A bill to impose a salary cap on Canadian registered charities has passed 2nd reading and will shortly be reviewed by the Finance Committee of the House of Commons.  As they say, there is usually one simple solution to a complex problem that is totally wrong.  To have a single cap for all Canadian charities means that Canadian hospitals, research institutions, and universities will not even have a chance of being able to compete with other similar institutions around the world.  While it sounds appealing to cap salaries at $250,000, a very problematic piece of legislation when you drill down to the details .  You see it is not about what charities want to pay for things – every charity would ideally want everything for free.  Charities need to able to recruit people to accomplish their mission.  Charities should never pay more than they need to.  They should never pay more than fair market compensation.  But you cannot just put a one-size fits all number on what it is.  When there are only a few neurosurgeons you cannot pay what you want – you need to pay something related to the going rate for neurosurgeons or be prepared to do without them.  If you are a small community in the North and you want to have a specialist in your community, you may have to pay that person more than what a comparable hospital in Toronto or Chicago would pay.

Here are a few notes with respect to the proposal:

1. Check out the T3010 filings of Canadian registered charities at http://www.cra-arc.gc.ca/ebci/haip/srch/advancedsearch-eng.action Canadian registered charities are already required to disclose “For the ten (10) highest compensated, permanent, full-time positions enter the number falling within each of the following annual compensation categories.  $1 – $39, 999,  $40,000 – $79,999 $80,000 – $119,999 $120,000 – $159,999 $160,000 – $199,999,  $200,000 – $249,999,  $250,000 – $299,999 $300,000 – $349,999, $350,000 and over”.  The T3010 already provides a donor with sufficient information with respect to compensation amounts.  If a donor wants to decide how to donate based on this one criteria then he/she is free to do so – no matter how poor a criteria it is to decide whether or not a charity should receive a donation.  Registered charities are required to file annually the T3010 and failure to file the T3010 will result in a charity losing its registered charity status within a few months of the required filing date.  CRA makes a number of attempts to remind charities of this obligation and about 99% of charities file the form.  In comparison, in the US a charity can go for three years without filing its annual disclosure form (Form 990) before losing its status!  This means that a US donor may only find out 4 years after the fact that a charity in the US has been paying a certain amount of compensation. [It appears that the author of the bill was not aware of the T3010B disclosure requirement.  The bill should be immediately withdrawn and there should be a proper discussion on transparency in the charitable sector.]

2.  There are really two parts to the proposal.  The first part of the proposal relates to disclosure, which I think is unnecessary and unhelpful in light of current disclosure requirements and other points I make in this note.  However, it is the second part of the proposal to cap salaries at $250,000 that is very problematic.  Many universities and hospitals would potentially be deregistered if this bill is passed and enforced as presumably some of them pay over $250,000 to their most senior executive or researcher or other employees.  If a Canadian charity such as a hospital or research foundation manages to convince a top US researcher to come to Canada to work here and it pays such person for instance $300,000, I don’t think this is necessarily a problem, especially if the person is important for the program and was earning substantially more in the US!

3.  Excessive compensation, although talked about by the media occasionally is not a big problem in the Canadian charitable sector – I can think of only a few examples over the last few years.  The private members bill is a distraction from bigger issues.  2/3 of charities have total revenue under $100,000 and many of them do not even have a single paid employee.  Helping these charities with governance is more important than dealing with compensation issues of a few charities.  When there are a few cases of egregious salaries it is not only the charity that deserves scrutiny; it is the board of directors of the charity that should be held accountable.  The buck stops with the board.  Are they asleep?  It is more important, but perhaps politically not as beneficial, to focus on the hundreds of thousands of underpaid charity employees.  A good resource is the HR Council for the Voluntary & Non-profit Sector at http://hrcouncil.ca/home.cfm Three quarters of charity employees are women and many full time non-profit employees have to have another job to financially survive.  Paying a receptionist $200,000 is egregious, paying a top neurosurgeon $300,000 may be appropriate.  The bill misses the mark on both accounts. If you don’t have access to certain specialists in the future at a hospital you may want to keep Albina Guarnieri’s telephone number handy as she can explain to you that no one working for a “registered charity” including a hospital should ever earn more than $250,000. 

