Summer 2009 Public Policy Update
Congress Continues to Consider Reducing Charitable Deductions to Fund Healthcare Reforms
Two proposals have been introduced to fund healthcare reforms by reducing charitable deductions for those individuals who earn more than $200,000 (and those couples and families who earn more than $250,000):
• In his FY10 budget, President Obama proposed limiting itemized deductions for these taxpayers at a 28 percent rate beginning in 2011.
• An alternative, modified proposal also has been suggested that would limit itemized deductions to 33 percent or 35 percent for taxpayers whose income tax brackets would increase to 36 percent or 39.6 percent in 2011.
AFP believes that both of these proposals would create a disincentive for taxpayers who give the most to charitable organizations to continue their generosity. Moreover, both proposals, in essence, impose a tax on charitable giving. It would be highly unfortunate to discourage giving at a time when charitable organizations are dealing with enormous financial challenges stemming from the economic downturn. The Giving USA Foundation recently reported that in 2008, the decline in total charitable giving was the greatest since the organization began tracking U.S. charitable donations in 1956. Charities are already reporting that donations will likely be down further in 2009. Some are even closing their doors or laying off staff.
If you have not done so, please contact your two senators and House member. For the contact information of your Members of Congress and to find draft talking points and letters, please go here .
President Obama has continued to advocate in favor of his limitation on itemized deductions to fund healthcare reforms. In some of the President’s remarks, he has alluded to the concept that tax incentives should not be a consideration if a gift is truly charitable. Yet, studies indicate that donors give for many reasons—incentives such as tax deductions being among them. While Americans do not make charitable gifts only for tax reasons, tax incentives make more and bigger gifts possible.
Moreover, history and the actions of the federal government indicate that tax incentives do, in fact, affect charitable giving. During times of crisis, such as the natural disasters of Hurricane Katrina and the 2008 Midwest flooding, Congress regularly passes charitable giving incentives to make it easier for Americans to give donations and to support to the nonprofits serving the individuals, families and communities in need. The current economic crisis calls for the same type of support for the charitable sector that is serving the rapidly growing number of Americans in need, not proposals that would decrease charitable giving.
At this point, three major funding mechanisms have been proposed for healthcare reforms:
1. Decreasing the charitable deduction
2. Imposing a surtax on the wealthy (the House proposal)
3. Taxing employer health benefits (a Senate Finance Committee proposal)
AFP’s concern is that neither the House nor the Senate has come out in strong opposition to the charitable deduction. That situation differs from two other potential funding mechanisms:
• The House recently introduced a bill that would fund healthcare reforms by imposing a surtax on the wealthy. In response, some in the Senate, including some Democrats, have been fairly vocal about their opposition to this approach. Even the Senate Finance Committee Chair, Sen. Max Baucus (D-MT), alluded to the fact that the Senate was not in favor of the idea—though, he acknowledged that it probably remained on the table for Senate consideration.
• The proposal informally introduced by the Senate Finance Committee that would tax employer health benefits was strongly opposed by the Senate Majority Leader, Sen. Harry Reid (D-NV), and President Obama. Members of the House from both parties also have indicated that they oppose this approach. There also has been strong union opposition to this funding mechanism.
On a direct lobbying level, AFP helped to form a coalition that includes the American Society of Association Executives, the Association for Healthcare Philanthropy, the DMA Nonprofit Federation, the Council for Advancement and Support of Education, United Jewish Communities, the Alliance of Nonprofit Mailers, the American Association of Museums, the Partnership for Philanthropic Planning and the National Catholic Development Conference. AFP also has held discussions with Independent Sector and the Alliance for Charitable Reform. The coalition has sent letters to key members of Congress, including the House and Senate leadership, the relevant committees (House Ways and Means Committee, Senate Finance Committee and the House and Senate Budget Committees) and members of the Philanthropy Caucus. AFP and coalition members also have met with the staffs of those key members. Many of those staffs have stated that their member of Congress was not supportive of any proposal that would decrease the charitable deduction, but none could outright oppose such proposals at this time. Most of the staffs have noted that the charitable deduction proposals “remain on the table” as potential funding mechanisms.
