The Senate Report on the Charitable Sector: What You Need to Know, Donations & Legislation

We’re continuing our look at the Special Senate Committee on the Charitable Sector’s report, Catalyst for Change: A Roadmap to a Stronger Charitable Sector. In Part One, we looked at the context of uncertainty surrounding the report and noted that there is no guarantee the recommendations will be pursued.

Nonetheless, we can’t assume they will be ignored, and it’s important to know the types of changes that could be made (or at least considered!) for the charitable sector. Today we’ll highlight some of the recommendations relating to donations, along with proposals to consider amending the Income Tax Act (“ITA”).

Donations are the lifeblood of charities,[1] and the report recommends that the Advisory Committee on the Charitable Sector (“ACCS”) review existing tax measures available to individual donors. Testimony before the Committee expressed concern about an aging donor population and overcoming misperceptions that there is (or ought to be) a bright red line between running an organization and the mission of an organization.

Despite a desire to “strengthen the culture of giving among new and current” donors,[2] there did not appear to be a consensus amongst witnesses as to how this could or should be achieved. Nor did the Committee examine the pros and cons of various options, or the extent of support for the proposals amongst the charitable sector as to the best way forward.

Witnesses raised a number of possibilities, including looking to past initiatives (such as first-time donor super credits and stretch tax credits), raising the donation tax credit to a flat 33%, or tying greater tax relief to “priorities established by the government.”[3] 

In general, a re-examination of incentives to donate could prove helpful and achieve mutual benefits for both charities and taxpayers. But if enhanced tax relief is tied to governmental policy priorities that could leave many donors – and charities – disadvantaged if their priorities do not happen to match those of the governing political party of the day. This could lead to significant volatility even within a mandate if priorities change, whether from an internal shift or an external impetus.

Other recommendations relate to a pilot project to assess the impact of exempting donations of private shares from capital gains tax,[4] a study to consider incentivising donations of non-environmental real estate,[5] and a look at how to ensure that donations don’t languish in donor advised funds (“DAFs”) but are used in a timely fashion to fund charitable activities.[6] Regarding DAFs, there were reservations expressed by some witnesses about delayed distribution, lack of transparency, concentration of assets and conflicts of interest. On the other hand, there were concerns raised about whether the cure would be worse than the disease. DAFs’ average distribution was said to be approximately 12%, which was noted to be three times what is currently required of a private foundation.[7]

This, in turn, raised a question about disbursement quotas,[8] and despite the reservations expressed by a number of witnesses – one of whom described the topic as a “rabbit hole” – the Committee recommended that the ACCS study the disadvantages and advantages of amending the disbursement quota for registered charities, and where that should be done (i.e. statute or regulation).[9]

In terms of statutes, the Committee proposed that the charities-related sections of the Income Tax Act be reviewed every five years[10] (likely an ambitious goal!). The report also suggested reconsidering the tax distinction between public benefit and member-benefit not-for-profits[11] and reviewing the circumstances under which an individual is characterized as an “ineligible individual” and prohibited from serving on a board of directors.[12] No doubt this last recommendation could result in helpful changes for ministries serving individuals who have found themselves entangled in the criminal justice system in the past or present.

With such a broad mandate, it shouldn’t come as surprise that the report contains a ‘mixed bag’ of recommendations – some with a potentially positive impact, some with a potentially negative impact, and some with an unknown impact.

We’ll continue to look at more of the ups and downs in the report in the next post.

[1] The report cites Statistics Canada figures that $8.6 billion of $12.8 billion in charitable donations was claimed for credits by tax filers in 2013 (see Charitable Giving in Canada, 16 December 2015; Statistics Canada, “Total Charitable Donations of Tax Filers, 1997 to 2017,” The Daily, 8 February 2019)

[2] Recommendation 9, Report p. 44

[3] Report, pp. 43-44

[4] Recommendation 34, Report p. 108; For information on donating public shares see CCCC Bulletin Articles, The Positives of Donating Publicly Listed Securities and Enhanced Incentive for Donating Publicly Listed Securities (Shares). You can access more information about CCCC Community Trust Fund here.

[5] Recommendation 35, Report p. 108

[6] Recommendation 37, Report p. 113; for a discussion on DAFs, see CCCC Bulletin Article, Donor Advised Funds

[7] Report, p. 111.

[8] For more on disbursement quotas, see CCCC Charities Handbook, Chapter 22

[9] Recommendation 36, p. 113

[10] Recommendation 32, p. 100

[11] Recommendation 40, p. 121

[12] Recommendation 42, p. 125; for more information on “ineligible individuals”, see CRA CG-024 Ineligible Individuals, and CCCC discussion of the CRA guidance, A Matter of Balance: CRA’s Implementation of the Ineligible Individual Rules of the Income Tax Act