4.  Although proponents of detailed salary disclosure want the higher end salaries reduced, this private members bill and similar proposals at salary disclosure may actually fuel increased salary expectation and competition.  What we have right now with the brackets up to $350,000 provides the regulator with information on who may need to be audited and information to a donor who wants to know salary ranges.  If the requirement will be to disclose the top 5 employees’ names and exact amount of compensation then of course a few donors will look at these salaries to decide about an organization but the primary users will be charity employees and compensation consultants.  These numbers will be used by senior executives and their consultants to argue that they should be paid more – after all if Joe is paid $240,000 then I should be paid that as well unless our charity is less important than Joe’s charity or less worthy.  I wish that the act of disclosing high salaries would result in more moderate high end salaries but it does not – and we just have to look to the US to know that.  The US has exact salary disclosure of top 5 employees and they are the only country that I am aware of with a huge excessive compensation problem!  People do not serve in the charitable sector in Canada to make a killing and this bill does a disservice to the charitable sector and the HR issues and challenges it is facing. 

5. This bill also may send a signal that payments under $250,000 are acceptable and that senior executives at charities should be earning in that range.  In the vast majority of cases any payment close to that amount would be completely unacceptable and breach of trust if the directors approved of it. 

6.  While there are many great employees in the charity sector there are also some people (we have all seen them) in the non-profit sector being paid $70,000 or $80,000 per year who are providing little value.  Just as in the private sector there is sometimes going to be some non-productive employees. That is a far bigger problem than a few employees being paid over $250,000.  Disclosure of salaries or a cap does nothing about the issue of better human resource management.  Volunteer boards of charities are not always great at dealing with HR issues and terminating employees who are ineffectual. 

7. I am wondering what consultations were made with the charity sector before this MP put forward this proposal.  After all, the voluntary sector accounts for about 8% of our economy and delivers many of the most important services that we receive.  I am not aware of any consultations either with sector organizations or advocates for greater transparency.  This is perhaps the most annoying part of this discussion as the proponent of this bill clearly has a lot to learn about the sector.  You might find my note on a recent letter she sent helpful https://www.canadiancharitylaw.ca/blog/letter_from_albina_guarnieri_re_private_members_bill_on_registered_charity_/  Many people do not realize that registered charities include hospitals, museums, universities, social service agencies and many other important organizations in our country.

8. Having a hard cap like $250,000 only encourages charities to be ‘creative’ in accounting and not transparent.  For example, a foundation could pay half the salary and the operating charity the other half.  Even worse people such as non-executive employees may be inappropriately labelled “independent contractors” to avoid the disclosure requirement, when, in fact, they are employees.  Furthermore, consultants will come up with schemes to get around this blunt instrument.

9.  A few other little points I would raise:

a) there is no mechanism for an increase in the $250,000 limit – so in 10 years’ time when $250,000 has the buying power of $150,000 today who is going to be lobbying for an increase in this amount?  The problem will only get progressively worse;

b) this private members bill requires the disclosure of the top 5 salaries which for many organizations will be one or more people paid between $10,000 – $40,000.  Is this what we need to know?  It is a bit of an invasion of privacy that just because you work for a registered charity (which may get no government money and may not even issue tax receipts) your salary gets disclosed.  On the bright side, despite the unwelcome attention many lower income employees will receive, if all these underpaid people’s salaries are disclosed it may be a bit of a wake up call that many in the charity sector are not getting paid fairly for their skills and commitment!;

