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2024 Federal Budget: Highlights for the Charitable and NPO sector

( Disponible en anglais seulement )

avril 16, 2024

On April 16, 2024, the Honourable Chrystia Freeland tabled a new federal budget, which sets out the federal government’s revamped spending priorities and tax plans (the “2024 Budget”). The theme of the 2024 Budget is “fairness for every generation” with the general intention being to make life more affordable for Canadians – especially young Canadians. The 2024 Budget focuses heavily on measures designed to tackle the housing crisis, and on expanding various social supports.

The 2024 Budget also includes several new tax measures that are relevant to the charitable and non-profit (“NPO”) sector, including: an increase to the capital gains inclusion rate, changes to the tax treatment of charitable donations when calculating the alternative minimum tax, the expansion of the auditing powers of the Canada Revenue Agency (the “CRA”), and various other changes relating to Income Tax Act (“ITA”) compliance and modernizing the services provided by the Charities Directorate.

Below we provide our highlights of the 2024 Budget affecting the charitable and NPO sector.

TAX MEASURES IMPACTING CHARITIES

Increase to the Capital Gains Inclusion Rate

Currently, Canadian taxpayers pay taxes on 50% of capital gains (which is the increase in value realized when certain assets are sold, or the deemed surplus when such assets are donated). The 2024 Budget proposes to increase taxes on capital gains by changing the capital gains inclusion rate. The federal government intends to increase the inclusion rate on capital gains realized annually above $250,000 by individual taxpayers, and on all capital gains realized by corporations and trusts, from one-half (50%) to two-thirds (67%). Changes to the ITA to effect these changes are expected on June 25, 2024.

When a taxpayer makes a donation of capital property, they would generally be eligible for a donation receipt based on the fair market value of the property less any advantage that they received. The donation receipt can be used to offset the individual’s income for the year, including the capital gain, up to 75% of their net income. The ITA contains provisions allowing taxpayers to designate donated capital property to be deemed donated for an amount lower than fair market value (but not lower than cost). This is a useful provision for when a donation credit could not otherwise be used to offset the entire amount of the capital gain. The provision is used to eliminate capital gains in exchange for a reduced donation value. The proposed higher inclusion rate for capital gains could increase the relevance of these provisions of the ITA where the higher inclusion rate would otherwise cause taxes on donated capital property to be payable.

We note that the proposed changes to the ITA do not impact the zero capital gains inclusion rate that is available for the donation of specific types of capital property to a charity.

Changes to How Donation Tax Credits are Applied Against Alternative Minimum Tax

Charities and individual donors looking for significant concessions to the federal government’s Alternative Minimum Tax (“AMT”) proposals last year will be left wanting by Budget 2024. Others may view this as a partial win.

The AMT rules are a parallel set of tax rules that were designed to ensure that higher income Canadians pay a minimum floor of tax. Unlike the regular personal income tax rules, the AMT rules allow for fewer tax credits, deductions, and exemptions. Taxpayers pay either AMT or regular tax, whichever is higher.

In last year’s Budget, the federal government proposed to change the AMT rules so that fewer Canadians would pay AMT, but that AMT revenue would increase overall. Among its more controversial proposals, the federal government proposed increasing the capital gains inclusion rate on any gift of publicly listed securities to charity from 0% to 30% for the purposes of calculating AMT. The government also proposed that only 50% of the charitable donation tax credit can be applied against the AMT (down from 100%).

These proposed changes, among others, were met with much resistance by individual donors and the charitable sector, who argued that they would unfairly penalize charitable giving. Charities feared that the changes would make it cost-prohibitive for high income individual donors to make major or transformational gifts. Due to resistance from the charitable sector and other concerns, the federal government did not include its proposed AMT changes in its Fall motion to implement measures from Budget 2023. Many had expected that Budget 2024 would make further changes to the AMT proposals.

The 2024 Budget proposes that, when calculating AMT, individual donors can apply 80% of the charitable donation tax credit against the AMT. While 80% is an improvement from the previously proposed 50%, it is still a step down from the current 100% level under the existing AMT rules.

