The Pandora's Box of Charitable Donation Incentives
By: Adam Aptowitzer

We try to keep editorial comments about happenings in the charity community to a minimum, but the second coming of Budget 2011 does give us reason to break from the ordinary. Readers will recall that the post election Federal budget was almost identical to the pre election budget with two major differences (at least at they relate to charities). The most substantive change was the adoption of a pre election proposal to have the House of Commons Standing Committee on Finance evaluate the charitable donation incentives contained in the Income Tax Act. 

Ostensibly, the purpose of the examination is to increase the incentive to give to charity and it seems that many in the charity community see this as such. There seems to be particular optimism that the tax rates applied to charitable donations may rise or the treatment of donated real estate and shares of private companies may be improved.  Unfortunately, once the re-examination is commenced there is no guarantee that the findings will result in more favourable tax treatment for donations.

The current financial situation is well known to the entire country.  The Federal government is looking for ways to cut expenses and raise tax revenue.  Increasing - in any way - the charitable donation tax incentives would have the net effect of decreasing the amount of money raised by taxes.  More worrisome is the fact that there is some economic research to suggest that the incentive to donate decreases as the amount of the tax incentive increases.  For the charity sector, the danger is that re-examination of the charitable donation regime may in fact lead to suggestions that the actual tax credit should be reduced rather than increased.  Even if preferential treatment is extended to donations of real estate and private company shares the reduction of the tax rates applicable to donations would limit this improvement.

Another area of concern for charities is the philosophical justification for the existence of the donation tax credit in the first place.  Canadian society has changed markedly since the advent of the charitable donation tax credit.  In particular, the extension of the donation tax credit to donations to religious institutions attracts unwanted attention.  And while the common law recognizes the advancement of religion as charitable, this does not necessarily mean that the standing committee cannot decide that certain types of charities should have different levels of tax incentives. While we believe religious charities are perhaps the biggest targets of such arguments, similar arguments could be made about charities which primarily operate overseas or charities which already receive most of their budget from government revenues.  So various charity subsectors have an interest in looking at these philosophical underpinnings which will inevitably be touched upon by the finance committee in their review.

Donations are the lifeblood of almost every charity in the country. Even a potential threat must be taken extremely seriously and one would hope the sector organizes in a way similar to that for Bill C470 to examine and explain the consequences of any changes. If Budget 2011 teaches us anything it is that predicting the governments treatment of charities cannot be taken for granted.