{"id":16697,"date":"2014-02-11T19:06:02","date_gmt":"2014-02-12T00:06:02","guid":{"rendered":"https:\/\/www.cccc.org\/news_blogs\/?p=16697"},"modified":"2020-10-02T09:47:53","modified_gmt":"2020-10-02T13:47:53","slug":"canadas-2014-budget-important-developments-for-charities","status":"publish","type":"post","link":"https:\/\/cccc.org\/news_blogs\/legal\/2014\/02\/11\/canadas-2014-budget-important-developments-for-charities\/","title":{"rendered":"Canada’s 2014 Budget: Important Developments for Charities"},"content":{"rendered":"

On February 11, 2014, the Minister of Finance presented Economic Action Plan 2014<\/a>, the federal government\u2019s 2014 Budget. As expected, the 2014 Budget introduced a number of new measures that will impact charities. The key proposals that are particularly relevant to charities are discussed and analyzed below.<\/p>\n

1.\u00a0\u00a0 <\/b>New Provisions Related to Charitable Gifts Made in the Context of Death<\/b><\/p>\n

[Update: these provisions were formally made law as a result of the\u00a0Economic Action Plan 2014 Act<\/em>, No. 2<\/a>]<\/p>\n

Currently, if an individual makes a charitable donation by will, the donation is treated for income tax purposes as having been made by the individual immediately before his\/her death. The same is true where an individual designates a charity as the death beneficiary of the proceeds of an RRSP, RRIF, TFSA, or life insurance policy (\u201cdesignation donations\u201d). In these circumstances, the charitable donation tax credit can only be applied against the individual\u2019s<\/i> (as opposed to the estate\u2019s) income tax otherwise payable. Conversely, a donation made by an individual\u2019s estate may be applied only against the estate\u2019s<\/i> (not the individual\u2019s) income tax otherwise payable.<\/p>\n

The 2014 Budget introduced\u00a0some changes to these rules in order to \u201cprovide more flexibility in the tax treatment of charitable donations made in the context of a death that occurs after 2015.\u201d<\/p>\n

Beginning in 2016, donations made by will and designation donations will no longer be deemed to be made by an individual immediately before his\/her death. Instead, these donations will be deemed to be made by the estate<\/em>, at the time at which the property that is the subject of the donation is transferred to the charity.<\/p>\n

CCCC notes two practical changes that will result from this new rule, which will apply to the 2016 and subsequent tax years:<\/p>\n

(1)\u00a0 The trustee of the individual\u2019s estate will have more flexibility in determining the year(s) in which to allocate the available donation. Currently, an individual\u2019s donation credit may only be claimed in the year of death or in the preceding year. As a result of the 2014 Budget, however, for deaths that occur after 2015, the trustee will have the flexibility to claim the donation among any of:<\/p>\n

-the taxation year of the estate in which the donation is being made;<\/span>
\n-an earlier taxation year of the estate; or<\/span>
\n-the last two taxation years of the individual.<\/span><\/p>\n

(2)\u00a0 For receipting purposes, the eligible amount of a gift made by will or donation designation will be the fair market value of the property at the time it is transferred <\/span>to the charity. Currently, CRA\u2019s technical interpretations suggest that the value to be used is the fair market value of the transferred property immediately before the individual\u2019s death<\/span>.[i]<\/a> Since the value of property can potentially fluctuate between these two periods, this distinction should be carefully noted by charities for post-2015 gifts.<\/p>\n

In order for a donation to qualify for these revised rules, the transfer to the charity must be made within the first 36 months after the individual\u2019s death.<\/p>\n

Estates will continue to be able to claim a charitable donation tax credit in respect of other donations in the year in which the donation is made or in any of the five following years.<\/p>\n

2.\u00a0\u00a0 <\/b>E-filing for Charities\u2019 Annual Information Returns (T3010)<\/b><\/p>\n

As registered charities are well aware, they are required to file an annual information return (T3010) with CRA. Currently, there is no option to do so electronically. The 2014 Budget acknowledges that \u201cthis poses a significant administrative burden\u201d for charities, and states that \u201cthis issue must be addressed to allow charities to devote more time and resources to charitable activities rather than administration\u201d. The Budget proposes to provide $23 million over five years to CRA to modernize its information technology, so as to allow charities to apply for registration and file their annual information returns electronically for the first time. The Budget also provides that CRA will establish an \u201cenhanced web presence on charitable giving trends and characteristics in Canada\u201d.<\/p>\n

The Budget does not provide further details about the logistics of an e-filing system, but CCCC does welcome the prospect of an electronic filing option for registered charities\u2019 annual information returns.<\/p>\n

3.\u00a0\u00a0 <\/b>New Provisions Targeting State Supporters of Terrorism Through Charities<\/b><\/p>\n

The 2014 Budget proposes that, where a charity accepts a donation from a foreign state listed as a supporter of terrorism under the State Immunity Act<\/i>, or from an agency of such a state, its registration may be revoked. Currently, only two states are listed under that legislation<\/a>: the Islamic Republic of Iran and the Syrian Arab Republic.<\/p>\n

The Budget also announced that CRA will provide charities with information about best practices for exercising due diligence when accepting gifts and avoiding terrorist abuse.<\/p>\n

CCCC notes that the overwhelming majority of charities have no ties to terrorism whatsoever, but they should all <\/i>be aware of the anti-terrorism and money laundering rules. Charities possess certain characteristics that can attract terrorists and make them susceptible to misuse for terrorist financing. Since charities operate in conflict areas or in places with little infrastructure or banking systems, and may need to move money, people, and goods frequently, they are uniquely positioned to provide a network and a \u201ccloak of legitimacy\u201d for terrorist activities. Charities may be unknowingly exploited by terrorist groups to launder money and transfer resources. Charities therefore need to be mindful of where their donations and support really come from, and where their monies are ultimately going.<\/p>\n

The CCCC Bulletin Article, \u201cAnti-Terrorism \u2013 Know Your Partners<\/a>\u201d provides practical tips to help charities guard against terrorism and money laundering schemes. CRA also maintains a Checklist for charities on avoiding terrorist abuse<\/a>. In addition to the list of foreign states noted above, charities should be familiar with the lists made under the Criminal Code\u00a0<\/em>and\u00a0Anti-Terrorism Act<\/em>\u00a0of individuals<\/a> and entities<\/a> associated with terrorism.<\/i> It is important, perhaps more now than ever, for charities to monitor the identities of their donors and ensure they are not among these \u201clisted entities\u201d.<\/p>\n

4.\u00a0\u00a0 <\/b>Increased Remittance Thresholds for Employer Source Deductions<\/b><\/p>\n

Charities, like all employers, are required to remit source deductions for employees\u2019 income tax, Canada Pension Plan contributions and Employment Insurance premiums.<\/p>\n

The frequency of such remittances depends on the employer\u2019s total average withholding amount in preceding calendar years. The 2014 Budget proposes to reduce the frequency of remittance of source deductions for certain employers by:<\/p>\n