It’s hard to underestimate the importance of the Special Senate Committee on the Charitable Sector report to that was released on June 20th. After almost 18 months of hearings and consideration, this once-in-a-generation study came up with 42 recommendation on topics ranging from volunteerism, social enterprise, regulatory system, and judicial review process. There are five recommendations that deal with giving and tax incentives.
Review Tax Measures
Recommendation 9 makes a motherhood and apple pie statement about the need to “review existing tax measures available to individual donors in order to strengthen the culture of giving among new and current charitable donors.” This anodyne proposal appears intended to encourage further tax incentives for ordinary donations, despite the failure of past incentives such as the “first-time donor super tax credit”. As the success of crowd-funding has shown, a tax receipt is not essential to encourage people to make ordinary gifts from income.
Private Shares and Real Estate
Recommendations 34 and 35 resurrect the idea of eliminating capital gain on gifts from donations of private shares and taxable real estate. A version of this proposal almost became law in 2017, but was withdrawn when the Federal Government changed.
There is no question that private shares and taxable real estate represent the two largest reservoirs of capital property in Canada that are not exempt from capital gain when donated. They are especially important in smaller communities where wealth creation is less tied to public companies. The renewed tension on this idea is welcome.
Disbursement Quota and Funds that “Languish”
Recommendation 37 and 38 seem to be responding to anxiety about the growth of foundations with donor advised funds. Number 37 recommends examining the idea of increasing the 3.5% disbursement quota for registered charities. Debating a higher payout rate is important because it is directly linked to public benefit, but may be moot considering the actual higher payout rates of the majority of charities with assets.
Recommendation 38 features the most provocative verb in the report: languish. It recommends that “charities with donor advised funds consider means of ensuring that donations do not languish in donor-advised funds, but are instead used to fund charitable activities in a timely fashion.”
Huh? I agree completely with the need for funding charities, but what the heck makes the Committee believe funds “languish” in foundations with donor advised funds? Do funds “languish” in university, hospital or private foundation endowments?
Moreover, the Committee heard testimony from researcher Keith Sjogren that Canada Revenue Agency data shows that the average distribution rate of the foundations with donor advised funds is approximately 12 per cent of assets per annum. Other witnesses offered rumours about donor advised funds, i.e. “there are stories…”. Hearsay needs to be backed by evidence. That said, boards of foundations with donor advised funds should exercise good governance and ensure real public benefit. This is a shot fired. At the very least, audits may follow.
While it’s hard to underestimate the importance of the report, it’s even harder to know if the recommendations will have any traction. Many of the recommendations deserve further attention, others don’t. It’ll take a few years to see which ones will take.