2011 Federal Budget - What’s new for Canadian Registered Charities
Posted under News | What's New from the Charities Directorate of CRA | Canadian Charity Law | Avoiding 'Charity' Scams
I had the privilege today of attending the Budget 2011 Stakeholders Lock-up. Here are the parts of the budget that relate to registered charities and other qualified donees. Also below are some of the highlights of the budget.
The proposed 2011 Federal Budget had a number of interesting proposals for registered charities, Registered Canadians Amateur Athletic Associations and other types of qualified donees. It is very hard to know where to start as there is so much there. For the vast majority of charities these changes will not have any effect. For some categories of qualified donees, such as RCAAA, prescribed foreign universities, municipalities they will have to review their practices to ensure that they legally compliant. I will write a separate note for RCAAAs as they may have more work to do.
Some of the highlights of what was proposed in the budget is:
• Changes to the rules for a number of categories of qualified donees which are certain organizations entitled to issue official donation receipts. Essentially the government is proposing to extend the regulatory regime that currently applies to registered charities to registered Canadian amateur athletic associations, municipalities in Canada, prescribed foreign universities and certain other qualified donees. This particular item will not affect registered charities, just raise the standards for some of these other groups.
• We all know that registered charities must keep adequate books and records and only issue tax receipts for the eligible amount of a gift. Those rules will be extended to other qualified donees. Budget 2011 proposes that, if a qualified donee issues a donation receipt other than in accordance with the Income Tax Act and its regulations, then the CRA be authorized to suspend the receipting privileges of the qualified donee or revoke its qualified donee status. Budget 2011 also proposes that the monetary penalties associated with improper issuance of receipts that apply to registered charities be extended to RCAAAs.
• In addition, Budget 2011 proposes to extend to RCAAAs additional regulatory requirements that apply to registered charities such as it is proposed that an RCAAA cannot pay an undue benefit or excessive compensation to staff or a third party corporation. Furthermore, CRA is allowed to disclose information to the public such as governing documents, annual returns, applications for status etc.
• The Budget also proposes narrowing the scope of Registered Canadian Amateur Athletic Associations by changing this category from “primary purpose and primary function” being promotion of amateur athletics in Canada on a nation-wide basis to “exclusive purpose and exclusive function” is promotion of amateur athletics in Canada on a nation-wide basis .
• Budget 2011 proposes that, if an RCAAA provides an undue benefit to any person, the CRA be authorized to apply monetary penalties, suspend its receipting privileges or revoke its registration in the same manner as currently applies to registered charities, which will help ensure fair and consistent treatment.
• There are a number of points on “good governance”. The main one is that the budget provides the CRA the authority to refuse to register a charity or Canadian amateur athletic association, or act against an already registered one, where there is a high risk of abuse as a result of individuals being involved in the management of the organization who have a history of fraud, misuse of charitable resources or other related contraventions. There are a comparatively small group of people (may be 500 people) doing most of the inappropriate things with charities and qualified donees. We are talking about tax evasion, misappropriation of property, people with a history of abusing children etc. This proposal makes it easier for CRA deny status or have their status removed if the organization does not act to remove these people. This will not require that charities do background checks on board members but if a charity is aware of the concerns and does nothing about it then there could be consequences.
• Rules will be introduced to limit excessive tax benefits that can result on the donation of flow-through shares as a result of the interaction between the exemption from capital gains tax on the donation of publicly listed securities and the tax incentives for flow-through shares. This proposal essentially shuts down a few providers of packaged flow-through donation tax shelters or certainly makes them a lot less attractive.
• To enhance transparency and accountability and provide greater certainty to donors, Budget 2011 proposes that qualified donees be required to be on a publicly available list maintained by the Canada Revenue Agency. Currently you can see a list of registered charities, prescribed foreign universities and certain charitable organizations that Canada has made a gift to. However there is no publicly available list of RCAAA, municipalities, municipal and public bodies performing a function of government in Canada (certain First Nations groups) and housing corporations. By publishing the names it will make it easier for individuals who want to donate to them, as well as foundations or charities who want to grant to these groups. Furthermore, it would be easier for these organizations to know that they are qualified donees and required to comply with the necessary requirements.
• There were provisions dealing with gifts of non-qualifying securities including some anti-avoidance rules and also some obscure provisions on granting of options to a charity to acquire a property and that no tax credit is available for such option. .
• Recover Tax Assistance for Returned Gifts. In some circumstances where a qualified donee receives property from a taxpayer and issues an official donation receipt but subsequently returns the property to the taxpayer, the Minister of National Revenue is not able to reassess the taxpayer for the Charitable Donations Tax Credit or Deduction previously claimed. Generally speaking charities should not be accepting gifts and issuing receipts where there is a possibility that the gift will have to be returned and therefore this provision should not have any impact on most charities. To ensure that tax assistance is not improperly retained, Budget 2011 proposes to permit reassessments to disallow a taxpayer’s claim for a credit or deduction, as the case may be, in any case where property is returned to a donor. In some circumstances, other consequential adjustments will be made for tax purposes. When property for which the taxpayer received an official donation receipt is returned, the qualified donee must issue to the taxpayer a revised receipt. Budget 2011 proposes that in these circumstances the qualified donee be required to send a copy of the revised receipt to the CRA when the amount of the receipt has changed by more than $50 This measure will apply in respect of gifts or property returned on or after Budget Day.
There has been some speculation about the future of the charity/qualified donee changes to the budget as the budget was not passed. With budgetary changes affecting the Income Tax Act they are usually implemented as of the day they are announced and not when the budget is passed or when the legislation with the detailed changes to the Income Tax Act are passed. In some cases with charity changes it can in fact take many years for the actual Income Tax Act to be amended and they are generally retroactive to the date of announcement.
If the Conservatives are re-elected I assume that the charity parts of the budget will be reintroduced probably without changes. If there is a different government such as if either the Liberals or NDP get into power I don’t see them having any problems with these initiatives that Finance is putting forward. I see stopping charity abuse as a non-partisan issue.
Some, especially tax litigators, are not happy with these proposals. It will make it harder for their clients to go on abusing charities. I think most normal people (ie. people who are not involved in defending bad charities) scratch their head when hearing about these charity budget proposals and wonder why these proposals were not brought in years ago. I welcome a discussion on these initiatives because they are helpful and because there are lots of other ideas on how to avoid a small number of people abusing the faith and trust that Canadians have in the charity sector. Also Canadian charities do a lot of great work and I want the abuse of charities to end, or at least be substantially diminished, so we can rather focus on that great work instead of having to deal with the small number of charities/qualified donees issuing tens or hundreds of millions in inappropriate receipts while spending almost nothing on charitable activities.
Here is a press release from Imagine Canada on the budget:
Here is the commentary on the budget from the Canadian Council of Christian Charities: