On February 11, 2013, the House of Commons Standing
Committee on Finance (the “Committee”) released a report entitled Tax
Incentives for Charitable Giving in Canada (the “Report”). The Committee was mandated by a House of Commons motion to study
“current tax incentives for charitable donations with a view to encouraging
increased giving, including but not limited to
i. reviewing changes to the charitable tax credit amount,
ii. reviewing the possible extension of the capital gains exemption to
private company shares and real estate when donated to a charitable
iii. considering the feasibility of implementing these measures”.
In conducting its study, the Committee met eight times and
heard statements from 36 organizations and five individuals. This Charity
Law Bulletin provides a brief summary of the Committee’s Report.
B. DONORS AND DONATIONS, REGULATION AND EXISTING TAX INCENTIVES
1. Charitable Donations and Donors in Canada
Based on information received from Statistics Canada
regarding the 2010 tax year, the Report states that approximately one in five
individual taxpayers reported making a charitable donation, with the median
donation being $260. Half of the total charitable donations by individuals were
made by donors who earned at least $80,000. Donors aged 45 and older gave over
80% of the total charitable donations by individuals.
Percentage of Donors
and Charitable Donations by Individuals, by Income Class, Canada, 2010 Taxation
Percentage of Donors
and Charitable Donations by Individuals, by Age of Donor, Canada, 2010 Taxation
The Department of Finance (“Finance”) informed the
Committee that charitable donations by individuals increased by 6.5% between
the 2009 and 2010 taxation years, reaching $8.3 billion. Meanwhile, the total
number of individual donors rose from 5.6 million to 5.7 million.
2. The Regulation of Charities
In reporting on the regulation of charities, Finance outlined
the restrictions imposed on registered charities to ensure that the tax system
functions properly and that donations are not used for personal benefit. The Canada
Revenue Agency (“CRA”) described the Registered Charity Information Return
(Form T3010) that charities must submit annually in order to maintain their
registered status. CRA explained that it uses the revenue and expenditures
information that a charity reports to monitor the charity’s compliance with the
various restrictions and that a charity that violates any restriction may have
its registration revoked or suspended and/or face financial penalties.
3. Tax Incentives and their Estimated Federal
Based on information provided by Finance, the Committee
reported that the federal government has provided tax incentives for charitable
donations since 1930 and began using the non-refundable charitable donations
tax credit for individual taxpayers in 1988. The current tax credit rate is 15%
on charitable donations of $200 or less and 29% on donations above $200. The
Committee was told Canada provides the most generous tax credits for charitable
donations in the world.
Finance highlighted a number of other key features of the
charitable donation tax credits for individuals:
· An individual tax payer may claim charitable donations up to 75%
of his/her net income for that year and 100% in the year of or the year after
the taxpayer’s death.
· Charitable donations that are not claimed for a tax credit in the
year of the donation may be claimed in any of the subsequent five years.
· Spouses may pool their charitable donations to maximize their
access to the 29% credit rate.
· Capital gains taxes are not charged to gifts of publicly listed
securities, ecologically sensitive land and certified cultural property.
· Individual taxpayers may claim charitable donations of
ecologically sensitive land and certified cultural property up to 100% of their
With regards to corporate
· Corporate taxpayers may deduct donations directly from their
taxable income up to 75% of the corporation’s net income for the taxation year.
· Like individuals, corporate taxpayers may carry forward unclaimed
charitable donations for five years.
· Like individuals, corporate tax payers are not required to pay
capital gains taxes on gifts of publicly listed securities, ecologically
sensitive land and certified cultural property.
In discussing the fiscal cost of these tax incentives,
Finance reported that tax credits to individuals and corporations for
charitable donations would cost the federal government $2.9 billion in
forfeited tax revenue in 2011. These costs are broken down in the table below.
Federal Fiscal Cost of Tax Incentives
for Charitable Donations, Canada, 2011
Tax Credit (individual) or Deduction (corporation)
publicly listed securities
ecologically sensitive land
certified cultural property
C. PROPOSALS BY WITNESSES AND COMMITTEE RECOMMENDATIONS
The Committee’s witnesses made numerous proposals on a
variety of topics. The Report divides these proposals in to the eight topics
listed below. Based on these proposals, the Committee made twelve recommendations
to the federal government.
1. Charitable Donations, Tax Credit Thresholds and
Of the variety of suggested changes to the tax credit
thresholds and rates, the Committee recommended that the federal government
explore the feasibility and cost of adopting the “stretch tax credit” (Recommendation
2), extending the carry-forward period for claiming charitable donations (Recommendation
3) and increasing the donation contribution limit for corporations (Recommendation
A number of witnesses, including Imagine Canada, the World
Wildlife Fund and the Association of Fundraising Professionals, advocated for
what has come to be known as a “stretch tax credit”. This tax credit would
provide individual donors with an additional 10% credit on the amount by which
their donations exceed their donations from the previous year (up to $10,000
over the donor’s life time).
Those advocating for the stretch tax credit asserted that
it could result in a number of positive outcomes:
· increase the number of donors and donations, particularly
first-time donors and youth
· benefit a large number of charities and taxpayers, including
· provide improved tax relief to middle-income families
· reward individuals who make significant financial contributions to
the social health of their community
Imagine Canada cited a study by the Office of the
Parliamentary Budget Officer estimating that the annual federal fiscal cost of
the stretch tax credit would be between $10 million and $40 million.