After meeting with the office of Senator John Thune (R-SD), we have learned that the senator is willing to fight to preserve the full charitable deduction and oppose any proposals that would reduce the charitable deduction on the Senate floor (if necessary). This obviously is a good thing.
AFP currently is meeting with Senate staff to ensure that the final version of the Senate Finance Committee’s legislation does not include any limitations on the charitable deduction. That legislation likely will be introduced this week before Congress adjourns for its August recess.
Canada Revenue Agency Releases Policy on Fundraising
In June 2009, the Canada Revenue Agency (CRA) released a revised and final version of its Policy on Fundraising. This new version is quite different in tone and substance from the original draft released last year.
The policy can be found here .
None at this time.
AFP, as a member of a broader coalition including Imagine Canada, Health Charities Coalition of Canada and numerous other organizations, worked with CRA staff throughout 2008 on this policy and is grateful that the CRA accepted many of the suggestions raised by AFP and the others. AFP appreciated the opportunity to work with the CRA, as well as with other members in the nonprofit sector. It was a valuable and effective process that resulted in a tangible positive outcome.
AFP, the members of the coalition and the CRA shared a strong desire to make the sector more accountable while providing more consistent standards for reporting, and we applaud the CRA for their responsiveness to feedback from small and large stakeholders impacted by the policy. Of particular significance is the policy's recognition of the complex and varied nature of the nonprofit community and the impact that this has on fundraising programs.
Some areas of the new policy will continue to require clarification, notably the definition of fundraising, as well as the definition of revenue generated through fundraising, which remains loosely defined and does not fully take into consideration the diversity of the sector. The complex challenge of presenting fundraising ratios in a transparent and accurate way to stakeholders also remains a work in progress.
AFP welcomes the CRA's expressed view of the new policy as a "live document" subject to an ongoing process of review as we work to develop a policy that is equitable for nonprofit fundraising while protecting the public and allowing the government to address fraud and other issues. AFP looks forward to working with the CRA on this and other matters of importance to the nonprofit sector.
Canada’s Senate Passes National Philanthropy Day Legislation
On June 2, 2009, the Senate approved a bill that would create the first permanent government-recognized National Philanthropy Day® (NPD) in the world.
The bill, S-217, was introduced on Jan. 26 of this year by Sen. Jerahmiel S. Grafstein (Liberal, Metro Toronto).
Michael Savage (MP, Liberal, Dartmouth-Cole-Harbour) introduced the bill in the House of Commons on June 3, 2009 where the bill now awaits action.
Every member of AFP should be asking their MP for their assistance again for the fall session when the NPD legislation is expected to be considered.
Last year, the Senate passed the previous version of the bill and the House of Commons was poised to pass it as well. Unfortunately, the House was unable to take action prior to the election, and the bill died.
This year, the bill likely will be considered by the House of Commons in October. AFP is contemplating a Lobby Day prior to that time. We will keep you posted.
NPD acknowledges the entire spectrum of support provided by the voluntary sector and recognizes the profound impact that philanthropy has on the fabric of society. An estimated 50,000 people attend more than 125 NPD events and celebrations across North America every year. Celebrations take place in every province and major metropolitan area in Canada.
During National Philanthropy Day and throughout the month of November, Canadian AFP chapters honor exemplary local philanthropists, volunteer fundraisers, corporations, foundations, media outlets, children and young adults, and fundraisers at every level for their outstanding work in and contributions to the community. They also use this special occasion as a chance to educate the public about the importance of informed charitable giving and meaningful volunteerism.
More information about NPD can be found here on the AFP website.
Canada Not-For-Profit Corporations Act Enacted
The Canada Not-for-profit Corporations Act, which may force many charities to change their governance structure and documents, received Royal Assent on June 23, 2009.
