Although charities are greater than 10% of our economy in a federal election the charitable sector gets between 0 and 0.01 of the attention. We spend a lot of time talking about sweaters. In this blog I ask a few rhetorical questions (as no one is actually going to respond!) about some public policy issues involving charities.
175,000 Canadians are being audited or in the process of being audited for involvement in abusive charitable tax schemes worth almost $5 billion. In this time of fiscal constraints, our soldiers fighting in Afghanistan, and environmental and social concerns what would your party do to reduce or eliminate abusive charitable tax shelters that have proliferated over the last decade and are undermining the public’s confidence in charities?
Bequests to a charity under a will are an important source of revenue for charities and a type of gift that allows middle class Canadians to consider making a major gift on death, that they would not be able to make during their life. Currently an estate can only use the value of the official donation receipt to offset income in the last year of the deceased’s life and the immediately previous year and not against income in any years prior to that. Would your party consider increasing the tax benefits for bequests?
The Canada Corporations Act was passed in 1917 and has not been substantially modified since then. What would your party do to improve the governance and corporate law applicable to federal non-profits?
The Canadian tax incentive for donations to charities provides far less benefit to average Canadians. The first $200 receives less tax benefits than amounts above that and the average Canadian only donates $300-400 per year. As well your benefit is greater if you earn more money, are in a higher marginal tax bracket and do not have pay tax on that income. This system encourages major gifts by the wealthy and provides far less benefits to middle class Canadian taxpayers. The generous treatment of private foundations and the elimination of capital gains on donations of marketable securities provide substantial opportunities and benefits to wealthy donors that are out of reach for many. Charities are a large and vitally important sector of our economy and society. Those who donate and provide revenue to charities have a larger say in how those organizations operate and the priorities of the sector. What would your party do to encourage middle class gifts and average Canadian having greater incentives to give?
Many Canadians are passionate about their society and helping others and they want to do within the legal framework provided. Currently there is an official 6-9 month waiting time for applications for charitable status, although at times it can take longer. There is also of 6 month wait for a written response to even standard requests from CRA. What will your party do to deal with these backlogs?
In the US private foundations must distribute five percent of the average market value of their assets and there is a discussion south of the border to increase the amount required. Here in Canada private foundations only need distribute 3.5% irrespective of their investment returns and most only distribute what they are required to distribute? In the first year of the donation the private foundation does not have to spend anything, and then only in the second year does the foundation have to spend 3.5% of the previous year’s donation. A donation to a private foundation provides an immediate tax receipt which is very valuable to the donor, who is typically a Canadian who is doing very well. This donation is subsidized by other taxpayers who are typically middle-class. It makes sense that private foundations must distribute some funds every year. But if there is a particularly good investment year should they not be required to disburse more? Althernatively, if one does not like greater disbursements in times of a good stock market, then in times of recession and greater need should not private foundations rather disburse more to benefit our society. What would your party do to encourage private foundations to use more funds to either carrying out charitable activities or fund charities that are carrying out such activities instead of “accumulating” funds (some would call it hoarding resources)?
My final question. This question was inspired by those useless questions ‘if you are vegetable what type of vegetable would you be?” If you won a million dollars and you were not a politician and as a condition of that win you had to donate $200,000 one single charity within 2 weeks which charity would you donate it to?
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
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.