New Tax Offset for Canadian Controlled Corporations Charitable Donations

A member letter to the Canadian Federation of Independent Business (CFIB) — January 13, 2020

Published in

Social Action Matters

12 min readSep 6, 2020

Background: Our Agri-Food Mixed Farm is an avid member of the CFIB. We love how they advocate for the success of businesses like ours at Federal, Provincial and Municipal levels.

During a candid meeting with Ron Wiggers, CFIB District Manager, Co-owner & CFO of Prairie Land Farms Inc., Samantha Postman asked:

“Ron, when will CFIB help businesses get a fairer tax treatment of Charitable donations for Corporations? We want to be able to invest in our communities the same as Candadian individuals.”

Ron returned:

“Postman, if you lay out your proposal in writing, I promise to pass it up the line and make sure you get heard!”

Update: This proposal has developed legs! As of Aug 7, 2020, The House of Commons of Federal Finance has received an updated and revised version for consideration as an economic stimulus for the upcoming Canada federal 2021 budget.

Canadian Federation of Independent Business

Proposal: Increased Charitable Tax Offset for Canadian Controlled Corporations

Submitted by:
Samantha Postman, MA-ABS, B. Mgt.
Prairie Land Farms Inc.
CFIB Member: 810XXX (2001)

January 13, 2020

Argument:

Increasing the charitable tax offset for Canadian Controlled Corporations would have quantitative and qualitative economic, social, health, education, thought leadership, art & culture, housing, environmental and other benefits that would far exceed the reduction in the tax treasury. Corporations are seeking ways to directly make a social impact which improves their social profile and improves customer and employee satisfaction.

Business Owner Pain Points:

As a Canadian Corporation, we’d like to do more to support social good as well as boost our profile as conscientious food growers. Food growers care about our communities. As you may know, food growers have been under harsh attack about the lack of care we have for humankind, the environment and our global future because of the types of seed we use (GMO), chemicals we apply and the emissions we emit with the required equipment to grow our nation’s food. Public image is important not only to the value of what we produce but as reputable Canadian Business practices. Consumers lack confidence in corporations in most sectors because of a perceived focus on the bottom line and making money for self-serving purposes.

Regardless of what the public expects or thinks, as social-minded business owners, we’d like to direct more of our revenues to nonprofits who serve our nation. At this time, our tax consequence for making charitable contributions is somewhat simple on a corporate level, it’s more complex when the main corporation owners are the primary shareholders who also draw wages. Every year we have to set time aside or pay an accountant to work out how to donate to various organizations: corporately or personally. If we make a donation personally, which is sometimes a more favourable tax incentive, then our corporation doesn’t benefit from the same privileges tax offset wise, through public image or opportunity social good investment-wise. It’s time to incentivize, acknowledge and reward social giving contributions by corporations.

CASE

Quick Facts on current Tax Treatment of charitable donations for corporations:

“For corporations, donations also result in tax savings, albeit in the form of a deduction from income, rather than a credit. Similar to individuals, unused charitable contributions may be carried forward for up to five years. The charitable donation deduction will reduce [federal] corporate taxes by $13.50 on the first $100 of donations made when taxable income is less than $500,000 in the corporation and by $26.50 when taxable income is greater than $500,000 in the corporation. [based on 2018 rates]” — Chloe Man, Charitable Donations: Personally or Through a Corporation?

Quick Facts about the Nonprofit Sector

There are over 170,000 charitable and nonprofit organizations in Canada. (2009)
85,000 of these are registered charities (recognized by the Canada Revenue Agency).
Two million Canadians are employed in the charitable and nonprofit sector
Over 13 million people volunteer for charities and nonprofits.
Canadians continue to be generous with their time and are highly engaged in their communities with close to 13 million Canadians volunteering over 150 hours each year.
Economic activity in the non-profit sector totalled $169.2 billion in 2017, representing 8.5% of Canada’s gross domestic product (GDP). Community non-profit institutions accounted for 16.4% of the overall sector, while business non-profit institutions accounted for 10.4%. The most significant portion of non-profit activity (73.2%) came from government non-profit institutions, such as hospitals and universities.

Canada’s charitable sector is critical to our economy and social wellness!