The 2024 Budget also proposes several other changes that should make the AMT bill smaller for a number of taxpayers, possibly exempting these taxpayers from paying AMT altogether. However, the 30% inclusion rate on capital gains on the donation of publicly listed securities for AMT purposes remains.  Any relief from the original AMT proposals was welcome, but those hoping for a U-turn on proposals affecting the sector will be left disappointed. Donors who are tax motivated (at least in part) are likely to give less to charity as a result of the 2023 AMT changes, even with the 2024 partial rollback of the 2023 changes.

Expansion of CRA Audit Powers

The 2024 Budget introduces several measures that will augment the CRA’s audit and information gathering powers.  The ITA currently gives the CRA broad powers to audit taxpayers (including charities and NPOs), including by requiring taxpayers to provide the CRA with access to their books and records, to provide documentation when required by the CRA, and generally to “give all reasonable assistance” to, and “answer all proper questions” posed by, a CRA auditor.

The 2024 Budget identifies challenges experienced by the CRA in obtaining information from taxpayers, and so introduces new powers and penalties designed to promote compliance.

The first new power proposed by the 2024 Budget is the ability to issue a “notice of non-compliance” where the CRA determines that a taxpayer has failed to comply (in whole or in part) with a requirement to provide all reasonable assistance to the CRA in carrying out an audit, or to provide documents to the CRA.  Once served with a notice of non-compliance, a taxpayer would be subject to a penalty of $50 per day, up to a maximum of $25,000, from the date the notice is served until the date the taxpayer has complied to CRA’s satisfaction with the requirements in the notice. Upon these changes coming into effect, charities and NPOs under audit by the CRA could be served with notices of non-compliance if the CRA believes that they are not providing all assistance or documentation to which the CRA is entitled under the ITA.

The second new power is the ability to compel representatives of a taxpayer to answer questions and provide documents under oath or affirmation, or by affidavit.  The provision of false information under oath or affirmation, or in an affidavit, could expose the taxpayer or its representatives to potential criminal consequences for perjury.

The final measure relates to compliance orders. Currently, the ITA gives the CRA the power to apply to court for compliance orders where a taxpayer has failed to comply with a requirement to provide information.  Where a person fails to comply with a compliance order, they can be found in contempt of court.  The 2024 Budget states that this consequence has proven to be ineffective, and so proposes a new monetary penalty for failure to comply with a compliance order, in the amount of 10% of the aggregate tax payable by the taxpayer in each year to which the compliance order relates (provided that tax owing exceeds $50,000).  The 2024 Budget also gives the CRA the ability to seek a compliance order in respect of documents located outside Canada (which is of particular relevance for charities that operate internationally).  Because charities and NPOs are generally tax exempt and so have no tax payable in most years, the new penalty provisions will have narrower application to them than to other taxpayers.  However, this new penalty will still be relevant to charities and NPOs in certain circumstances including, for example, the year in which a charity winds down and is subject to the revocation tax.

Charities and NPOs should be aware of these proposed measures, all of which will add to the CRA’s power to compel the provision of documents and information and increase the potential consequences of non-compliance.  All of these measures are proposed to come into force upon Royal Assent of the enacting legislation.

Extension of Qualified Donee Status for Certain Foreign Charities

Subsection 149.1(26) of the ITA currently permits foreign charities to be registered as qualified donees for a temporary period of 24 months. To qualify, the foreign charity must not be resident in Canada, must have received a gift from His Majesty in right of Canada, and must, to the Minister’s satisfaction, be carrying on relief activities in response to a disaster, providing urgent humanitarian aid, or carrying on activities in the national interest of Canada.

Budget 2024 proposes to prolong the duration of qualified donee status for eligible foreign charities from 24 to 36 months. Additionally, these qualified donee foreign charities would need to submit an annual information return to the CRA that describes the total amount of receipts issued to Canadian donors, the total amount of gifts received from qualified donees, and information on how those funds were used. This information would be accessible to the public. While we expect that the return would only deal with the expenditure of the Canadian funds and not all funds, this change will likely result in changes to how these foreign charities spend money raised in Canada, leading them to fund narrower projects with Canadian funds.

Changes to Donation Receipts

The 2024 Budget proposes a number of changes to simplify the issuance of official donation receipts and to align the process for issuing receipts with modern practices of charities. These measures are proposed to come into force upon Royal Assent of the enacting legislation.

It is proposed that official donation receipts should no longer need to state:

  • the place of issuance of the receipt;
  • the name and address of the appraiser, if an appraisal of the donated property has been done; and
  • the middle initial of the donor.

Where a charity needs to cancel or replace a donation receipt, the Regulations to the ITA require the charity to mark the receipt “cancelled.” The 2024 Budget proposes that a charity should also be permitted to use the word “void” to mark such receipts. The Regulations currently require charities to keep two copies of the cancelled receipt (both the charity’s copy and the donor’s copy). The 2024 Budget indicates that in such cases duplicate cancelled receipts will no longer be required to be kept (keeping 1 voided receipt will suffice).

Finally, the Budget proposes to expressly allow charities to issue official donation receipts electronically, provided that they contain all required information, are issued in a secure and non-editable format, and the charity maintains an electronic copy of the receipts. This was already permitted in practice.

Modernization of CRA Services and No Publication of Revocation in Canada Gazette

The 2024 Budget proposes amendments to the ITA to modernize the way that the CRA interacts with registered charities and other qualified donees. These long over-due changes will allow for more electronic communication and provide for more efficient processes.

Once the proposed changes come into effect, the CRA will be permitted to provide certain official notices, such as a notice of intention to revoke, annul, or suspend a charity’s registration, electronically. These electronic notices will likely be transmitted through the CRA’s online portal, “My Business Account.” Charities that have not opted to receive information electronically will continue to receive official notices through regular mail, and compliance-related notices through registered mail. Unfortunately, our experience with the My Business Account system has not always been good and we do not always recommend that our charity clients use it.

Budget 2024 also proposes to change when the revocation of a charity’s registration becomes effective. The government intends to remove the requirement to publish the notice in the Canada Gazette, and instead revocation will become effective when an official notice of revocation has been posted on the government’s webpage.

Finally, the federal government intends to remove the requirement for objections to notices of assessment (e.g. for revocation tax), and certain other objections, to be addressed directly to the Assistant Commissioner of the CRA’s Appeals Branch.

NEW FUNDING OPPORTUNITIES FOR CHARITIES AND NON-PROFITS

This year’s budget proposes several new funding opportunities that may directly or indirectly impact the charitable and NPO sector. The relevant funding proposals we have identified are organized by sector below. No significant details of these opportunities were provided in the budget, but organizations may wish to flag them to watch for more details as they become available.

Affordable Housing

  •  $500M over five years, starting in 2024-25, on a cash basis, to Public Services and Procurement Canada to launch a new Public Lands Acquisition Fund, which will purchase land from other orders of government to help spur sustainable, mixed-market housing.
  • $112.6M over five years, starting in 2024-25, and $4.3 million in future years, for the Canada Mortgage and Housing Corporation to top up the Federal Lands Initiative to unlock more federal lands for affordable housing providers.
  • $4M over two years, starting in 2024-25, for Canada Lands Company to support new modular housing projects on four sites:
    • Shannon Park, Dartmouth, Nova Scotia;
    • Village at Griesbach, Edmonton, Alberta;
    • Downsview, Toronto, Ontario; and,
    • Wellington Basin, Montréal, Quebec.
  • $1.1B over ten years, starting in 2024-25, to Public Services and Procurement Canada to reduce its office portfolio by 50%. Where applicable, the government will prioritize student and non-market housing in the unlocking of federal office properties.
  • An additional $15B in new loan funding to build more rental apartments, starting in 2025-26, for the Apartment Construction Loan Program, bringing the program’s total to over $55B.
  • An additional $400M over four years, starting in 2024-25, to the Canada Mortgage and Housing Corporation, to top up the Housing Accelerator Fund. This will help fast track 12,000 new homes in the next three years.
  • $15M over five years, starting in 2024-25, for a new Tenant Protection Fund, which will provide funding to organizations that provide legal and informational services to tenants, as well as for tenants’ rights advocacy organizations to raise awareness of renters’ rights.
  • $976M over five years, starting in 2024-25, and $24 million in future years, to the Canada Mortgage and Housing Corporation to launch a new Rapid Housing stream under the Affordable Housing Fund to build deeply affordable housing, supportive housing, and shelters for our most vulnerable.
  • $477.2M over five years, starting in 2024-25, and $147.8M in future years, to launch a new $1.5B Canada Rental Protection Fund, to be administered by the Canada Mortgage and Housing Corporation, to protect the stock of affordable housing in Canada. The Fund will provide $1B in loans and $470M in contributions to support affordable housing providers to acquire units and preserve rents at a stable level for decades to come, preventing those units from being redeveloped into out of reach condos or luxury rental units.
  • An additional $1.3B over four years, starting in 2024-25, to Infrastructure Canada for Reaching Home: Canada’s Homelessness Strategy.
  • The 2024 Budget announced that the eligibility conditions for the removal of GST on new student housing will be relaxed for not-for-profit universities, public colleges, and school authorities. This will ensure that Canadian educational institutions may benefit from the removal of GST on new student housing. The relaxed eligibility will apply to new student residences that begin construction on or after September 14, 2023, and before 2031, and that complete construction prior to 2036. Private institutions will not be eligible for this support. For further details, see this article prepared by Miller Thomson’s Tax Group.

