On April 20, 2016, the Federal Government introduced Bill C-15, Budget Implementation Act, 2016 No. 1, to implement certain proposals in the 2016 Federal Budget released on March 22, 2016 (“Budget 2016”). Proposals contained in the Budget 2016 affecting the charitable and non-profit sector are summarized in our Charity and NFP Law Bulletin No. 381. Most of these proposals will be implemented by Bill C-15, if passed. The following summarizes the key technical changes being introduced. Please refer to Bulletin No. 381 for an explanation of the background behind these changes.
- Investment in Limited Partnerships
A new subsection 253.1(2) of the Income Tax Act (“ITA”) will be added to permit registered charities and registered Canadian amateur athletic associations (“RCAAA”) to hold limited partnership interests. The new provision provides that where a registered charity or RCAAA holds an interest as a limited partner in a limited partnership, it will not be considered (for purposes of sections 149.1 and subsections 188.1(1) and (2)), solely because of its acquisition or holding of the limited partnership interest, to be carrying on any business or other activity of the partnership if the following conditions are met:
- by operation of any law governing the arrangement in respect of the partnership, the liability of the registered charity or RCAAA as a member of the partnership is limited;
- the registered charity or RCAAA deals at arm’s length with each general partner of the partnership; and
- the registered charity or RCAAA, or the registered charity or RCAAA, together with persons and partnerships with which it does not deal at arm’s length, does not hold interests in the partnership that have a fair market value of more than 20% of the fair market value of the interests of all members of the
As a result, a new subsection 149.1(11) will also be added so that limited partnerships of which a private foundation is, directly or indirectly, a member, would not be included when calculating the private foundation’s excess corporate holdings. These amendments apply in respect of investments in limited partnerships that are made or acquired after April 20, 2015. This is consistent with CRA’s policy to permit charities and RCAAAs to invest in limited partnerships since 2015, after the proposal was contained in the 2015 Federal Budget, notwithstanding that the proposal has not yet been enacted by Parliament.
- Charitable donation credits
As a result of the introduction of the new 33% individual marginal tax rate, subsection 118.1(3) of the ITA will be amended to apply a new tax credit rate equal to the highest individual percentage to the extent that the total gifts for the year exceed $200, and to the extent that the taxpayer has income that is subject to the top marginal tax rate. Specifically, for trusts to which subsection 122(1) applies to pay tax at a flat rate equal to the highest individual percentage, the new tax credit rate (33% for the 2016 taxation year) will apply to total gifts in excess of $200. For individuals, (including graduated rate estates and qualified disability trusts) to which section 117 applies so that tax at the highest individual percentage only applies to taxable income above a certain threshold ($200,000 for the 2016 taxation year), the new tax credit rate (33% for the 2016 taxation year) will apply to total gifts in excess of $200, to the extent the individual has taxable income above that threshold. These changes will apply to gifts made after 2015.
- GST/HST on Purely Cosmetic Services by Charities
Section 1 of Part V.1 of Schedule V to the Excise Tax Act (“ETA”) will be amended by including a new paragraph (p) so that a supply of a service rendered to an individual to enhance or otherwise alter the individual’s physical appearance, and not for medical or reconstructive purposes or a supply of a right entitling a person to such service, would be exempt from GST/HST. This amendment applies to any supply made after March 22, 2016.
- Supply of Services/Properties Related to Donations to Charities or Public Institutions
A new section 164 of the ETA will be included so that where a charity or public institution receives a donation and provides a property or service to the donor in return, the part of the donation that exceeds the value of the property or services supplied would not be subject to GST/HST. This new rule requires that two conditions must be met: (a) the services or property provided must be included in calculating the value of the advantage for purposes of split-receipting, and (b) a donation receipt may be issued, or could be issued if the donor were an individual. New section 164 applies to supplies made after March 22, 2016.
- Repeal of Certain Tax Credits
Various sections of the ITA will be amended to eliminate the Children’s Fitness and Arts Tax Credits for 2016 and to eliminate the Education and Textbook tax credits effective January 2017.