved.In Ontario, said Himmel, this is an important area of provincial concern, and the response of the attorneys-general in other provinces has been essentially the same as in Ontario. With the exception of Quebec, charities law is substantially similar across Canada. The role of the Public Guardian and Trustee in Ontario is primarily to police the application of charitable property, investigate how it is being applied, and act to ensure remedies and compliance. Revenue Canada's interest, on the other hand, is to reduce the abuse of the charitable tax credit.
Himmel called on the gift planners present to be aware of these issues as gifting decisions are made and actions taken. "You as gift planners can ensure that gifts comply with existing legal requirements."
Growing demand for more effective public scrutiny
Nancy Palmer, Foothills Hospital Foundation, Calgary, and Special Project Director of Fundraising for Charities, a national study undertaken jointly by the Canada West Foundation and the Canadian Centre for Philanthropy, reminded the delegates that because of government cutbacks, fundraising is becoming a much more important activity for Canadian charities. "We trade in trust, and people believe us" she said. Since different types of fundraising produce such varied results, however, - special events as compared to a mature planned giving program, for example - scandals have prompted other jurisdictions in other countries to address the cost of fundraising. Increasingly, she pointed out, the public is asking "How much of this donation will go to charitable purposes?"The Alberta Public Contributions Act , which grew out of a scandal involving the Canadian Cancer Society, allows the government to refuse a charity the right to fundraise for a wide number of reasons, some of them very discretionary. About two years ago, Epilepsy Canada challenged the government's right to review contracts between charities and third-party fundraisers, claiming that the legislation was violating its rights under the Charter. A group of intervenors, including such organizations as the Calgary United Way, the Canadian Red Cross, the Canadian Liver Foundation, and the Society for Autism, argued that Epilepsy Canada should not be allowed to decide on its own what should and should not be acceptable.
In 1994, the provincial Court of Appeal struck down the pertinent regulations. The government released a paper outlining various possible steps, and then, without consulting any fundraising organizations, introduced Bill 15, which was essentially disclosure legislation: "Tell the truth about your fundraising costs; donors have the right to enforce the claims of the charity."
Quoting John Fletcher Moulton's statement that "Obedience to the unenforceable is the extent to which the individual composing the nation can be trusted to obey self-imposed law," Palmer reminded the CAGP delegates that 44 American states now regulate fundraising in some way, and many now require charities to disclose the cost of fundraising. Only one of the factors complicating this issue, however, is that Canadian charities are allowed to allocate some of their costs to "public education," now a thorny issue for a number of charities and public accountants. Yet another area that has caused great concern is the question of the confidential nature and ownership of donor lists.
Conflicts of self-interest between donor, fundraiser, charity and society?
This, along with a growing number of articles in the US Media, and serious concerns among members of such professional organizations as the National Society of Fund Raising Executives (NSFRE), the Association for Healthcare Philanthropy (AHP), and the Council for the Advancement of Studies in Education (CASE), has resulted in a continuing series of efforts to develop comprehensive and effective statements of Ethical Standards for professionals in the fundraising fields. The NSFRE, for example, introduced a prohibition on commission-based fundraising, dropped it, and then reinstated it. As a background to this professional activity, said Palmer, is a Better Business Bureau survey reporting that 74% of the public believes that more regulation of charities is needed, 32% feel that charities are less trustworthy than they were a year ago, and 52% see them as less trustworthy than ten years ago. To complicate the situation still further, the NSFRE is still grappling with how to deal, to everyone's satisfaction, with the near-unavoidable conflicts between and among self-interests of the donor, the fundraiser, the charity and society.According to Palmer, a growing body of powerful argument now exists that a charity's board must exercise due diligence in working with fundraising-for-profit organizations, that donor lists must be owned solely by the charity, and that commission-based fundraising must be stopped.
Initially, said Palmer, the fundraising community wanted the Alberta government to drop Bill 15 and discuss how best to proceed, and in fact, eight charities worked with the government on the regulations (admittedly not good regulations, stemming from an admittedly not good act). However, many questions remain unanswered. The Alberta government is aware that it has created a problem, but the solution is unclear. The government sent a summary report to 5,000 charities in the province, and has agreed to meet to discuss amendments to the legislation, but without agreed-upon industry standards, who is to speak for the charitable sector?
Arthur Drache, one of Canada's leading tax law specialists, supported Blake Bromley's comment that money is being driven out of Ontario by the activities of the Ontario Public Trustee, and pointed out to the CAGP delegates that there is really only one `activist' province, Ontario, which now has the Charities Accounting Act and the Charitable Gifts Act in place. The federal courts particularly, he stressed, are out of touch with current charitable reality. Under current legislation, which he claims is discriminatory, a charity can not pay directors for their time, and an employee of a charity, or a lawyer employed by a charity, for example, can not sit on the board.
Legislation being enforced too zealously
The real problem, said Drache, is the zeal with which the legislation is being enforced, especially in Ontario. In the face of government cutbacks, charities are trying to move into income-producing enterprises, and in Ontario, this is very difficult. How much protection do we really need? he asked the delegates. "How reasonable is it to have such zealous enforcement, for example to stop the Centenary Hospital from having an income-producing parking lot? ... I spend a large amount of time advising charities, and more of it is consumed worrying about the Public Trustee than about Revenue Canada!"Incentives are built into the Income Tax Act , Drache pointed out, but once they're in place, the bureaucrats spend all their time worrying about whether they're being abused. The Cultural Properties Review Board (CPRB) is supposed to identify objects of cultural significance, and when they are given to a designated institution, there is a tax credit. The donation is recognized as being at fair market value, which is where the problem lies: What is `fair market value'? In one case he cited, a piece of art was acquired at a bargain price, certified by the CPRB, and given to Calgary's Glenbow Museum, and the tax dispute went on for 11 years. Revenue Canada is so worried about abuse, he concluded, that it spends all of its time harassing people who are taking advantage of existing tax laws. "Fraud does occur, but if the appraisals are correct, the taxpayers should be allowed to proceed within the system, unharassed."
Prospects for level playing field not encouraging
The practice of charities trading donor lists, said Drache, is really irritating to the donors, and greatly increases the possibility of donor backlash. Nancy Palmer added that, as an income-producing asset, the charity must remain in control of its lists at all times. While you could argue that one way to mitigate the impact of government cutbacks in the health services field could be by giving crown foundation status to more charities, the prospects for a level playing field when it comes to the availability of crown corporations for other than universities (in Ontario), are not encouraging, said Drache. "I would suggest we make it 50% deductible for all charities, but Revenue Canada is not interested because of the large amount of tax revenue that would be lost." The bad news, he pointed out, is that if the playing field is to be leveled, it more likely be leveled by taking away from those who "have" rather than giving to those who do not. A complicating factor, pointed out Blake Bromley, is that the problems involved in making large donations via crown corporations are leading private donors to role private assets such as appreciated property into private foundations.
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