Equity, Diversity, and Inclusion

Media, Arts, and Culture

Sports

Financial Assistance Services

  • $60M over five years, starting in 2024-25, to Prosper Canada to expand the community-delivered financial help services available to Canadians.

Youth and Children

Education

Health

  • $150M over three years, starting in 2024-25, to Health Canada for an Emergency Treatment Fund, open to municipalities and Indigenous communities to help respond to the opioid crisis.
  • $62.9M over three years, starting in 2024-25, to renew and expand the Local Food Infrastructure Fund to support community organizations to invest in local food infrastructure, with priority given to Indigenous and Black communities, and other equity-deserving groups.
  • $500M over five years, starting in 2024-25, for the creation of a new Youth Mental Health Fund which will help Canadian youth access mental health care.

Community Centres

Indigenous Canadians

  • $12.5M over two years, starting in 2024-25, to Crown-Indigenous Relations and Northern Affairs Canada to support the Indigenous Youth Roots organization to partner with Indigenous-led organizations.
  • $649.4M over two years, starting in 2024-25, to improve on-reserve elementary and secondary education, and ensure funding formulas meet the needs of growing communities.
  • $545.1M over three years, starting in 2024-25, for K-12 infrastructure to build and renovate safe and healthy learning environments for First Nations students.
  • $167.5M over two years, starting in 2023-24, to ensure Inuit children can access required health, social, and educational services.
  • $225M over five years, starting in 2024-25, with $45M per year ongoing to Canadian Heritage for Indigenous languages and cultures programs.
  • $65M over five years, starting in 2024-25, with $13M per year ongoing to Canadian Heritage to permanently support the Indigenous Screen Office, which provides funding to First Nations, Inuit and Métis storytellers from across Canada.
  • $60M over two years, starting in 2024-25, to support Friendship Centres, which provide much-needed supports and services to members of their communities.
  • $96.4M over two years, starting in 2024-25, to Crown-Indigenous Relations and Northern Affairs Canada to ensure that Indigenous communities can fully participate in the negotiation process.
  • $275M over two years, starting in 2024-25, to Indigenous Services Canada to maintain Indigenous Governance and Capacity programs and support governance capacity development.
  • $91M over two years, starting in 2024-25, to Crown-Indigenous Relations and Northern Affairs Canada to increase support to communities to document, locate, and memorialize burial sites at former residential schools.
  • $2.5M in 2024-25, to continue supporting the Indigenous tourism industry through the Indigenous Tourism Association of Canada.
  • $918M over five years, starting in 2024-25, to Indigenous Services Canada and Crown-Indigenous Relations and Northern Affairs Canada to support narrowing First Nations, Inuit, and Métis housing and infrastructure gaps.
  • $104.9M over five years, starting in 2024-25, for health transformation initiatives to support First Nation self-determination in the creation and delivery of community health services.
  • $630.2M over two years, starting in 2024-25, to support Indigenous people’s access to mental health services.
  • $167.6M over five years, starting in 2024-25, to combat anti-Indigenous racism in health care.

Veterans

International Humanitarian Assistance

  • $350M over two years, beginning in 2024-25, to Global Affairs Canada to improve Canada’s ability to respond to large-scale and deteriorating humanitarian crises worldwide.

Economic Growth

Questions? Please contact a member of Miller Thomson’s Social Impact Group. A French edition of this 2024 Budget Newsletter will follow shortly.

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