Time to Revisit the Donation Deadline
By: Adam Aptowitzer
Several years ago we proposed an idea to the Parliamentary Finance Committee which became the basis for Bill C-458. The fundamental idea was that donation tax credits from donations in the first 60 days of the year could be applied to the taxes owing from the previous year. This is similar to the system for RRSPs. The bill received unanimous consent at second reading, but eventually died when its sponsor, MP Peter Braid, was promoted to parliamentary secretary. Given that members of cabinet cannot sponsor private members bill, “that was the end of that” as they say. However, the new donation tax rates may give an impetus to revisiting the idea.
As written about by Arthur Drache in our previous newsletter, the federal government has proposed that those in the (new) highest income tax bracket will have donation tax credits equal to the percentage of tax that they would otherwise pay. Those earning more than $200,000 will pay tax at a federal rate of 33%. If those people were to make donations, then without the change proposed by the minister of finance they would actually be penalized when compared to donors at a lower income tax bracket. To keep things equal, the federal government provided an offset for the donation tax credit of 33% until the donation brings the donor’s taxable income below $200,000.
The new system is designed specifically with high income earners in mind but presents challenges. High income earners often do not know their final taxable income until after the end of the year. Consequently, the after tax cost of donations by high income earners cannot be known with certainty until after the financial dust settles and their total taxable income for the year is known. Where donations are tax conscious (if not tax motivated), the donor would want to have an accurate knowledge of their tax owing for the year. This is particularly true when there are two different tax rates depending on the level of income that that donor may have.
There was some concern with Bill C-458 that there would be a cost to the government related to what would effectively be tax motivated giving (as if donating to charity is something to worry about). That is to say people who donated to charity in the first 60 days of the year to lower their tax bill from the previous year. These new provisions expressly give certain donors an incentive to lower their income to less than $200,000 anyways to fall into the lower tax bracket. Therefore, either these costs are of no real concern or at least within a few years there will be sufficient data to analogize the effect of moving the tax donation deadline. The lack of data on moving the donation date was one of the main criticisms of Bill C-458 but that point may now be moot.
In our view, there were good reasons the first time around that this bill should have passed. Under the current circumstances we think that those reasons are now even greater. The charity world missed out when this bill died the first time around hopefully we will see it resurrected in the new Parliament.