A Canadian private members bill, introduced by MP Ted Falk, would change the tax credit for donations to charities. It is called the Fairness in Charitable Gifts Act- Bill C-239. Malcolm Burrows recently wrote a very useful critique of this poorly thought through piece of legislation. Essentially the idea behind the proposal is to match the incentive for charitable donations to those offered for political donations. However, unlike political donations which have very low caps and therefore the tax benefits are very limited, there will be no limit on the tax benefits that donors to charities receive under this bill.
This bill probably came with good intentions, with the hope that increasing tax incentives will result in greater contributions to charities. However, I have some serious concerns about it. They are as follows:
1) Why do some people think that the amount of people who donate to charity is principally linked to the tax incentives received rather than the work of charities? Tax incentives are low down on the list of the reasons that the very affluent (i.e. those who receive the greatest tax incentives) give and it is even less important for average Canadians. People are typically motivated by wanting to make society better and to see real impact with their donations. I would argue that our tax system is the most generous in the world when it comes to charitable donations and more of a "good thing" is not necessarily better. It is interesting that Canadian charities issue about $14 billion in donation receipts each year and only about $8.5 billion are claimed on tax returns by Canadian donors. So clearly lots of donations are being made without regard for the tax incentives.
2) The real issues for charities and donation is public trust. People who trust charities are more likely to give to charity and volunteer with charities. On the other hand, the quickest way to kill any interest in the charity sector (as we have seen too much of in the UK over the last years) is to have various real (and not so real) scandals that reduce public trust in charities. To maintain public trust we need greater accountability and transparency in the charity sector in order to increase public trust. We need regulators to be removing the small number of bad apples in our sector that have the potential to taint the public's view of charities. Not only does Falk's bill miss this point entirely, it will inevitably result in even greater misuse of charities by a small number of people/schemes which could undercut public trust in the sector.
3) This proposal will cost approximately $1.2 billion according to the proponent of the bill. That means that over the next 10 years it is going to cost approximately $12 billion. That is a significant amount of money. The charity sector receives over $120 billion from various levels of government in Canada every year. Canadian charities need to be concerned when tax incentives for any reason undermine the tax base and may result in there not being funds to pay for vital programs. My suggestion is that you take the $1.2 billion per year and invest it in affordable housing or early childhood education rather than giving more tax incentives for people to continue doing the same thing.
4) Even though this proposal will cost a lot of money, I don't think that it is going to raise any money for charities in Canada. Instead, essentially it's just an across-the-board tax cut for upper-middle to upper class Canadians. These groups do not have to do anything different. Under this proposal they will get a greater tax incentive for the same amount of money that they are giving. In fact, if the proposal were to actually result in greater giving then it would actually cost much more than the $1.2 per year. One group that may disproportionately benefit from this change is the super wealthy who will be more easily able to put funds in either their private foundations or donor advised funds, with very limited obligations to actually deploy those funds for charitable uses. The more the incentive, the more the middle class is subsidizing large foundations. Why should it only cost a very wealthy person 25 cents for every dollar that goes into their private foundation? Remember the other 75 cents is essentially coming from other taxpayers.
5) Was there any consultation with the charity sector prior to this proposal? Unfortunately, the history of private members bills involving the charity sector is not great – lots of grandstanding, bad ideas and little thought about the consequences of the legislation. The last private members bill dealing with the charity sector was from Conservative MP Peter Braid in 2012. Mr. Braid’s proposal was to have a charity week in the coldest part of winter and to allow donors to procrastinate beyond December 31 to the following end of February (RRSP season) to get a tax benefit for that year. Mr. Braid's bill was generally opposed by charities who were concerned that giving Canadians the opportunity to procrastinate would hurt fundraising. There was also a private members bill from Liberal Albina Guarnieri around 2010. Ms. Guarnieri’s proposal was very problematic and poorly thought through. As I describe in this note, Bill C-470 if passed would have resulted in charities not being able to pay anyone over $250,000. This would have really hurt hospitals, some universities, etc. Furthermore, the mandatory requirement to publicly disclose the top 5 salaries no matter how low those salaries were also had concerns. That private members bill also died.
6) The Bill states that “the percentage of Canadians donating to charities has been on a long-term decline”. This is not correct. It is true that the percentage of Canadians claiming on their tax returns that they made donations to registered charities and itemizing them to receive tax benefits has been declining; however, that does not mean fewer Canadians, in real numbers or as a percentage, are donating to registered charities. As CRA allows spouses to place all donations on one spouse’s return (typically the higher income earning spouse) this automatically reduces the number of Canadians claiming charitable donations on their particular returns in a significant way. If there is a concern with the lower number of tax returns showing charitable donations, then spouses should be prohibited from sharing receipts. This would result in a significant increase in the number of Canadians claiming tax receipts on their return. Also, it is important to note that the amount that people claim does not always reflect reality. Abusive charity tax schemes have resulted in over $6.3 billion being claimed that did not exist. Also as noted above, many people do not claim the receipts they receive or all of them. Therefore, using tax numbers to determine the health of generosity in Canada is not reliable.
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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.