Over the Top Rhetoric set Stage for Budget Proposals
By: Arthur Drache C.M. Q.C.
Two years ago, before the 2012 Budget we were treated to a lot over super-heated rhetoric from a number of cabinet ministers about the “political activities” of some charities.notably environmental ones, some of which were getting funds legally from U.S. organizations. The upshot were a number of changes in reporting requirements relating to funds used for such activities and a technical change which reduced “double counting” when it came to computing funds used appropriately for sanctioned political activity.
The government also allocated an extra $8 million to the CRA to allow for more audits.which as it turned out (surprise, surprise) were aimed at some high profile environmental charities which have had the temerity to question government policies.
But we could never have anticipated that in the run-up to the 2014 Budget, the Finance Minister could blithely speak about hitting charities with links to terrorist organizations and organized crime. This type of outrageous talk set the stage for the newest attack on Canadian charities without a scintilla of evidence that such linkages exist or if they do so, which charities are involved. It was also surprising that this sort of talk came from the Finance Minister and not, for example, one of the ministers such as the Minister of Public Safety or Justice who had jurisdiction over terrorism.
So the issue in the public mind moved from attacking charities which might have different views on environmental policies (assuming this government has any) to a broad based smear which could apply to any organization. The 2012 proposals and the follow-up audits have produced a chill on activist organizations (none have had their registrations revoked insofar as we are aware) and seemed to up the propaganda ante.
With all this as background, we were astonished (very happily) to see what Finance Minister Flaherty came up with.
“To prevent potential abuse of the charitable sector by foreign state supporters of terrorism, Budget 2014 proposes that where a charity (or a Canadian amateur athletic association) accepts a donation from a foreign state listed as a supporter of terrorism for purposes of the State Immunity Act, or from an agency of such a state, the Minister of National Revenue may refuse to register the charity (or amateur athletic association) or may revoke its registration. The Minister of National Revenue will take into consideration the specific facts of each case, exercising this authority in a fair and judicious manner.
The Canada Revenue Agency helps charities understand and meet their compliance obligations. The Agency will provide information about best practices for exercising due diligence when accepting gifts and for preventing terrorist abuse of the registration system for charities.
The Canada Revenue Agency will utilize existing compliance reporting and, as such, the measure will not impose an additional reporting burden on charities.
This measure will apply to donations accepted on or after Budget Day.”
In the event and unless another shoe is to drop, this turns out to be much ado about nothing!
In fact, while there were no dramatic changes for charities announced, there was some useful tinkering.
For example, there have always been ongoing questions about tax relief where gifts are made by will. Where an individual makes a donation by will, the donation is treated for income tax purposes as having been made by the individual immediately before the individual’s death On the other hand, tax credit available in respect of a donation made by an individual’s estate may be applied against only the estate’s income tax otherwise payable.
The new and we think very welcome proposal will provide more flexibility in the tax treatment of charitable donations made in the context of a death that occurs after 2015.
Donations made by will and designation donations will no longer be deemed to be made by an individual immediately before the individual’s death.
Instead, these donations will be deemed to have been made by the estate, at the time at which the property that is the subject of the donation is transferred to a qualified donee. In addition, the trustee of the individual’s estate will have the flexibility to allocate the available donation among any of: the taxation year of the estate in which the donation is made; an earlier taxation year of the estate; or the last two taxation years of the individual.
The current limits that apply in determining the total donations that are creditable in a year will continue to apply. A qualifying donation will be a donation effected by a transfer, within the first 36 months after the individual’s death, of property to a qualified donee. In the case of a transfer from an RRSP, RRIF, TFSA or insurer, the existing rules for determining eligible property for designation donations will apply. In any other case, the donated property will be required to have been acquired by the estate on and as a consequence of the death (or to have been substituted for such property).
An estate will continue to be able to claim a tax credit in respect of other donations in the year in which the donation is made or in any of the five following years.
This measure will apply to the 2016 and subsequent taxation years.
· The donation of certified cultural property could be a target for abuse by tax shelter promoters because of the combination of its favourable tax treatment, inherent uncertainties in appraising the value of art and artifacts, and the exemption from the rule that deems the value of a gift to be no greater than its cost to the donor in certain circumstances. Budget 2014 proposes to remove, for certified cultural property acquired as part of a tax shelter gifting arrangement, the exemption from the rule that deems the value of a gift to be no greater than its cost to the donor. Other donations of certified cultural property will not be affected by this measure.
· Flaherty announced the Government’s intention to review whether the income tax exemption for NPOs remains properly targeted and whether sufficient transparency and accountability provisions are in place. This review will not extend to registered charities or registered Canadian amateur athletic associations. As part of the review, the government will release a consultation paper for comment and will further consult with stakeholders as appropriate.
· To permit donors to take greater advantage of tax assistance and thereby encourage larger donations, Budget 2014 proposes to extend to ten years the carry-forward period for donations of ecologically sensitive land, or easements, covenants and servitudes on such land. his measure will apply to donations made on or after Budget Day.
· Unlike other groups, however, charities do not have the option of filing their information returns electronically. This poses a significant administrative burden for volunteers and staff of some 86,000 registered charities across Canada. This issue must be addressed to allow charities to devote more time and resources to charitable activities rather than administration. In addition, making data on charitable giving and trends more accessible will enhance public understanding of the charitable sector.
Accordingly, the Budget proposes the following measures:
(a) To reduce the administrative burden on charities, funding will be provided to the Canada Revenue Agency to modernize its information technology, thereby enabling charities to apply for registration and file their annual information returns electronically for the first time. This will represent an overall cash investment of $23 million over five years. And
(b) To improve public awareness, the Canada Revenue Agency will establish an enhanced web presence on charitable giving trends and characteristics in Canada.
This sound like one of those pie in the sky promises, but who knows.
· Each year, charities in Canada raise hundreds of millions of dollars to support worthy causes through lottery sales. However, outdated legislation forces charities to process and activate all sales manually, and then send customers their tickets by mail-barring them from using modern electronic technology like computers. In order to reduce administrative costs associated with charitable lotteries and allow charities to modernize their lottery systems, the Budget proposes to amend the Criminal Code to allow charities to conduct various aspects of lotteries through the use of a computer. The use of a computer will also allow charities to use modern e-commerce methods for the purchasing, processing and issuing of lottery tickets and issuing of receipts to donors.
Many large charities proposed such a change and it was contained as a proposal in the Finance Committee pre-Budget report.