c) some have argued that it is not the role of the CRA to be involved in governace and regulating salaries of registered charities – I don’t share that view – While CRA should not be involved with regulating regular salaries of charities, they certainly have a role in regulating undue private benefit for registered charities under the Income Tax Act (Canada) or gifts to non-qualified donees.  If CRA thinks that there is an undue private benefit or gift to a non-qualified donee they can revoke the charity’s registered charity status or impose penalties.  An undue private benefit could be a $50,000 annual salary paid by a private foundation to a family member for 1 day’s work per week.  By the way this is not covered by the bill.  There are many other tools that CRA has if there are innapropriate payments.  The Charities Directorate is stretched already in dealing with 6 billion of abusive tax shelter transactions over the last 6 years in Canada – do we really want the Charities Directorate spending a lot of time becoming expert in nuances of HR practice and deciding whether to excercise their discretion to revoke a charity just because there is a researcher, scientist, doctor etc is being paid over 250,000?;

d) if the argument is being made that registered charities receive government funding and therefore they should have to disclose top 5 salaries then I would think that the same argument should be used with the private sector – there are many companies, both public and private companies, that get huge amounts of government funding (a lot more than many registered charities).  Private companies have no disclosure requirement at all and don’t we as taxpayers have equal rights to that information if these companies receive tax dollars.  Remember that the government (federal, provincial, and municipal) does contribute a large percentage (about 49%) of the revenue received by charities – but they have all sorts of mechanisms through the grants and contribution system to make sure that they are getting good value for their money;

e) with some things “one size fits all” works well or can work well; with other things it does not work so well.  Iin this case having a one size fits all cap makes little sense when the charity sector is so broad and diverse and is everything from $1,000 per year charities who only have volunteers to $2 billion dollar per year charities with thousands of employees; and

f) in dealing with compliance issues the CRA takes what is called an “education first” approach.  They work with non-compliant charities to bring them into compliance through audits, educational letters, compliance agreements, and penalties and only in egregious or more extreme cases do they just move forward to revoking charitable status.  In this private members bill the only step being suggested on the salary cap point is revocation of charitable status; and

g) this bill does not cover off what happens if a registered charity has entered into a 5 year agreement with a researcher to pay him/her $260,000.  Does the charity have to lose its status?, Does the charity have to breach its contract in order to maintain its registered charitable status?

10.  In looking at the US form 990 or UK filing requirements it is clear that those countries require a large amount of disclosures on various issues not well covered by the Canadian required disclosure.  Many of the UK or US disclosure would be far more useful or interesting to Canadian donors and charity stakeholders.  In other words, if one is truly interested in a transparent sector there is other useful information that either CRA could require or charities themselves should provide publicly.  I would like CRA to be empowered by Finance under the Income Tax Act to publicly disclose the names of all charities involved with schemes that the CRA considers abusive charity gifting tax shelters, and not only find out after the charity has lost charitable status that it was used in this way.  For example, the Millennium Charitable Foundation was used by promoters and others to funnel $168,000,000 ($168 million) and after CRA conducted an audit over a number of years it appears that only $2,000 went to charitable activities.  I think donors have the right to know when CRA has any serious concerns with a charity and it will take Finance amending the Income Tax Act to allow for such disclosure.  One thing that CRA has recently done which is very helpful is to keep the T3010 forms of revoked charities on the internet.  Previously once a charity was revoked all the information disappeared from the database. 

There are about 80,000 non-profits that are not registered charities.  They are tax exempt like charities but cannot issue official donation receipts.  They are exempt from almost all transparency requirements and in many cases receive government funding and support and some also receive public donations.  They are not required to disclose anything publicly about their finances including revenues, expenditure, salaries, programs etc.  Non-profits that are not charities file an annual return and there is no reason that I can think of that that form should not be publicly available similar to the T3010 filed by registered charities.

I would like charities to have to disclose as in the UK what public benefit their charity provided in the year.  Here is a model Trustees’ Annual Report http://www.charity-commission.gov.uk/Library/investigations/sorp/pdfs/araidpb.pdf which gives one some idea of what the UK expects charities to disclose.  All UK charities need to make a Public benefit statement i.e.  “A statement confirming whether the charity trustees have complied with their duty to have due regard to the guidance on public benefit published by the Commission in exercising their powers or duties.”

