Charity Chatter

The 2011 Federal Budget tabled last week contained some interesting proposals regarding charitable donations. Although this budget is on the shelf for the moment, it is reasonable to expect that some of all of these measures will be included in future legislation. Individual taxpayers will notice modifications to current rules. As well, regulations that apply to registered charities now will be extended to apply to other qualified donees such as registered Canadian amateur athletic associations (RCAAAs) and municipalities. Heads up ñ there is more paperwork on the horizon!

Here is a list of changes to watch for:

• Any organization that can issue a tax receipt for a donation (known as a qualified donee) will have to be on a list that is available to the public.
• The Income Act spells out the rules for donation receipts. If these rules are broken registered charities will have receipting privileges revoked or charitable status rescinded. Penalties that currently apply to registered charities will now apply to RCAAAs.
• All qualified donees must maintain books and records that are accessible to CRA. Failure to do so or will result in sanctions. Penalties that now apply to registered charities for failing to file information returns will be extended to RCAAAs.
• RCAAAs must now operate exclusively for promotion of amateur athletics rather than primarily. Feedback will be solicited to define allowed activities.
• A registered charity will be sanctioned if it provides an "undue benefitî to any person. Proposed measures will apply this rule to RCAAAs.
• Public availability of certain information pertaining to RCAAAs is proposed.
• The criminal history or past misconduct of individuals involved in charities will be grounds to refuse or revoke registration. Public consultation is planned to flesh out this policy.
• When donations received are subsequently returned to the taxpayer, the qualified donee must have a revised receipt issued to the donor and a copy sent to CRA. This will allow reassessment of previously claimed donations that have been cancelled or reduced.
• A donor will not receive a donation receipt for a donation of a NQS (non-qualifying security i.e. share in a private corporation) until, within five years of the donation, the shares have been sold for consideration that is not another NQS. In other words, there will be no receipt until the real value of the donation has been realized.
• The donation of an option to acquire a property is allowed and, in the past, a receipt has been issued immediately. New rules will delay the receipt until the option has been exercised. As well, the donation receipt will be issued for the difference between any amount paid for the property and/or option by the donee (the advantage) and the Fair Market Value of the property at the time the option is granted. If the advantage exceeds 80% of the FMV then it is not considered a gift and there will be no receipt.
• Donations of publically-traded flow-through shares will still be allowed. However, unlike other publically-traded securities that are donated, the elimination of tax on the capital gain will apply only to the amount that exceeds the original cost of the flow-through share, rather than the entire amount. This will greatly reduce the tax advantage of donating flow-through shares in the future. The 2011 Budget indicated that this change would be in effect for flow-through shares acquired on or after March 22, 2011.

Sooner or later the government will enact changes to close tax loopholes that are costing it money. It is important to be aware of these proposed changes when counselling your clients in regard to their philanthropic activities.