In an unprecedented step in recent memory, the Standing Committee on Finance ("FINA") has undertaken a study on tax incentives for charitable donations. The impetus for this study goes back to the 2011 federal budget, which included Motion 559, sponsored by MP Peter Braid and adopted by the House of Commons on March 2, 2011, calling for a study of incentives for charitable donations.

The original Motion 559, introduced on November 19, 2010, called for a study that would examine current and proposed tax measures to encourage charitable giving by both individuals and corporations. Added to that list were a review of the charitable tax credit amount, the possible extension of the capital gains exemption to donations of private company shares and real estate, and the feasibility of implementing these measures.

On September 20, 2011, FINA announced that it would launch a study over the course of at least 12 days concerning the current tax incentives for charitable donations with a view to encouraging increased giving in Canada when Parliament resumed sitting in January 2012. FINA slightly expanded the parameters of its review to include consideration of the cost of changes to existing tax measures, as well as the implementation of new tax incentives.

Tax incentive hearings on hold; other bills take priority

FINA hearings (also known as the "Braid Hearings") began on January 31, 2012 with officials from Statistics Canada, the Canada Revenue Agency and the Department of Finance presenting as witnesses. Five meetings took place throughout February. However, the study has been put on hold in order to address other bills referred to FINA. An estimated date for return to this study is not yet available.

The FINA study will be very important for the charitable sector as a whole. Its findings will be reported back to the House of Commons for consideration with regard to possible future changes to the Income Tax Act and how the Canada Revenue Agency may be called upon to regulate charities.  More details concerning FINA's study on Tax Incentives for Charitable Donations can be found on the Finance Committee web page accessed from the Committee List at http://www.parl.gc.ca/CommitteeBusiness.

Lack of boundaries poses risks

While the specific mandate of FINA is to look at tax incentives for charitable giving, there is some concern in the charitable sector that there may be few, if any, limitations placed on what FINA can look at in their study, and that broader issues could be brought up that may fall outside the parameters of the original Motion 559 authorizing the study. This may cause members of FINA to possibly focus on other issues, such as transparency and the purported need for more accountability from registered charities, rather than on the main issue of charitable donation incentives. Recent media coverage concerning the FINA hearings to date has reinforced this concern.

Imagine Canada urges "Stretch Tax Credit"

One idea for a new tax incentive is the proposal by Imagine Canada for a "Stretch Tax Credit." The Stretch Tax Credit would augment the existing federal tax credit for donors who give more than their previous highest giving amount. Every dollar in "stretched" giving would be eligible for a higher tax credit: eligible amounts below $200 would receive a tax credit of 25% and eligible amounts above $200 would receive a 39% tax credit. Both percentages are a 10% increase to the 2011 donation federal tax credit rates.

For example, a person who donated $200 in 2011 decides to donate $250 in 2012. For the increased donation of $50 they will see a 39% tax credit instead of the usual 29%. This proposed measure is meant to encourage those who haven't given in the past, particularly younger Canadians, and for those who already give, to stretch and give a bit more.

It will be up to FINA to consider the feasibility and cost of implementing this measure as well as others, in efforts to satisfy the federal government's mandate from the 2011 Budget of "Ensuring a Strong and Effective Charitable Sector."

Seize opportunity to educate politicians

Given the current challenging economic climate in Canada, it is unclear what results will come from FINA's study of tax incentives for charitable donations. However, the hearings will be an important opportunity to educate FINA on the charitable sector's collective contributions, as well as the impact of current and proposed tax measures to encourage charitable giving. Since these tax incentives will be geared toward encouraging Canadians to make or increase their charitable donations, there is much anticipation to learn what FINA's findings will be when they report to the House of Commons after completion of their study.

Terrance Carter is the managing partner with Carters Professional Corporation, counsel to Fasken Martineau DuMoulin LLP on charitable matters, and editor of charitylaw.ca.

Contact him at tcarter@carters.ca.