Some other UK requirements are listed below and worth discussing: http://www.charity-commission.gov.uk/publications/cc15b.asp

“The Annual Report should provide the reader with an understanding of how the charity is constituted, its organisational structure and how its trustees are appointed and trained and assist the reader to understand how the charity’s decision-making processes work. The level of detail provided may well depend on the size and complexity of the charity and be proportionate to the needs of the report’s readers.”

“The methods adopted for the recruitment and appointment of new trustees, including details of any constitutional provisions relating to appointments, for example, election to post. Where any other person or body external to the charity is entitled to appoint one or more of the trustees this should be explained together with the name of that person or body (subject to section 1 above if permission not to disclose has been obtained).”

“Policy on reserves stating the level of reserves held and why they are held. Where material funds have been designated, the reserves policy statement should quantify and explain the purposes of these designations, and where set aside for future expenditure, the likely timing of the expenditure. Where no reserves policy is in place, a statement should be made to that effect.  Where any fund is materially in deficit, the circumstances giving rise to the deficit and details of the steps being taken to eliminate the deficit.”

With some bigger charities the following seems useful:

“The names and addresses of any other relevant organisations or persons. This should include the names and addresses of those acting as bankers, solicitors, auditor (or independent examiner) and investment or other principal advisers.”

“Where the charity is part of a wider network (eg charities affiliated within an umbrella group), then any impact this has on the charity’s operating policies should be explained.”

“The relationships between the charity and related parties, including its subsidiaries, and with any other charities and organisations with which it co-operates in pursuit of its charitable objectives.”

“A statement confirming that the major risks to which the charity is exposed, as identified by the trustees, have been reviewed, and systems or procedures have been established to manage those risks.”

“Where a charity uses volunteers to a significant extent in its charitable or income-generating activities, this should be noted. Unpaid voluntary contributions are not included in the SoFA, because of the difficulties in attributing a monetary value to them, but it is important that readers of the report are able to understand the role and contribution of volunteers. The information may therefore explain the activities with which volunteers help, quantify their contribution in terms of hours or paid staff equivalents, and may present an indicative value of their contribution.”

“Where significant fundraising activities are undertaken, details of the performance achieved against fundraising objectives set, commenting on any material expenditure which might enhance future income generation, and explaining the effect on the current period’s fundraising return.”

Some interesting US Form 990 requirements (you can see the form at http://www.irs.gov/pub/irs-pdf/f990.pdf and the 79 page instruction booklet at http://www.irs.gov/pub/irs-pdf/i990.pdf) are:

“Did any officer, director, trustee, or key employee have a family relationship or a business relationship with any other officer, director, trustee, or key employee?”

“Did the organization become aware during the year of a material diversion of the organization’s assets?”

“Did the process for determining compensation of the following persons include a review and approval by independent persons, comparability data, and contemporaneous substantiation of the deliberation and decision?”

“Did the organization maintain any donor advised funds or any similar funds or accounts where donors have the right to provide advice on the distribution or investment of amounts in such funds or accounts?”

This private members bill (C-470) is important because it in one piece of legislation it shows some of the flaws in the politicians and policy maker thinking about the charitable sector and how the charitable sector interacts with government.  Hopefully the private members bill will not pass but perhaps it will start a discussion about the importance of the Canadian charitable sector, what is the difference between information and transparency, what are the benefits of transparency as well as the costs and detriments and what will it take to have real transparency and accountability in the charitable sector. 


Here is the original article from the Globe and Mail:

Tuesday, March 16, 2010 10:07 AM
Liberal pushes charity transparency bill

Jane Taber

Albina Guarnieri wants the sacrifice and generosity of Canadians rewarded with transparency.

So the Liberal MP for Mississauga East–Cooksville has crafted a private member’s bill requiring that the five highest-paid employees of registered Canadian charities publicly disclose their salaries. In that way, Canadians can make more of an informed decision as to where they want their donations to go and how they will be spent.

And the MP’s bill is timely given that Canadians gave so generously and quickly for the Haiti earthquake.

In her proposed legislation, Ms. Guarnieri is also setting a salary cap of $250,000 for the senior executives. Her bill asks that a charity be deregistered if it pays an employee more than $250,000 in a single year.

