The Pandora's box of charitable donation incentives

publication date: Jul 24, 2011
author/source: 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 as 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 ActAuthor photo

Will more favorable tax treatment result?

The ostensible purpose of the examination is to increase the incentive to give to charity, and it seems that many in the charity community agree. 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.

Higher benefit may not equal higher giving

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, any reduction of the tax rates applicable to donations would limit this improvement.

Tax credit hierarchy?

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.

Sector must remain vigilant

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 government’s treatment of charities cannot be taken for granted. 

Adam Aptowitzer of Drache Aptowitzer LLP is a charity law lawyer with a national practice based in Ottawa. He has been published in Canadian Taxpayer, Canadian Fundraiser (now Canadian Fundraising & Philanthropy) and the Not-for-Profit News. He has also published a widely distributed study on the regulation of Canadian charities with the C.D. Howe Institute.

As a speaker, he has presented to the National Symposium of Charity Law, the C.D. Howe Institute, the Association of Fundraising Professionals, the Canadian Association of Gift Planners, the Ottawa Estate Planning Council and various large and small Canadian charities. He has also given expert advice on Parliament Hill. Adam is an executive member of the Canadian Bar Association’s Charity and Not-for-Profit Law section.

For speaking engagements and consultations, contact him at 613-237-3300 or visit

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