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
Charitable Donations are still Lagging Pre-recession Levels
August 05, 2013
A recent study on charitable giving from foundations, individuals and corporations indicates that overall amounts are still below levels raised in 2007, the start of the recession and market downturn. While the securities markets have recovered, the ‘psychology of giving’ has not. An article from the Chronicle of Philanthropy confirms that donors at all income levels remain cautious about their personal finances. If you are working, the automatic assumption of annual salary increases and bonuses no longer holds true, and the prospect of layoffs remains a reality. Donations (in the US – we expect Canada to be similar ) are still 8% lower than levels experienced in 2007. This means that all organizations continue to face challenges in delivering programming or building capacity.
Two other themes exist that create challenges for not for profit organizations :
Government Funding – the ‘new normal’ as governments work to attack deficits, is funding programs are either static or may see a decline. If a government funding program is not cut, program administrators face a new challenge. The same amount of funding dollars must be allocated across existing and new/emerging organizations. Not for profits should no longer count on fixed year over year operating grants.
Broader Scope - Donations from individuals or corporations are being made locally, and nationally and internationally. Philanthropic funding is being spread more broadly, and local causes may receive less funding. As an example, one of the wealthiest communities in the United States (San Jose – silicon valley), sees only 33% of funding/grants going to local organizations.
As organizations revisit their business models, the need for core operating support, or new resources to help build capacity is critical. Interviews with not for profit organizations conducted by the Stanford Social Innovation Review identified opportunities for individuals to:
Maintain support levels for operationsand in particular provide support on a multi-year basis. This creates certainty for an organization and is efficient. The time and effort required to complete often complex grant applications every year, diverts employee time away from arts mission and programming. Unrestricted support for the ‘unsexy’ parts of a not for profit organizations budget is greatly needed in our current economic environment.
A task for the non-profit organization is to increase communications with government leaders, foundation grantors and other organizations – look for opportunities for partnerships, for sharing data and resources. Individuals can use their ‘voice’ and share their passion and commitment for a not for profit/arts organization with their contacts in government and foundations.
Not for profit organizations have always been nimble and creative in delivering programming when resources are tight. Given it may be that funds raised for charitable causes won’t reach pre-economic crisis levels till 2018, individuals can support organizations through a focus on core operations and creative ways for partnering within a community.
Background information and articles on this topic can be found at:
Awards and Scholarships: The Recipient’s Perspective
July 08, 2013
“I am the winner of the Lambton County Music Festival Lady’s Sacred Concert Group. I would like to thank you for your contribution. Without donors like you, the prizes for this festival would not be possible.” Samantha
“I just wanted to send you a little note to say thanks for the donation to the Festival. I will be entering college in September and this money will help with my studies.”Melanie
“You were so kind in granting me your award, and it helped make my trip to Peterborough to compete at the provincial level possible. I won the Grade 10 vocal award!”Lauren
What is the impact of an arts award or scholarship? As these young winners of the Lambton County Music Festival Hugh D. McKellar Scholarshiptold us this year, it is immense.
Awards and Scholarships
One of the most rewarding aspects of my job as Executive Director of the Ontario Arts Foundation is meeting and hearing from artists who are the recipient of a donor’s arts philanthropy through an award or scholarship. The honour of knowing that they were selected by a group of their peers, received a financial reward, can add it to their c.v. and use it to continue their professional development as an artist is indescribable.
Donors provide financial support to arts organizations for their ongoing operations and arts programs. But they may also be looking for a more permanent way to support an arts discipline they have a passion for. Awards and scholarships can play an important role in arts philanthropy.
The advantages of creating an award or scholarship are many.
Awards provide financial support to an individual artist at various stages of their career development.
Scholarships are highly important to students and emerging artists for continuing education or professional training.
Awards are both recognition of success or achievement in a discipline and create opportunities for continuing professional development.
Through awards and scholarships, donors can receive long term recognition and provide a legacy that recognizes their personal passion for the arts. Knowing that their philanthropy will be enduring can be a big plus.
The Recipient's Perspective
Christina Petrowska Quilico is a classically trained and accomplished pianist. In a recent interview with me she comments on how big a role awards and scholarships played in her development as one of Canada’s best known classical pianists.
“I started piano lessons as a child at the Royal Conservatory, and was accepted into a program at Juilliard at age 14. During my career, I’ve received Canada Council grants and doctoral fellowships. Awards and scholarships provided financial resources that really helped me, that allowed me to live and study in New York. As a young artist, you simply don’t have the financial resources to support lessons, coaching sessions or auditions.”
In 2000, Christina established the Christina and Louis Quilico Awardat the Ontario Arts Foundation to honour her late husband, renowned baritone Louis Quilico, and to recognize the next generation of outstanding young singers, pianists and composers for voice.
Art photographer Larry Towell, recipient of the 2010 $50,000 Paul deHueck and Norman Walford Career Achievement Award for Art Photography, told me he was sitting in his kitchen trying to figure out how to finance a trip to the Middle East to photograph people in a war zone. And then I called to tell him he was the recipient of a $50,000 award! This meant so much to him. He could now afford to go forward with his plans.
Awards for a Specific Purpose
Awards can be directed for a specific purpose, for instance career development. The Virginia and Myrtle Cooper Award in Costume Design was established in 2006 by the late Dr. Virginia S. Cooper of Toronto. This annual award is intended to enrich the careers of professional mid-career Canadian costume designers in Ontario through research and travel. Lea Carlsen, the 2011 winner of the Award, said that the $15,000 prize money would allow her to travel to Paris to study historical costumes, and then travel to Baffin Island to undertake a project to learn design techniques used by Inuit artists. Both will deepen her knowledge and work in costume design.
In some cases, artists may apply the prize money very simply, for instance to buy more paint to continue their work. Others may really need to undertake much needed repairs to a home studio. As a bonus, under Canada’s income tax laws, awards are exempt from income tax, and therefore bring even more financial reward to artists. (Scholarships are fully taxable.)
In every case, I have been warmed by the deep appreciation shown by these artists for being recognized by their peers and rewarded for their talents. They are forever grateful that a donor has thought to fund an award. I wish all donors could be present to hear the stories and positive outcomes from this form of philanthropy!