IN THIS SECTION:
- First-Time Donor’s Super Credit
- Expanded Collection and Enforcement Powers related to Charitable Donation Tax Shelters
- Extended Reassessment Period: Tax Shelters and Reportable Transactions
- Taxes in Dispute and Charitable Donation Tax Shelters
- Information Regarding Unnamed Persons
- Electronic Suppression of Sales Software Sanctions
- Aboriginal Tax Policy
For an in depth review of the provisions of the Budget impacting the Charities sector please review Miller Thomson’s Charities and Not-for-Profit Budget Update.
The Federal Government has introduced a new
temporary tax incentive to encourage young Canadians to make charitable
donations. First-time donors who make
charitable gifts prior to 2018 will receive an additional 25% tax credit, over
and above the tax credit that is normally available for charitable gifts.
The Budget proposes to introduce a
temporary First-time Donor’s Super Credit (“FDSC”). As noted, the FDSC will
supplement the standard tax credit with an additional 25% tax credit for a first-time
donor on up to $1,000 of donations. Under the new rules, the combined federal
tax credits available in respect of the first $1,000 given by a first-time
donor will be as follows:
- 40% for donations of $200 or
- 54% for all donations over $200
but not exceeding $1,000.
Only donations of money will qualify for the
FDSC. Gifts of property will not
qualify. The FDSC is also available only
to individuals. Corporations making
charitable donations for the first time will not be eligible for the FDSC, and
will be limited to the tax deduction normally available for charitable
donations by corporations.
In order to qualify as a “first-time
donor”, neither the donor nor the donor’s spouse or common law partner (as of
December 31 of the year of the gift) can have claimed a donation tax credit or
FDSC in any taxation year after 2007.
First-time donor couples may share the FDSC in a taxation year. However, the rules provide that the total tax
credit that can be claimed by both spouses or common law partners cannot exceed
the amount that would be permitted if only one spouse/common law partner were
permitted to claim the FDSC.
The FDSC is a time-limited measure. It will only be available for donations made
on or after March 21, 2013, and may be claimed only once in the 2013 year or in
subsequent years ending prior to 2018.
Donations made after December 31, 2017 will not be eligible for the
The Budget introduces two measures that
will significantly increase the power of the CRA to reassess and collect taxes
from donors who have participated in charitable donation tax shelters. Together with measures introduced in previous
Budgets which imposed increased penalties for tax shelter promoters and through administrative policies of the CRA, these measures reflect
the Federal Government’s continuing efforts to discourage participation in such
The Budget extends the period in which CRA
is permitted to reassess taxpayers who have claimed donation tax credits in
respect of a tax shelter donation arrangement.
Normally, upon receiving a taxpayer’s filed tax return and after its
initial assessment of tax payable, CRA has three years to reassess the donor’s
tax liability. In the context of
donation tax shelters, such a reassessment would normally occur following an
audit of the tax shelter arrangement.
CRA requires that information returns must be filed by tax shelter
promoters so as to enable CRA to identify and audit tax shelters.
The Budget notes, however, that CRA’s
ability to reassess the donor may be delayed or prevented if the tax shelter
promoter fails to file the required information return or does not provide
documents necessary for a proper audit of the tax shelter. This may result in CRA being unable to
conclude its audit of the tax shelter until after the normal reassessment
period for the donor has expired. This
would prevent CRA from reassessing the donor in respect of tax credits or
deductions claimed in respect of the shelter.
The Budget proposes to extend the normal
reassessment period for participants in a tax shelter arrangement (but only
with respect to the tax shelter) where the promoter of the tax shelter fails to
file the required tax shelter information return on time. The reassessment period of the participant
will be extended for three years after the promoter files the required return.
A similar extension of the reassessment
period will apply in respect of participants in “reportable transactions”, as
set out in proposed amendments to the Tax Act, in respect of which promoters
must file information returns.
