A. INTRODUCTION
On December 9, 2009, the Standing Committee
on Finance (“the Committee”), as part of its 2009 pre-budget
consultations, released its report, entitled A Prosperous
and Sustainable Future for Canada: Needed Federal Actions
(“the Report”).
The Report will now be considered by the Ministry of Finance
in drafting the 2010 federal budget. In June 2009, the Committee
had invited Canadians to participate in pre-budget consultations,
with the backdrop of nascent recovery from the last fall’s
recession. In light of the serious financial difficulties
that many charities have had to cope with during the recession,
the recommendations of the Committee to Parliament are particularly
crucial in speeding the recovery of the charitable sector
and encouraging future giving. The Report recognizes that
charities and volunteers make an invaluable contribution to
Canada, providing alternative or supplemental assistance to
those in need.
This Charity Law Bulletin summarizes some of the submissions
made to the Committee by the charitable and not-for-profit
sector, as well as the recommendations put forward by the
Committee in the Report.
B. SUBMISSIONS FROM THE CHARITABLE SECTOR
In terms of tax incentives
for giving, the Committee heard from witnesses from the charitable
and not-for-profit sector on a number of suggestions. Witnesses
put forward the suggestion that donations of publicly listed
securities could be enhanced by providing a tax credit of
42% of the adjusted cost base of the security and the normal
29% tax credit on the resulting capital gain. Another suggestion
with regard to publicly listed securities was to extend the
exemption from capital gains tax to gifts of real estate and
donations of private company shares. In the case of gifts
of real estate, it was suggested that the charity would receive
all or part of the proceeds from the sale of the property,
with an exemption for the donor on the capital gains tax on
that portion of the real estate which he or she donated.
Of the various tax incentives
discussed, the most notable was the “stretch” tax credit proposed
by Imagine Canada, and supported by a number of witnesses.
The “stretch” tax credit is an innovative tax incentive, that would
“stretch” the normal tax credit of 29% to 39% for donations
over $200 that exceed a donor’s previous highest giving level,
starting with 2008 as a baseline. To continue to benefit from
the credit, the donor in subsequent years would need to increase
their level of giving over that 2008 baseline to a maximum
of $10,000. It was suggested to the Committee that the government
work in tandem with the charitable sector to promote such
a tax credit, and undertake a five year review of the credit
to determine if it was meeting the goal of increasing giving.
Charities and not-for-profits
have also had difficulty in getting access to financing, given
the recent economic downturn. In this regard, the Report notes
that it was suggested that debt capital, such as loans, be
made more accessible to smaller charities with unpredictable
revenue streams, which often have difficulty accessing funding.
In addition, grants from the government, or access to investment
capital through capital development funds would also alleviate
the difficulties for charities, social enterprises and similar
organizations. The Report also remarks that the Committee
heard from witnesses that the creation of a registered retirement
savings plan-eligible tax credit could be created for tax
payers who wish to invest in community economic development
investment funds carried out by local nonprofits. Further,
the Report comments that the government was urged to create
an “economic recovery” or “recession relief” fund to prevent
spending cuts to agencies that serve vulnerable beneficiaries.
In the October 2009 Charity
Law Update, we reported that the
National Charities and Not-for-Profit Law Section of the Canadian
Bar Association had submitted a proposal to the Ministry of
Finance on the reform of the disbursement quota (“DQ”). In
this regard, the Report remarks that the Committee was urged
to eliminate the disbursement quota because it, “is confusing,
requires an ‘inordinate’ amount of time to understand and
implement, is unduly complex, makes arbitrary and excessive
capital disbursement demands that ignore the realities of
the investment market, and imposes a costly administrative
burden on charities.”
In the alternative, witnesses also suggested a review of the
DQ regime in order to simplify the system and make it more
flexible. Recommendations were also made to the Committee
in the area of volunteerism, such as providing tuition relief
to post-secondary students who volunteer, promoting the value
of volunteering in the education system, and providing tax
credits for athletics coaches and officials to offset the
costs incurred in their certification. Witnesses also put
forward support for the idea that a national goal of increasing
the rate of volunteerism by a certain percentage of time be
implemented.
C.
COMMITTEE RECOMMENDATIONS
The Committee recognized
that “the federal government has a role to play in encouraging
charitable giving and in supporting charitable organizations.”
The Report notes that such support is necessary to better
position charities for the future in order to facilitate their
contribution to society. In this regard, the Committee made
the following recommendation:
“The federal government
examine incentives that would have the effect of increasing
the level of charitable giving by businesses and individuals.
In particular, the government should consider:
¨
An
increase in the charitable tax credit rate to 39% for incremental
annual increases in giving, provided that annual giving is
more than $200 and less than $10,000;
¨
The
creation of a corporate structure for not-for-profit organizations
that would allow the issuance of share capital and other securities;
and
¨
The
elimination of the capital gains tax on donations of real
estate and land to public charities.”
Due the Canada’s position as a wealthy
country, the Committee also recommended an increase in funding
to the Global Fund to Fight AIDS, Tuberculosis and Malaria.
It is certainly good news that the first
recommendation from the Committee is a formal endorsement
of the stretch tax credit put forward by Imagine Canada, and
supported by many other organizations within the charitable
sector. Imagine Canada has stated that they will continue
to promote the stretch tax credit as a priority for the 2010
budget. It is also encouraging to see the recommendation for
the creation of a corporate structure for not-for-profit organizations
that would allow for the issuance of share capital and other
securities, presumably in the context of encouraging social
enterprise. As well, the recommendation for the elimination
of the capital gains tax on donations of real estate and land
to “public charities” (possibly intended to exclude gifts
to private foundations) would provide an important incentive
for major capital gifts to charities, similar to what has
happened over the last decade as a result of the exemption
from capital gains tax for gifts of publicly traded securities.
It is unfortunate, though, that the Committee
made no recommendation with regard to the representations
from the charitable sector relating to reform of the DQ regime.
However, given the recent recessionary times it is understandable
that the Committee would focus its recommendations on increasing
giving and access to financing for charities and not-for-profits.
At least the Report did recognize the submission made to the
Committee regarding the need to either reform or eliminate
the DQ.
D. CONCLUSION
It will be important for stakeholders in
the charitable and not-for-profit sector to watch to see what
comes out of the 2010 federal budget in order to see which
of the Committee’s recommendations will be adopted. While
only a select few of the issues presented by witnesses before
the Committee have received formal recommendation in the Report,
pressure must remain on the Federal Government to adopt the
recommendations that have been made. The fact that only three
recommendations of many were adopted also means that the charitable
and not-for-profit sector has considerable dialogue to continue
with the government even after the 2010 budget is released
to promote further reform.
