A way forward for charities and donors
The government needs to work with organizations and individuals to simplify and clarify
2018 will be a pivotal year for the vital charitable segment of our society. Consider the following:
July 16: Ontario Superior Court decided the Canada Revenue Agency (CRA) policy of restricting political activities of charities to 10 per cent of total activity had violated freedom of expression under the Canadian Charter of Rights and Freedoms.
Aug. 15: Ministers of Finance and National Revenue jointly announced their intention to amend the Income Tax Act, allowing charities to engage in unrestricted non-partisan political activities and development of public policy that serve their charitable purposes.
Sept. 14: Department of Finance issued draft proposals to amend the Act for public consultation until Oct. 13, subject to the government’s appeal.
Oct. 3: CRA published examples of permitted advocacy that informs a government, informs the public, and engages the public to persuade a government, and also provided examples of prohibited partisan activity.
This landmark decision offers registered charities scope to advocate for changes that would benefit the public. And it comes only 79 days after the court’s nudge (to borrow from Nobel economist Richard H. Thaler). So, in that spirit, consider these ideas as nudges for charities, either singly or in association:
Remind CRA to define what a charity is, not what a charity does — an organization for relief of poverty, advancement of religion, advancement of education and purposes that benefit the community, to prevent confusion with unlawful activities of some foundations.
Recommend Department of Finance simplify Canada’s tax code. The Fraser Institute reported there are more than 140 amounts, benefits, credits (refundable and non-refundable) and deductions. Such a Byzantine structure bewilders the average donor.
Urge more equitable treatment of tax credits. Statistics Canada reports few high-income donors benefit from big tax credits, but many more low-income donors with no taxable income can’t deduct, because credits only apply against tax and are not refunded.
Recall the research by the University of Calgary School of Public Policy and the Maytree Foundation proposing refundable tax credits to benefit non-taxable Canadians.
Review the proposal by Ontario Retirement Communities Association for a graduated Seniors Services Benefit that would be paid directly to alleviate family poverty concerns.
Encourage Ontario premier to think through and develop an alternative lowincome support before terminating the three-year basic income pilot project.
Charities should not abandon aging boomers whose cash contributions are declining but rather seek late-in-life legacy bequests through their insurance policies and wills.
Charities faced with dwindling revenues might downscale their business models as corporations do through mergers and sale of redundant assets.
Charities can redirect their funding to the wave of younger and new Canadians unfamiliar with the culture of giving but proficient in online and high-tech methods, as recommended by Imagine Canada.
These are just a few examples of new opportunities for charities to engage governments, the public, and their members, without risking the loss of their tax-exempt status.
Canada’s charitable activities prevailed many decades before our first income tax started in 1917. The philanthropic roots of charitable giving have been lost in the mists of old history. Canada’s earliest charities began as adjuncts to religious organizations and humanitarian services supporting the vulnerable and people in need. They financed their buildings and programs mainly through cash contributions and volunteered labour, long before there were income tax credits or deductions. That mirrored early English history over three hundred years, which in turn followed tithing practised since biblical times and by virtually all faiths. The altruism motivating such philanthropy can be seen today in the form of organ and tissue donations that are offered without any tax considerations.
Aging donors are the biggest challenge facing charities. It’s estimated there are now 170,000 charities and nonprofits in Canada, but approximately only half that total are registered with CRA to offer income tax deductions. Such deductions became an important incentive to donate, as increasing numbers of baby boomers were employed and enjoyed rising disposable incomes.
Today it is tempting to paraphrase Marshall McLuhan by arguing — a tax deduction is the message.
A major shift has been in progress since the great recession 10 years ago, when governments stimulated deflating economies with historically low interest rates and aggressive deficit spending. Now, interest rates are rising and budget deficits are being shaved through spending cutbacks that impact both charities and donors, so they are obliged to adjust.