Reportable transactions consist essentially of tax avoidance
arrangements (including donation arrangements) in respect of which a promoter
or advisor will receive a fee, and in respect of which the promoter or advisor
had confidential protection or some form of contractual protection (e.g.,
insurance) in respect of the arrangement.
This measure is proposed to apply to
taxation years that end on or after March 21, 2013. It is likely a sensible measure.
The Budget proposes new legislation that
would significantly increase CRA’s ability to collect taxes immediately from
donors to donation tax shelter arrangements, even where such taxes are in
The Budget notes that CRA is generally
prohibited from taking collection action in respect of assessed income taxes as
well as related interest and penalties where a taxpayer has objected to the
assessment. However, the Budget states that in the charitable donation tax
shelter context, notwithstanding CRA’s general success in tax shelter
litigation, donors may use such litigation as a means of delaying the payment
of taxes. Accordingly, the Budget
introduces a new measure that modifies the general prohibition on CRA
collection action. Proposed legislation
in the Budget would provide that where a taxpayer has objected to an assessment
of tax (including interest or penalties) that results from the denial of tax
credits or deductions claimed in respect of a charitable donation tax shelter
arrangement, CRA will be permitted, pending the ultimate determination of the
taxpayer’s liability, to immediately collect 50% of the disputed tax, interest
The Budget states that this measure is
taken in order to discourage participation in questionable charitable donation
tax shelters and to reduce the risk that unpaid amounts will ultimately become uncollectible.
This proposed measure will apply in respect
of amounts assessed for the 2013 and subsequent taxation years. While it will no doubt assist CRA in
discouraging donations tax shelter participation, it is troubling from a tax
system fairness perspective.
Act allows the CRA to require information from a person (referred to as a
“third party”) for the purpose of verifying the tax compliance of unnamed
persons, provided the CRA obtains a court order. The Tax Act currently allows the CRA to apply
to court on an ex
parté basis, i.e.,
without notifying the third party. If the
court order is granted, the third party has the ability to have the order reviewed
by the Federal Court, and the court has discretion to cancel, confirm or vary
the previous court order.
Government believes this right of review delays the CRA’s ability to obtain
information needed by it to properly administer the Tax Act. The Budget
proposes to amend these provisions by requiring the CRA to notify the third party
before obtaining a court order compelling disclosure of the information of
unnamed persons. The third party will be able to participate in the CRA court
application, but will have no further right to a judicial review.
This change was motivated by two recent Federal Court
of Appeal cases: Canada (National Revenue) v. RBC Life
Insurance Company and Canada (National Revenue) v. Lordco Parts
Ltd. (“Lordco”), wherein
a court order obtained by the Minister of National Revenue was cancelled on
judicial review. In the Lordco case, Miller
Thomson litigator Daniel Kiselbach represented Lordco Parts Ltd. and was
successful in arguing that the representatives of the
Minister of National Revenue did not make full and frank disclosure in the
Minister’s ex parté application for
the requirements to provide information on unnamed persons.
The measure will apply upon Royal Assent of the
legislation enacting the amendment.
To combat tax evasion, the Budget proposes
new monetary penalties and criminal offences under the Excise Tax Act and the Tax Act in respect of the use, possession,
acquisition, manufacture, development, sale, possession for sale, offer for
sale or otherwise making available, electronic suppression of sales (“ESS”)
software (commonly known as “zapper” software). The measures will apply on the
later of January 1, 2014 and Royal Assent to the enacting legislation.
The Federal Government has entered into 34
sales tax arrangements under which Indian
Act bands and self-governing Aboriginal groups levy a sales tax within
their settlement and reserve lands. The
Federal Government has also entered into 14 income tax arrangements under which
self-governing Aboriginal groups impose personal income tax on residents of
their settlement lands. The Federal
Government has expressed a willingness to enter into more direct tax
arrangements with Aboriginal governments and supports the provinces and
territories entering into similar tax arrangements with Aboriginal governments.