The Committee’s recommendation to extend the carry-forward
period for claiming an unclaimed donation would provide a greater incentive to
make a charitable donation by extending the time period in which the donor can
earn taxable income against which the tax credit could be claimed. The
carry-forward period is currently restricted to 5 years. The Canadian Council
of Christian Charities suggested extending that period to 7 years or 10 years,
while the Canadian Land Trust Alliance advocated increasing the period to 10
years for gifts of ecologically sensitive land. The Committee’s recommendation
does not specify how long the federal government should consider extending the
The recommendation to reassess the donation contribution
limit for corporations stems in part from a suggestion heard by the Committee
to remove the current limit that prevents corporations from claiming a
charitable donation tax credit against more than 75% of its annual net income.
2. Donations of Real Property and Shares of Private
and Public Corporations
Recommendation 1 of the Committee is that the federal
government “explore the feasibility and costs of eliminating or lowering the
capital gains tax on charitable donations of real or immovable property or the
shares of private corporations to charities, provided that the proceeds of
disposition are donated to a charity within a fixed period.”
This was a common suggestion to the Committee. Witnesses
cited the increase in donations of shares of publicly traded corporations after
the government stopped charging capital gains tax on donations of such shares
in 2006 as evidence of the benefits of such an incentive.
The Office of the Parliamentary Budget Officer estimates
that eliminating the capital gains tax would cost between $42 million and $101
million for donations of real property and between $61 million and $169 million
for donations of shares of private corporations. Donald K. Johnson, a key
proponent of this proposal, estimates lower federal costs and predicts that
annual donations would increase by $200 million. However, the Canadian Land
Trust Alliance noted that eliminating taxable capital gains on all dispositions
of real property would also effectively eliminate any incentive for protecting
ecologically sensitive land.
3. Bequests and Estate Planning
The Committee heard technical recommendations regarding changes
to the Income Tax Act that would reduce the tax payable and potentially increase
donations upon death. In response, the Committee gave a rather general
recommendation to explore the feasibility and cost of promoting bequests to
charitable organizations and transfers of property to a charity pursuant to a
will (Recommendation 5).
4. Tax Fairness
The Committee heard a variety of perspectives on tax
fairness, but did not make any recommendations on this issue.
5. Other Tax Measures
Witnesses made a number of other suggestions regarding tax
measures for incentivizing charitable donations. In the end, the Committee
recommended “a technical review of the ITA as it relates to charities, including
the definitions of the terms ‘charity’, ‘charitable donation’, and ‘gift’”
(Recommendation 6). This recommendation follows Professor Adam Parachin’s
suggestion that simplifying this area of the law would reduce the costs of
administrative compliance and enforcement for charities and the CRA
Also mentioned in this section of the Report is Imagine
Canada’s suggestion that CRA increase its “marketing” of tax incentives for
charitable donations. This suggestion seems to be part of the basis for the
Committee’s Recommendation 8: “That the federal government further promote
charitable giving by reminding and educating Canadians of existing tax
incentives for charitable donations and their benefits.”
6. Transparency and Accountability of Charities
While it was not in the Committee’s initial mandate to
discuss transparency and accountability, the Committee made recommendations on this
topic. Witnesses spoke about issues related to the disclosure of information,
communication with donors, considerations when a donor selects a charity, the
administrative burden on charities, and the role of governments in overseeing
the charitable sector.
The Committee recommended that the federal government
continue promoting transparency and accountability to increase Canadians’
confidence in the charitable sector. In particular, the Committee raised
options, such as allowing CRA to disclose serious non-compliance by qualified
donees and to disclose the annual returns of those donees, requiring that
charities demonstrate their “public benefit” annually, adopting measures
proposed in Bill C-470,
and allowing CRA to disclose information from the Non-Profit Organization
Information Return (Recommendation 12).
In addressing the “Red Tape Burden” associated with compliance,
the Committee recommended reviewing the possibility of streamlining the excess
corporate holdings provisions for private foundations and duplicative
requirements as well as introducing administrative reporting on a sliding-scale
that is proportionate to the size of the charity (Recommendation 11).
7. Fundraising and Sources of Income
Comments on charitable fundraising and sources of income
centered on the regulation of fundraising, charitable investments and business
activities and income. The Canadian Council of Christian Charities and Cardus
encouraged further dialog between the federal government and the charitable
sector about the involvement of charities in for-profit social enterprises, while
others recommended that charities be permitted to conduct business activities
to fund their charitable purposes. The Committee recommended “that the federal
government continue to explore social finance instruments as a way to further
encourage the development of government-community partnerships” (Recommendation
8. Other Measures Proposed and Issues Highlighted
Finally, the Committee witnesses spoke on aspects of
charitable giving, including the use of existing data sources to better
understand charitable giving and the use of technology to make charitable donations.
Recommendation 7 is that “the federal government continue to monitor charitable
giving trends and characteristics, and make such data available,” which appears
to respond to the calls by Volunteer Canada to expand the use of existing data
to better understand the trends and characteristics of charitable giving. Mobile
Giving Foundation Canada meanwhile encouraged the use of mobile technology to
expand giving in Canada. Recommendation 9 reflects the Committee’s support for
further promotion of innovations such as “mobile giving”.
The charitable sector will no doubt be pleased with the recommendations
regarding tax incentives, such as the stretch tax credit, eliminating or
lowering the capital gains tax on charitable donations of real and immovable
property and shares of private corporations, and extending the carry-forward
period for claiming donations including ecologically sensitive lands and
certified cultural property. However, because these incentives will only be
implemented if they are adopted in the federal budget, we will not know the
real impact of this study until the 2013 budget is released this spring. Hopefully
the federal government will include some of these tax incentives in the budget instead
of simply focusing on the recommendations related to transparency and
accountability for the charitable sector.