As we anticipated, there were no dramatic announcements in the Budget which affect charities.
But there were a number of references, few of which were unanticipated.
For example, the document states that “pertaining to rules governing charities and their political activities, the CRA, in consultation with the Department of Finance, will engage with charities through discussions with stakeholder groups and an online consultation to clarify the rules governing the political activities of charities.” This is precisely what we had anticipated as no substantive changes would be made without such a consultation.
We also anticipated that the government would resile from a poorly thought out proposal from the last budget. Budget 2015 included a proposal to provide, beginning in 2017, an income tax exemption in respect of capital gains on certain dispositions of private corporation shares or real estate, where cash proceeds from the disposition are donated to a registered charity or other qualified donee within 30 days. Budget 2016 confirms that the Government does not intend to proceed with this measure.
The technical and practical problems were so great that we would have been shocked had the government proceeded with it.
Because trusts will all (with certain variations) be subject to a flat 33% tax rate, this Budget proposes that a 33-per-cent charitable donation tax credit (on donations above $200) for trusts that are subject to the 33-per-cent rate on all of their taxable income will be available. We noted that the increased top rate would apply to almost all trust and the 33% tax credit is only right and fair.
There are also some relieving changes related to the GST insofar as that tax applies to charities.
The GST/HST does not apply to a donation if the donor does not receive anything in return. However, if the donor receives property or services in exchange for the donation, even if the value of the donation exceeds the value of the offered property or services, the GST/HST generally applies on the full value of the donation. This is a rule which hardly any organization was familiar with.
To bring the GST/HST treatment of this type of exchange into line with the treatment under the Income Tax Act split-receipting rules, Budget 2016 proposes a relieving change to provide that when a charity supplies property or services in exchange for a donation and when an income tax receipt may be issued for a portion of the donation, only the value of the property or services supplied will be subject to GST/HST. The proposal will apply to supplies that are not already exempt from GST/HST. It will ensure that the portion of the donation that exceeds the value of the property or services supplied is not subject to the GST/HST.
This measure will apply to supplies made after Budget Day.
In recognition of the fact that probably not charity in a thousand was aware of the rule, some additional relief is offered.
In addition, where a charity did not collect GST/HST on the full value of donations made in exchange for an inducement, for supplies made between December 21, 2002 (when the income tax split-receipting rules came into effect) and Budget Day, the following transitional relief will be provided:
- If GST/HST was charged on only the value of the inducement, consistent with the income tax split-receipting rules, or if the value of the inducement was less than $500, the donors’ and charities’ GST/HST obligations will effectively be satisfied, resulting in no further GST/HST owing.
- In other cases, the charity will be required to remit GST/HST on the value of the inducement only (i.e., the relieving split-receipting rules will apply).