Adam Aptowitzer
Considering the government’s focus on investment, it should not be a surprise that Budget 2026 does not contain any particular ‘goodies’ for the charitable sector but it does contain a number of interesting, and important, provisions that charities should know. Some of these changes are relevant for certain sub-sectors while some of the less significant changes are of broader application.
Religious Charities
One of the changes which affects religious charities, specifically houses of worship, is a change to the clergy residence deduction. “The Clergy Residence Deduction is available to individuals who are members of the clergy, members of a religious order, or regular ministers of a religious denomination. To qualify, these individuals must be in charge of, or minister to, a diocese, parish, or congregation, or be engaged exclusively in full-time administrative service by appointment of a religious order or religious denomination”.
The method of calculation for this deduction has always been somewhat complicated with multiple ways of calculation, evidence and (non-formal) elections. Budget 2026 simplifies the calculation mechanism and limits the deduction to $12,000 annually (unless both spouses are claiming the deduction).
Artist Earnings
Another major change relates to the tax treatment of artists by proposing to make up to $45,000 of artistic earnings tax free, and by increasing the cap on expenses that employed artists may deduct, subject to certain limitations.
Private Foundations
Private Foundations are also affected, although it’s not entirely clear how that will work in the long run, Almost 20 years ago, in Budget 2007 the Harper government enacted legislation which required private foundations to divest themselves of shares of private corporation shares. The transition provisions in place at the time allowed for a divestment of the shares owed over a 20 year period. And so, it is somewhat conspicuous that the entire excess corporate holding regime is being rescinded now that whichever charities that engaged in the 20 year divestment have divested the full percentage.
The more interesting question in this regard is what will replace that regime. Budget 2026 alludes to a simpler mechanism that was in place prior to the current one, but there was no similar mechanism in place at the time. So, it is not entirely clear what mechanism the CRA will rely upon in continuing the regime although one would imagine the non-qualifying securities and loanback provisions will play a central role.
General Provisions
There are also other provisions that are relevant for the sector as a whole.
In the context of reviewing fixed-fee penalties throughout the Income Tax Act to ensure that inflation does not erode the deterrent effect of the fee, Budget 2026 raises the punishment for non-filing of the T3010 return was raised to $1000 from $500.
While this sounds reasonable, the deterrent impact of the penalty is actually undermined to a much greater degree by the CRA’s lack of proper use of the penalty. Generally, the Directorate does not impose this penalty unless the charity is revoked and applies for re-registration. However, it may well be that this rethinking of this penalty is a clue, along with the current CRA consultations in the charity sector, that the Directorate is seriously considering a greater use of financial penalties.
Greater Ministerial Power
As the Income Tax Act is a statute passed by Parliament it can only be amended by another act of federal Parliament. This can be a cumbersome process subject to politics and other bills, so to expedite the process the act contains regulations which are amended by the cabinet alone. Amongst other things in the regulations are the contents of charitable donation receipts, and the calculation of the disbursement quota. This power is now given to the Minister of National Revenue (i.e. the CRA) alone to make changes as he or she deems fit from time to time.
The Minister of National Revenue also gains the sole power to register a foreign charity as a qualified donee for purposes of the Act. There are a few foreign charities that have this status, but in the past it required consultation with the Minister of Finance. We expect that the Minister will post guidelines to their sole use of this power in the future.
Flow Through Shares
Under the circumstances where the government is trying to spur additional investment and national self-reliance, it’s not surprising that the mineral exploration tax credit and the Critical Mineral Exploration Tax Credit have been renewed for five more years. And indeed these have been expanded and improved. This is relevant for the various flow through programs that support charitable initiatives.
Objections
One interesting non-change in Budget 2026 relates to the filing of Notices of Objection. In terms of general income tax administration, individuals and corporations have, in the past, had 90 days to file a Notice of Objection with additional time to file an application for extension of time if they missed that deadline. The same deadline was given to charities objecting to a notice of intent to revoke. However, Budget 2026 has kept the 90-day deadline for charities whereas private taxpayers are now entitled to a full year.