“Many organizations report problems fulfilling their mission, and significant numbers also report difficulties because of increasing demand for services or products.” — Statistics Canada.

“As demand increases, facilities become over-stretched, and funding cuts, such as the $15 million reduction to the Ontario Trillium Foundation recently ordered up by the Ford government, only amplify these pressures. “There are a lot of organizations that will need to do more with less.” Individual donors, he adds, “will be giving less because they feel more stressed about meeting their basic needs … Though business philanthropy accounts for about $2.3 billion annually, according to a comprehensive study released last April (30 Years of Giving in Canada), sector leaders in 2017 detected (anecdotally) some worrisome trends in that space as well: more strings on corporate giving and the provision of volunteers in lieu of cash. In the past year, some charity executives report that they’ve seen corporate giving programs become focused exclusively on a single cause or organization. Others, like Saul, say more large donors now prefer to fund a specific program rather than apply their contributions to overall operations.” — John Lorinc

Brain Emmitt and Harvey Sims, “Tax Incentives for Charitable Donations in Canada with a Focus on the Stretch Tax Credit for Charitable Giving” (Imagine Canada, March 2015).

“In 2016, Brian Emmett, Chief Economist for Imagine Canada, published Charities, Sustainable Funding and Smart Growth. In this discussion paper, he outlined a growing ‘social deficit’. Simply put, the social deficit is the gap between the demand for services from charities and non-profits and the ability of society, primarily government, to pay for them. Brian created a number of financial models, all of which showed a future where this gap, or social deficit, is increasing. By 2026, Brian predicts that the social deficit could be as large as $23 billion. The social deficit won’t show up on financial statements — it will be reflected in longer wait times for services, closures of organizations and stress on those working and volunteering to deliver those services.” — CanadaHelps

Arguments FOR Increased Charitable Tax Offset for Canadian Controlled Corporations

Corporations take on more responsibility for social wellness and set the bar higher and clearer for the younger generation
Nonprofits provide places for skill development, mentoring, responsive specialized services that are profitable for businesses
Increase corporation public image
Rewards corporations for directing revenue for social good
Governments are slow to respond to specialized needs in society due to red tape, committees, lack of interprovincial like-mindedness, understandings and vested benefits of other regions
Donations are more likely directed to registered charities which are tracked and regulated by governments oversight) — see history of why regulate charity
Increases Economic growth
Government can’t fill in all the citizen’s gaps of wellness, development, mentorship, health,
Economic and social welfare multiplier effect outweigh tax treasure loss in the long term
As faith-based donors dwindle, nonprofits are suffering, they need more contributors
Redirects contributions to small orgs that could not facilitate capital donations (personal tax)
Corporations will directly affect social impact — personally involved
Corporations will increase employee pride & will inspire employees to match or donate as well.
Increased incentive will have long term economic, social, environmental and other benefits
Canadian Corporations should be incentivized to fill the gap governments can’t
If Nonprofits can’t meet the needs of Canada, the government will have to spend the money anyway or the welfare of our citizens will suffer (senior population will soon be 1 in 4)
The current tax offset generally favours personal donations over corporations
Corporations have the power to make sure that charities don’t go extinct
Simplifies decision making about donations corporately or waged out and made personally
Reduced personal taxable income (due to donations made by corporations instead of as declared income by shareholders) increases social program eligibility for individuals in the form of child benefits, GST, etc.
-> entered as an AGAINST item as well (**Affected business owners would consider this an argument for the change)
Reduces tax liability for corporations that invest in social benefit
Increases ability for corporations to directly influence social benefit investments
Reduce the equalization payment effect by allowing community-directed investment
More control over which organizations receive funding that aligns with values of business owners (as opposed to governments agenda-driven)
Redirects money regionally to respond to local public needs and perceptions

Arguments AGAINST Increased Charitable Tax Offset for Canadian Controlled Corporations

