Topics: What's New from the Charities Directorate of CRA, Canadian Charity Law, Political Activities and Canadian charities
Althia Raj's article "Super PACs In Canada? Liberals Wrestle With Politically-Active Charities After Court Ruling" covers the fallout from the Canada Without Poverty case and provides some important updates.
Althia Raj reports:
OTTAWA — In an effort to prevent Canadian charities from becoming U.S.-style super PACs, HuffPost Canada has learned, the federal government may strip the status of some registered charities while it lifts all limits on the amount of non-partisan political activity institutions can engage in.
Two officials, who would only speak on condition of anonymity, told HuffPost that the Liberal government may, for example, repeal Canada Without Poverty's status as it develops a new test to ensure that registered charities don't engage solely in political activism.
... When pressed, the officials said the Liberals do plan to develop a new test to ensure that charities are not established with the sole purpose of engaging in political advocacy.
"What we announced is that we were removing the quantitative limits [the 10 per cent cap on political activity] but there are still going to be limits to the type of political activity," he said.
"We will need a test to define political activities ... [because] engaging in political activity is not a charitable activity."
Very interesting. Part of the problem with changing the ITA is that often with the change comes another 4 or 5 counter measures to avoid abuse and then you wonder whether you are worse of in the end. With 99.9 of charities not spending more than 10% a lot of time has been spent and is being spent on the needs of a 100 or so charities and paving the path for a few hundred CharityPacs - registered charities that spend 100% of their time vigorously advocating for political change (most of which will align (but obviously not be "connected") with one or another political party or candidate).
On Wednesday, HuffPost broke the news that the Liberals would appeal the decision while, at the same time, promising to introduce legislation this fall to ensure the judge's overall ruling is respected, so that charities will be allowed to engage in any political activity that doesn't involve supporting or opposing political parties or candidates.
One concern — though the Liberals played it down — is that the ruling and the Grits' promised legislation will open the floodgates for Canadian charities to emulate U.S.-style super political action committees' running TV ads and political commentary in between elections.
I am not sure if they played it down or just ignored it. But please read on.
Raj continued on:
Officials point to 'Ethical Oil' example
The two government officials HuffPost spoke with suggested Blumberg's comments were extreme. They minimized the financial incentives, incorrectly stating that individuals would receive only a 20 per cent tax credit. They argued it would be more advantageous for wealthy people to use their companies to write off donations to a not-for-profit rather than to give to a charity. [my emphasis]
"When oil companies decided to fund Ethical Oil so that it could develop a media campaign, that money was 100 per cent deductible," one official said. "Rich people are not going to go to the trouble of creating a charity to get a 20 per cent personal tax credit.... The Canadian fiscal system makes it so it makes no sense to use a charitable organization to promote a super PAC or anything like that."
Now I understand why those two government officials consider my concern extreme. It does not appear that they understand the subsidy system we have in Canada and also the corporate tax system. Wealthy people who are donating marketable securities are typically receiving around 60-70% tax savings and with certain complicated transactions which I personally avoid but are not necessary illegal can result in 80-90% in tax savings. So if a wealthy person donates $100 million in appreciated publicly listed securities, depending on the appreciation and the province and their tax bracket they could be saving between $60-90 million in taxes. That means average Canadians are subsidizing almost all the cost of these wealthy people's donations to charities. Most wealthy people are giving to support for charitable purposes and activities - but some are only or largely interested in political issues. We see this quite clearly in the US. If you are interested in how much donation tax incentives can add up for wealth people, see this Globe and Mail article Tax breaks for charitable givers can add up:
For example, an individual earning $201,000 a year before taxes and making a $2,000 donation would receive 15-per-cent credit on the first $200, 29 per cent on the next $800 and 33 per cent against the next $1,000.
These figures do not include provincial tax credits, which can further boost the savings to a maximum of 54 per cent on donations, depending on the jurisdiction. ...
Whether with a donor-advised fund, foundation or one-off donation, many high-net-worth individuals give stocks in-kind that have appreciated in value. This offers additional tax savings: Not only does the donor receive the tax credit, but he or she also does not have to pay taxes on the capital gains.
"It offers the biggest bang for their buck, where they can get close to 70 per cent of the donation back in tax savings," Mr. Slater says, adding the amount varies by province.
In fairness to the two anonymous individuals, we have complained before that the Federal government (including CRA) does not do a good job of really explaining to the public (and its anonymous officials) the real tax benefits of Canadians donating to charity.
Here is a quote from an earlier blog of ours:
"The CRA has updated their charitable donation tax credit calculator. It is interesting to play with the calculator but as we have warned before it can underestimate in some cases the amount of tax savings a person may get from a charitable donation. For example it is dealing with cash and not appreciated marketable securities which may have greater tax savings. Secondly, it does not take into account the surcharges that are in a number of provinces. Therefore, it may indicate that a wealthy Ontarian may get 40% benefit when in reality they may be receiving between 48-65% tax benefit depending on whether they are gifting appreciated marketable securities. That is quite a big difference.
Now perhaps I should end this blog with some sort of "extreme" statement or conspiratorial theory, So here it goes. Maybe these two anonymous sources know more than I do. Maybe they are just a few months ahead of me and the Liberal Government is planning on changing the tax incentive system along the lines of what Mr. Trump has brought in in the US and perhaps 19/20 Canadians will not receive any tax benefit and the Canadian rich will only receive a 20% tax benefit, as mentioned by the anonymous sources. Some might think this will be disastrous, but on the bright side to find at least some silver lining if the tax incentives for donations to charities were reduced significantly, I would be far less worried about "dark money" entering the charity sector because I agree with anonymous sources that 20% would not be enough to motivate these donors.
Hope you all have a wonderful summer.
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.