Finance Minister Bill Morneau delivered the government’s 2016 federal budget yesterday. Below is a summary of some of the announcements from the budget that will impact charities.
Update on Previous Budget Proposal: Capital Gains Exemption for Donations of Real Estate and Private Company shares
The 2015 federal budget proposed to extend the exemption for capital gains tax to situations where the proceeds from the sale of private company shares or real estate are donated to charity, as discussed in this previous post. In yesterday’s budget, the government announced that it does not intend to proceed with these changes. This is unfortunate news for the charitable sector, as it was hoped that this change would help boost charitable donations.
Update on Previous Budget Proposal: Investment in Limited Partnerships
The 2015 federal budget proposed an amendment to the Income Tax Act that would allow registered charities to invest in limited partnerships where certain requirements are met, including that the charity holds 20% or less of an interest in the limited partnership and the charity deals at arm’s length with the general partner of the limited partnership. The federal government confirmed that they still intend to move forward with these changes.
GST/HST Rules that Apply to Charitable Donations
Prior to budget day, where a charity supplied property or services to a donor in exchange for a donation, GST/HST applied to the full value of the donation, even though an income tax receipt was issued for a portion of the donation only (being the amount paid by the donor less the value of any property or services received by the donor). The Budget proposes to bring the treatment of this type of exchange in line with the split-receipting rules under the Income Tax Act. The budget proposes that where a donation is made to a charity and the donor receives a split receipt, the donor will only be subject to GST/HST on the value of the property or services supplied by the charity to the donor, not the entire amount of the donation. For example, if you purchase a ticket to an event hosted by a charity for $250 and the value of the meal provided is $75, the charity will now be required to charge you GST/HST on the $75 meal portion (assuming it is not otherwise exempt from GST/HST), and not on the $175 donation portion.
The government announced that the Canada Revenue Agency, in consultation with the Department of Finance, will engage with charities through discussions with stakeholder groups and an online consultation to clarify the rules governing the political activities of charities. It remains to be seen whether this process will result in any changes to the rules around charities engaging in political activities.