A.
Introduction
Canada's much anticipated 2009 federal
budget was released on January 27, 2009
(“the Budget”). Given the current economic situation, the
charitable sector was hoping for a number of measures to
stimulate charitable giving, but found the budget to be
lacking in key areas. The budget is available online at:
http://www.budget.gc.ca/2009/index.html.
In early January 2009, Imagine Canada
(a national umbrella charity that engages in research and
initiatives to assist and promote the work of charities
and not-profit organizations in Canada) struck a task force
to embark on consultations to provide additional detail
to the measures called for in an Open Letter
to the Prime Minister published in newspapers on November
21, 2008. The resulting brief, entitled Short-Term Stimulus
Measures for Assisting Canadians and Communities during
the Economic Downturn
(“the Brief”) was then submitted to the Prime Minister
and the Finance Minister on January 15, 2009. In the Brief,
the following three key stimulative measures were recommended
to assist Canada's vulnerable populations and the charitable
and non-profit sector that supports them: 1) maintain direct
funding through federal grants and contributions agreements;
2) earmark federal infrastructure funding for community
and social services, arts and culture, sports and recreation
and green retrofit initiatives; and 3) provide a time-limited
enhanced tax credit measure to stimulate giving.
The sector has expressed disappointment
that, while the Budget provides for various grants, contributions,
and earmarks that will benefit charities and non-profits,
it does not establish any new tax incentives that might
stimulate charitable giving.
This Charity Law Bulletin briefly
examines the stimulative measures contained in the Budget.
B.
Grants, Contributions and Earmarks Welcome, but Temporary
In relation to the almost $30 billion
announced to support the economy this year, the Budget provides
for various grants, contributions, and earmarks that the
federal government claims acknowledges the importance of
charities and non-profits in Canada’s economy. Specifically,
the Budget provides a targeted, two-year fund of $60 million to support
infrastructure-related costs for local and community cultural
and heritage institutions, such as local theatres, small
museums, and libraries. Examples include: the Toronto Public
Library revitalization project; Toronto’s Famous PEOPLE
Players; la Maison du Festival de Jazz in Montréal; and
the Confederation Centre of the Arts in Charlottetown. This
support will be provided through Canadian Heritage programming.
Another infrastructure related Budget
initiative that purports to assist charities and non-profits
to contribute to Canada’s economy, is the announced
$1 billion earmarked over five years for a new Southern
Ontario Development Agency. The Budget claims that its programs will support economic and
community development, innovation,
and economic diversification, with contributions to communities, businesses, as well as non-profit organizations
to help workers and communities
in Southern Ontario.
With respect to grants,
the federal government describes Canada’s Youth Employment
Strategy as its key program to help young people support
non-profit organizations. The government anticipates that
the current labour market disruptions may mean that young
Canadians, in particular, may find it harder to find summer
jobs. To improve their prospects, the Budget will provide
a two-year targeted funding campaign of $20 million delivered
through the Canada Summer Jobs program to enable more employers
in the non-profit sector to hire summer students. In addition,
the government will provide a one-time grant of $15 million
to the YMCA and YWCA to place youth in internships in non-profit
and community service organizations, with a focus on environmental
projects.
C.
No New Tax Incentive to Stimulate Charitable Giving
Although the Budget addresses funding
concerns through various grants, contributions, and earmarks,
the Budget unfortunately does not provide any direct mechanism
to encourage charitable donations through enhanced tax-measures,
such as a three-year enhancement of the charitable tax credit
as recommended by Imagine Canada.
One stimulus in the Budget that may indirectly
have the effect of encouraging charitable donations is the
Mineral Exploration Tax credit, which has been extended
for another year until March 31, 2010. This credit is part
of the incentives that encourage gifts of flow-through shares
(tax-based financing incentives available to the oil and
gas and mining sectors). The current rules effectively permit
corporations to renounce or “flow-through” income tax deductions
associated with certain activities to shareholders in exchange
for the sale of their shares. The impact
of the elimination of the tax on capital gains accruing
on donations of publicly-traded securities to registered
charities in previous budgets, when coupled with tax incentives
on flow-through shares issued by companies in the resource
sector, has generally garnered interest and planning opportunities
for investors in the charitable sector.
However, this one indirect tax incentive directed at the
mining sector is hardly enough to make any significant difference
to encourage giving in Canada.
D.
Concluding Comments
In these difficult economic times, support
for charities and non-profits by individual Canadians is
critical, since such organizations help the most vulnerable
of those in our communities. As such, the voluntary sector
was looking for much more from the federal government, particularly
given the broad support that the sector gave to the Imagine
Canada recommendation of enhanced tax credit measures to
stimulate charitable giving. While the grants, contributions,
and earmarks provided for in the Budget are certainly welcome,
they are only temporary stimuli, which do not reflect a
serious commitment by the federal government to assist charities
and non-profit organizations to fulfil their role in Canada’s
economy and society. It seems the sector will now have to
look to the 2010 Budget to hopefully see any real progress
in the area of tax incentives for charitable giving.