However, she has left it up to the discretion of the National Revenue Minister to allow a charity to continue to operate if the executive earns more than the cap.

Ms. Guarnieri notes that $250,000 is more than what a minister or deputy minister earns.

“The principle is clear,” Ms. Guarnieri said in outlining her bill in the Commons yesterday. “If you take home taxpayers’ money, you can’t hide how much.”

“It is the goodwill and trust of these donors that must be a priority for this Parliament,” she argued.

Ms. Guarnieri’s bill is the result of the controversy last year over the $2.7-million in salary and severance earned by the head of the SickKids Foundation.

Yesterday, she said the only reason the salary was revealed because the charity is also registered in the United States, where transparency is required.

The MP had the Library of Parliament research how charity executives in Canada use their salaries. She said the library could only “scrape together bits and pieces.”

“Here is how some of our charities spend money on themselves,” she said. “Dining club memberships, golf memberships, fitness memberships, business class travel, so-called ‘flexible’ expense account provisions, and even scholarship programs for their own kids.”

She says there are 85,000 registered charities in Canada. Canadian charities distribute almost three billion a year in tax credits.

The NDP and Bloc support her bill going to committee for further investigation. Some Tories support it as well.

Ted Menzies, the parliamentary secretary to the Finance Minister, was less committed. Instead, he simply sang the praises of the transparency he says is in the system now.

Liberal finance critic John McCallum, meanwhile, said this bill would help to restore credibility in the charity business, especially after the government’s failure to match the Haitian earthquake donations.

“News has broken that the government has not sent a single matched dollar down to Haiti,” Mr. McCallum said. “This is causing a certain amount of anger in the Haitian community and among those who have contributed to Haiti on the understanding that the government would expeditiously match their contributions dollar for dollar. That hurts the government’s credibility.”

He said Canadians may be reluctant to act as quickly the next time there is a disaster.

The vote on Ms. Guarnieri’s bill is likely to take place some time next month.

(File photo: Bill Grimshaw for The Globe and Mail)

Here is a copy of the private members bill entitled C-470 An Act to amend the Income Tax Act (revocation of registration)

2nd Session, 40th Parliament,

57-58 Elizabeth II, 2009


BILL C-470

An Act to amend the Income Tax Act (revocation of registration)

R.S., c. 1 (5th Supp.) Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:

1. (1) Subsection 149.1(1) of the Income Tax Act is amended by adding the following in alphabetical order:

« rémunération » “compensation” includes salaries, wages, commissions, bonuses, fees and honoraria, plus the value of taxable and non-taxable benefits;

(2) Subsection 149.1(2) of the Act is amended by striking out “or” at the end of paragraph (a), by adding “or” at the end of paragraph (b) and by adding the following after paragraph (b):

(c) pays to a single executive or employee annual compensation exceeding $250,000.

(3) Subsection 149.1(3) of the Act is amended by striking out “or” at the end of paragraph (d), by adding “or” at the end of paragraph (e) and by adding the following after paragraph (e):

(f) pays to a single executive or employee annual compensation exceeding $250,000.

(4) Subsection 149.1(4) of the Act is amended by adding “or” at the end of paragraph (d) and by adding the following after paragraph (d):

(e) pays to a single executive or employee annual compensation exceeding $250,000.

(5) Paragraph 149.1(15)(b) of the Act is replaced by the following:

(b) the Minister may make available to the public in such manner as the Minister deems appropriate an annual listing of all registered or previously registered charities indicating for each
(i) the name, location, registration number, date of registration and, in the case of a charity the registration of which has been revoked, annulled or terminated, the effective date of the revocation, annulment or termination, and
(ii) the name, job title and annual compensation of the five executives or employees with the highest compensation;

2. Section 1 applies to the 2011 and subsequent taxation years.

Published under authority of the Speaker of the House of Commons
Available from:
Publishing and Depository Services
Public Works and Government Services Canada


Here is a copy of the Hansard with some discussion on the bill.