High cost to tax treasury (short term) -> Governments like ST windfalls, not LT planning that the political party may not be able to reap the benefit.
Could disrupt the balance of public vs government responsibility of social welfare
Reduced Government oversight (control) of how public money is directed
Flourishing nonprofits reduce the opportunity for corporations to provide same services
Reduced personal taxable income (due to donations made by a corporation instead of as declared income by shareholders) increases social program eligibility for individuals in the form of child benefits, GST, etc. -> entered as a FOR item as well (**Affected business owners would consider this an argument for the change)
Would incentivize non-registered charity nonprofits, nonprofits with no charity status, to seek charity status which would increase the number of governments regulated organizations
Resulting too much oversight and organizations conforming to operate at the whims of the ruling party (ruling parties would like consequence though)

See also: recent research on a personal tax charitable stretch increase
(none found on corporation elasticity): Emmett, Brain, and Harvey Sims. “Tax Incentives for Charitable Donations in Canada with a Focus on the Stretch Tax Credit for Charitable Giving.” Imagine Canada, March 2015. ***See personal caution notes in resources below

Summary Concerns

According to Canada Helps Giving Report (2018), data suggests that we have about a decade before a significantly different donation environment will take hold. In the world of policy change, building new social norms for giving and developing a connection for new generations of supports, ten years is not a long time. The case for urgency is here. The time for action is now. Imagine Canada will be proposing a simple, three-part framework for inclusion in each of the party platforms for 2019:

Please consider joining efforts to embed these priorities into the mandate for the next federal government by:

Creating a new operating environment
Developing enabling policies
Achieving financial sustainability

Updates:
COVID Response: Immediate Increased Charitable Donation Tax Refund | SAVE: Nonprofits, NPO Recipients, Canadians, Businesses & Government
— April 24th, 2020

As an invaluable and innovative COVID-19 response strategy to sustain the capacities of Canadian NPO’s, our country’s businesses, and to increase our capacity to provide essential services to Canadians in desperate need. We believed we needed to go further than our January 13, 2020, CFIB original proposal.
We sent COVID-19 response letters to Rachael Harder, MP for Lethbridge and Nathan Neudorf, MLA for Lethbridge-East. Both wrote their own letters of support to The Honourable Bill Morneau, P.C., M.P., Minister of Finance, The Honourable Travis Toews, MLA Provincial Finance Minster.
Jointly, we recommended extending the tax offset to all Canadians, corporations and persons. In addition, we recommended that the tax credits on donations be refundable for all Canadians regardless of their social or economic status.

Refundable Charitable Donation Benefit — Support Letter Campaign to businesses, Canadians and Charities.
— May 2020

How Partially Refunding Charitable Donations for Everyone Stimulates the Economy: Social Action Matters
— August 7, 2020

Canada Federal Budget 2021 Written Submission for the Pre-Budget Consultations — August 7, 2020
Re-framed the Charitable Donations as a federal 30% Refundable Community Investment Benefit (RCIB) — a Written Submission for the Pre-Budget Consultations in Advance of the Upcoming Canada Federal Budget 2021
In response to: “What measures could the federal government take to restart the Canadian economy, as it recovers from the COVID-19 pandemic? “— The House of Commons Standing Committee on Finance

About: For over twenty-one years, Samantha established and nurtured relationships for diverse clients and industries through: tax strategy, investment and tax advising, tax returns, financial assessments, law, corporate tax and various government agencies. Samantha has over thirty years of diverse volunteerism and credits the Charitable sector with helping her thrive despite her broken past.

About Prairie Land Farms Inc.

Prairie Land Farms Inc. is located in Southern Alberta, Canada and was established in January 2001 by Damon & Samantha Postman. As fourth and fifth generational farmers in Southern Alberta, Prairie Land Farms Inc. is a continuance of extensive family tradition. Each crop is carefully planned in advance, planted, monitored, nurtured and harvested to achieve the highest quality. Our products are used locally and distributed globally.

Samantha Postman, CFO infuses her concurrent decades of tax consultancy experience where she established and nurtured relationships for diverse clients and industries through: tax strategy, investment and tax advising, tax returns, financial assessments, law, corporate tax and various government agencies. Together, as powerhouse experts, we have been key resources to the CFIB regarding key Agriculture government issues.

About CFIB

The Canadian Federation of Independent Business (CFIB) is Canada’s largest association of small and medium-sized businesses with 110,000 members across every industry and region. CFIB is dedicated to increasing business owners’ chances of success by driving policy change at all levels of government, providing expert advice and tools, and negotiating exclusive savings. Learn more at cfib.ca.

