Other Tax Measures

March 29, 2012

IN THIS SECTION:

Gifts to Foreign Charitable Organizations

For more comments on Charitable Sector Measures, please visit Charities and Not-for-Profit Newsletter March 2012 Budget Special.

The Budget proposes changes to the process by which foreign organizations that have received a grant from the Government will be considered qualified donees under the Tax Act. Under the current rules, foreign charitable organizations become qualified donees as of a given time if they have received a gift from the Government within the 36 month period commencing 24 months prior to that time.  This rule is an exception to the general rule that foreign organizations are not qualified donees and therefore cannot issue donation receipts or receive grants from Canadian registered charities.

The Budget proposes to modify the rules making some foreign charitable organizations temporary qualified donees. Foreign charitable organizations that receive a gift from the Government may apply for qualified donee status if they pursue activities:

  • related to disaster relief or urgent humanitarian aid; or
  • in the national interest of Canada.

The registration of these  organizations as qualified donees is now discretionary, and will be granted for a 24-month period that begins on the date chosen by the Minister of National Revenue, which normally would be no later than the date of the gift from the Government.

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Charities – Enhancing Transparency and Accountability

The Budget proposes new rules relating to the ability of charities and registered Canadian amateur athletics associations (“RCAAAs”) to engage in political activities and the disclosure rules for their political  activities. The principal change involves an expansion of the definition of “political activities” to include gifts made to other qualified donees where the purpose of the gift can be reasonably considered as supporting  the political activities of the donee. The Tax Act permits a charity or RCAAA to engage in limited political activities that are ancillary and incidental to its charitable purpose, not exceeding 10% of the charity’s total resources. Therevised definition of political activities has the potential to substantially expand  the resources devoted to such activities.

The Budget also proposes to increase the reporting obligations of registered charities in respect of political activities and in particular with regard to foreign donors that may have supported political activities of a charity. The details of the increased reporting that will be required have yet  to be determined.

The Budget also proposes to enable the CRA to suspend for one year the tax-receipting privileges of a charity or RCAAA that exceeds the limitations on political activities. Further, it is proposed that the CRA will be granted the authority to suspend the tax-receipting privileges of a charity or RCAAA that provides inaccurate or incomplete information in its annual information return until the charity provides the required information.

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Tax Shelter Administrative Changes

The Budget proposes various new rules and penalties related to tax shelters generally, as well as some changes specific to charitable donation tax shelters. The Tax Act requires that all tax shelters be registered and obtain a tax shelter identification number. The Tax Act imposes a penalty on any person (normally the tax shelter promoter) who sells an interest in, or accepts consideration in respect of, a tax shelter that is not registered with the CRA, or who files false information in an application to register a tax shelter. The penalty is normally calculated as a function of the consideration paid by the participant to the promoter (i.e., the greater of $500 and 25% of such consideration paid).  Under the proposed revisions, this penalty will be increased in the context of charitable donation tax shelters to be calculated as a function of the value of the property represented to be available to the participant for donation through participation in the shelter. The proposed penalty will be the greater of the penalty as calculated under the current rules and 25% of the value of the property represented as available for donation.

The Budget also proposes additional promoter penalties where the promoter fails to file an annual information return when demanded by the CRA, or fails to report in the returns all amounts paid by participants to the shelter. The Budget also proposes to make tax shelter identification numbers valid for one year only.

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Aboriginal Tax Policy

In recognition of Aboriginal peoples being an the increasingly important source of Canada’s labor force, the Budget includes proposals intended to help equip First Nations peoples with the skills and opportunities they need to fully participate in the economy. These proposals primarily involve commitments of funding to programs and initiatives that benefit Aboriginal peoples, including funding to: (i) support First Nations education and to build and renovate schools on reserves; (ii) extend the Atlantic Integrated Commercial Fisheries Initiative and the Pacific Integrated Commercial Fisheries Initiative; and (iii) renew the Urban Aboriginal Strategy. In the Budget the Government also reiterated its willingness to continue to work with interested Aboriginal governments to discuss and implement initiatives that promote the exercise of direct taxation powers, such as sales tax or personal income tax, by Aboriginal governments on reserve and settlement lands.

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