The federal government’s 2018 Budget, tabled a little early this year on February 27, has few proposals that will affect charities and non-profits. But the ones it has are interesting and in some cases quite helpful. They are a combination of technical fixes, new investments, and indicators of future developments.
Political Activities Remain to be Clarified
The federal government previously convened an expert panel to make recommendations on the topic of reforming the system of restrictions on political activities undertaken by charities. The panel issued a report in 2017 detailing several recommendations that it developed in conjunction with the charitable sector. The report foresaw that legislative proposals resulting from its recommendations should appear in the 2018 Budget, but, as the more cynical among us may have expected, the Budget only contains a statement to the effect that the government will be providing a response to the report sometime this year.
The Future of Non-Profit Journalism
Speaking of the restrictions against political activities, they essentially guarantee that news sources are excluded from the charitable sector. However, the government has obviously identified a need for philanthropic support of dependable journalism, especially at a local level. This is fairly unsurprising considering the much-touted double phenomena of the ‘death’ of print media and rise of fake news. As a result the Budget announces that the federal government will be providing $50 million over five years, starting in 2018, to a select number of non-governmental organizations (NGOs) for the support of local journalism in “underserved communities”. The Budget documents are careful to specify that the government will give the NGOs a free hand in administering the funds, in order to respect the independence of the press. But of course it is not hard to imagine how this scheme could be abused or corrupted, so it will be interesting to learn the exact details of its administration.
Perhaps more interestingly to the charitable sector, the Budget also mentions that the government will be looking at new ways over the next year of enabling private philanthropic support for non-profit journalism, including possibly providing pathways for Canadian newspapers to received charitable status. This would almost certainly require a serious overhaul of the political activities restrictions on charities, and perhaps an expansion of the types of activities that can be considered acceptably ‘charitable’.
Besides the non-profit journalism initiative described above, the Budget also announces public funding for some specific non-profits and charities. The Canada Media Fund specifically is slated to receive $172 million over five years to promote creation of Canadian media content and jobs. The funding also supports areas such as affordable housing, First Nations relations, and fitness initiatives.
Additional Non-Profit Funding
Besides the non-profit journalism initiative described above, the Budget also announces public funding for some specific non-profits and charities. The Canada Media Fund specifically is slated to receive $172 million over five years to promote creation of Canadian media content and jobs. The funding also supports areas such as affordable housing, Indigenous relations, and fitness initiatives.
The federal government will also investment $500 million into a new $1 billion Nature Fund (together with other public and private partners) with the goal of environmental protection. The Nature Fund will be tasked with securing private land, supporting provincial/territorial species protection programs, support Indigenous capacity to conserve the environment, expanding national wildlife areas, and so on.
Municipalities as Eligible Donees
Registered public municipal bodies are already considered to be “qualified donees”, meaning that registered charities may make gifts to them. However, as of Budget Day 2018, municipalities may now also count as “eligible donees”. This is a smaller subgroup of the qualified donee umbrella that is permitted to receive gifts by charities that have had their registration revoked and are in the process of winding up. Revoked charities are able to reduce the amount of “revocation tax” eventually due to the federal government by transferring their assets to eligible donees. To date, the only entities that could be eligible donees were registered charities that could demonstrate a clean bill of health in terms of paid-up tax liabilities, up-to-date filings, no suspension of its charity tax-receipting privileges, and so on.
The general idea of the revocation tax scheme is that a revoked charity must distribute its assets in an a way that ensures they remain within the charitable sector, with the federal government only claiming any remaining assets at the end of a year-long wind-up period as a sort of final clean-up measure. The priority is clearly that the assets should go to other (clean) charities rather than the federal government. The intention of this new proposal seems to be to allow a revoked charity to distribute its remaining assets for the good of its local community even if it cannot find suitable recipient charities by which to do this. Rather than packing off the rest of its money to the federal government, the revoked charity may be able to give it to the local municipality so that its beneficial impact stays at home. A municipality’s suitability as an eligible donee will be determined on a case-by-case basis by the Minister of National Revenue.
Universities Outside Canada
“Qualified donees” also include universities outside of Canada that have been recognized to meet certain requirements, including having a certain proportion of Canadian students in attendance. These universities, referred to as “prescribed universities”, can receive gifts from Canadian registered charities, and can also issue Canadian tax receipts for donations received from individuals and organizations. Foreign universities are granted prescribed status by way of a legislative process that ends with their inclusion into Schedule VIII to the Income Tax Regulations, while simultaneously also needing to register with the Canada Revenue Agency.
As of Budget Day 2018, universities will only need to meet the CRA registration requirement and will not need to go through the process of being added to the Regulations. This should be highly welcome news since the legislative portion of the process generally takes much longer to complete and is dependent on many political and legislative timetable considerations that are irrelevant to the individual universities’ merit.
New Reporting Requirements for Trusts
Budget 2018 announced additional reporting requirements for the beneficial ownership of trusts in order to counter tax avoidance and evasion. While charities and non-profits can be structured as trusts, these additional reporting requirements will not apply to such trusts… for now.