Recommended Resource Agency & other Curated Resources to Glean

Imagine Canada: work to bolster the charities, nonprofits and social entrepreneurs that build, enrich and define our nation and the communities they support around the globe.

Cardus: a non-partisan, faith-based think tank and registered charity dedicated to promoting a flourishing society through independent research, robust public dialogue, and thought-provoking commentary.

Bibliography:

Anderssen, Erin. “Who Will Replace the Faith-Based Donors?” The Globe and Mail. The Globe and Mail, December 2, 2011.

Burrows, Malcolm D. “Charitable Tax Incentives in Canada: Overview and Opportunities for Expansion.” The Philanthropist 22, no. 1 (May 5, 2009).

Canada Helps. “The Giving Report 2018.” Canada Helps, 2018.

Canadian Code for Volunteer Involvement. “The Canadian Code for Volunteer Involvement.” Volunteer Canada, 2017.

Crowe Soberman LLP, Charitable Donations: Personally or Through a Corporation? “Charitable Donations: Personally or Through a Corporation? | Crowe Soberman LLP.” Crowe.com, 2019.

Emmett, Brain. “Charities, Sustainable Funding and Smart Growth.” Imagine Canada, 2016.

Emmett, Brain, and Harvey Sims. “Tax Incentives for Charitable Donations in Canada with a Focus on the Stretch Tax Credit for Charitable Giving.” Imagine Canada, March 2015. -> (***NOTE: This study, in my opinion, has some flaws, I feel it underreports the positive quantitative effects of tax incentives. This study did not account for the more modern ways of quantifying donations with receipts. Nor does it account for the halo effect, the economic ripple effect of redirected dollars to NPO’s which may be up to 4.77x economic & social impact for every dollar given to a charity. Perhaps Steve Lazarus of Cardus could help quantify this more. Nor did it factor that increased donation reporting could be a result of unregistered organizations that received donations in the past became registered for charity status and could receipt. Also, there are less cash donations (we are digital transaction society now) and donor-specific record-keeping of donations in church offering plates produces receipts for tax purposes).

Emmitt, Brian, and Geoffrey Emmitt. “Charities in Canada as an Economic Sector.” Imagine Canada, June 2015.

Friesen, Milton. “Charity and Social Capacity: Civic Core, Institutions, Social Architecture, Philanthropy, Charity.” Cardus, November 28.

— — — . “The Impact Investing for Foundations”: October 2017.” Purpose Capital, Community Foundations of Canada, Philanthropic Foundations Canada.

Lasby, David, and Cathy Barr. “30 Years of Giving. The Giving Behaviour of Canadians: Who Gives, How, and Why? Of Giving in Canada.” Rideau Hall Foundation and Imagine Canada, 2018.

Lorinc, John. “Canada’s Charitable Sector: What to Expect in 2019 | The Philanthropist.” The Philanthropist, January 8, 2019.

Pennings, Ray, Stephen Lazarus, and Michael Van Pelt. “A Canadian Culture of Generosity: Renewing Canada’s Social Architecture by Investing in the Civic Core and the “Third Sector”.” Cardus, October 2, 2009.

— — — . “Satellite Account of Nonprofit Institutions and Volunteering Summary: 2007.” Sectorsource.ca. Statistics Canada, 2007.

— — — . “Satellite Account of Nonprofit Institutions and Volunteering: 2007 | Sector Source.” Sectorsource.ca. Statistics Canada, 2007.

Statistics Canada. “Cornerstones of Community: Highlights from the National Survey of Nonprofit and Voluntary Organizations Catalogue, 2003 Revised №61–533-X.” Statistics Canada, 2003.

Watson, Rod. “Charity and the Canadian Income Tax: An Erratic History.” The Philanthropist 5, no. 1 (January 1, 1985).

Wood Daly, Mike. “The Halo Project: Valuing Toronto’s Faith Congregations.” The Halo Project. Cardus, June 2016.

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Disclaimer: Samantha Postman does not represent a law firm and cannot provide a legal opinion or advice. It is always recommended, when you have legal or accounting questions that you speak to a qualified practising professional.

**Sourcing format modifications were made for online publication.