Tax Changes to Be Aware Of
August 26, 2013
We often think of Canada’s tax laws as dry and unchanging. Charity law and tax regulation actually changes quite a lot and shouldn’t be thought of as dormant. I recently attended a seminar and here are some tax related highlights arts organizations should be aware of :
First Time Donor Tax Credit – this is worthy of note for new and young arts supporters who don’t have a history of making annual donations. To encourage new donors to donate, CRA will allow a 25% tax credit for “first time donations” of up to $1,000 (cash only for some reason). A gift of $500 attracts an additional tax credit of $125. This is only eligible to be claimed once between 2013 and 2017. Target your under 30 supporters, who may not yet have a history of making a donation beyond attending arts programs of your organization. A terrific opportunity to use social media to get their attention.
CRA continues to take a hard, aggressive line on taxpayers using Registered Tax Shelters. If tax is owing from the assessment of a tax shelter, new regulations permit CRA to proceed with collection actions on 50% of the disputed tax, any interest charges or penalties arising from the disallowance of a donation claimed through the shelter. What hurts is that this is payable even before the ultimate liability of a donor has been determined through the objection or appeal process.
A small point – if your organization has paid parking for staff, charities and non-profit organizations are not exempt from collecting and remitting HST/GST on the paid parking benefit.
Political activityby charities is receiving significant scrutiny these days – a couple of points to be aware of:
* There are three categories of political activity:
Permitted without limit – activity by a charity undertaken to achieve a charitable purpose submission to public officials on law or government policy
Permitted with limits– Communications involving activity aimed at retaining, opposing, changing law, policy or a decision of government. The activity must be non-partisan, connected to the organizations’ charitable purpose and fall within the general 10% resource spending limit
- Prohibited activity- Illegal or partisan political activity involving the direct or indirect support of, or opposition to any political party or candidate for office. What you do must be specific to ALL parties/candidates
* The 2012 budget expands the definition of political activity to include gifts to qualified donees if it can reasonably be construed that the gift is to support political activity of the donee. In other words, If I make a gift to a provincial arts council and that organization uses it for political purposes, that can be deemed a forbidden activity. If a charity does not want to have to track political activity in their T3010 information return, it should designate in writing that any gift to another charity is not to be used for political activity
* If a charity exceeds the limits of the tax act for political expenditures ( generally 10% of its annual resources ), CRA may impose a one year suspension of tax receipting privileges, or indeed revoke charitable status
*Equally, if political activity is not reported in the organizations’ T3010 return as required, again CRA can suspend charitable receipting privileges until the required information is obtained. This emphasizes the importance of having the Board of Directors review and approve the annual T3010 return. This is an important document – as CRA publishes highlights for ALL registered charities in Canada, this is the first place any individual or media will go if they are looking for information about your organization. Bottom line – know the rules before becoming involved in political activity
Anti-spam legislation – new regulations have been created for spam and ‘unsolicited electronic messages’. Charitable organizations that send ‘commercial electronic messages’ ( most of us do…) need to ensure they comply with the legislation. Emails which simply include advertisement or sponsored links can be caught by the rules. Essentially, the activity is prohibited unless you have express or implied consent from the recipient. Charities will need to identify individual donors on their donor lists and note a two year time limit (ie. Renewal of consent)
CRA has updated Fundraising Guidance in April 2012, which applies to all registered charities. The 3.5% disbursement quota continues and failure to correctly record fundraising revenue/expense can again result in suspension of receipting privileges. This is another reason for your Board to review and approve the T3010 form before it is filed with CRA. CRA pays attention to the ‘fundraising ratio’, which is the ratio of fundraising costs ( note – this is not total operating expenses) to fundraising revenue, calculated annually.
* If the ratio is under 35%- generally unlikely to generate questions or concerns by CRA
*35% and above – CRA may examine the organizations’ returns over a number of years to identify if a trend exists of high fundraising costs
*Above 70% - you can be sure CRA will ask for an explanation and rationale for this level of expenditure
Complex – yes and it is always advisable if you are not sure, to ask for advice from your legal/ audit advisors. The CRA website is quite helpful in providing information, although it can be a challenge if you don’t know exactly what you are looking for www.cra-arc.gc.ca