Bill C-4 repeals the Canada Corporations Act and replaces it with a modern corporate governance regime for corporations covered by its provisions, which include:
• Introducing a new process for the federal incorporation of not-for-profit, or no share capital, corporations; and
• Providing for the continuance of share corporations that were created by Special Acts of Parliament and that are currently subject to Part IV of the Canada Corporations Act into the Canada Business Corporations Act.
A background paper is available here .
None at this time.
According to Corporations Canada, most of the bill will not be in effect until it is proclaimed into force by an Order-in-Council because the regulations, including the service fees, must first be approved. It will take a considerable amount time to complete the process to approve new service fees under the User Fees Act and to complete the regulatory approval process. Corporations Canada will make more information available as these steps are completed.
AFP submitted comments to the Minister of Industry in 2005 regarding the Canada Not-for-profit Corporations Act. AFP appreciated the concept of the bill but had the following concerns:
• For soliciting nonprofit corporations (corporations that solicit donations from the public), audits were mandatory for those nonprofit corporations earning more than $250,000 gross revenue. AFP urged the Ministry to set that threshold higher (at $1,000,000).
• Soliciting corporations were required to have three or more directors (a seemingly arbitrary number that creates an imposition on smaller organizations).
• The legislation referenced potential user fees that nonprofit corporations would have to pay. AFP argued that any fees essentially act as a tax on nonprofit corporations and that the lack of clarity concerning the potential size of the fees was troubling.
Unfortunately, the recently passed bill retains those problematic provisions.
Once the bill and proposed regulations come into force, every not-for-profit corporation currently governed by Part II of the Canada Corporations Act will have three years to formally make the transition to the new Act. After that time, any corporation that has not made the transition will be dissolved. Further information on how to make the transition will be made available once the bill comes into force.
Copies of the bill are available from the Parliament of Canada website at www.parl.gc.ca . A background paper on the provisions of the bill affecting corporations without share capital is also available on the Corporations Canada's website (www.corporationscanada.ic.gc.ca ) or from Corporations Canada directly at 1-866-333-5556.
AFP Urges Ontario to Increase Provincial Non-Refundable Tax Credit
Recently, AFP urged its Ontario members to write letters to Minister of Finance Dwight Duncan to request his support for AFP’s recommendation to the Ontario government to increase the provincial portion of the non-refundable charitable tax credit.
For donations under $200, AFP is urging the provincial government to increase the tax credit rate from 6.0 percent to 9.0 percent, and for donations over $200, AFP is urging the provincial government to increase the tax credit rate from 17.41 percent to 21.0 percent.
These modest increases in the tax credit rate would provide a maximum 50 percent non-refundable charitable tax credit (when combined with the current federal tax rate of 29 percent) to Ontario donors.
None at this time. AFP thanks those many Ontario members who wrote letters to the Minister of Finance.
AFP has been in touch with the Office of the Minister of Finance, and its staff recommended that AFP bring forward formal letters of support from the nonprofit sector in Ontario.
AFP’s recommendation to increase the non-refundable charitable tax credit in Ontario is a vitally important way that the government can help build capacity and show support for a sector that does so much for Ontario’s citizens and communities.
In 2007, the province of Alberta understood that a change to its tax code was necessary to enhance the work of its charities, so they implemented an increase to the provincial portion of nonrefundable charitable tax credits, creating a 50 percent credit at the highest tax bracket when combined with the federal portion. It was the first part of Alberta’s Community Spirit program, which is designed to build on Albertans’ spirit of giving, sharing and doing and to encourage more investments by Albertans in order to create community spirit.
As was the case in Alberta, AFP believes that implementing a modest increase in the provincial portion of the non-refundable charitable tax credit will encourage more giving in Ontario and will bring Ontario in line with the provinces currently doing the most to support the not-for-profit sector, Quebec and Alberta.
The letters have been collected by the AFP Canada office and are being delivered to the Office of the Minister of Finance. We will keep you apprised of any developments.
Related AFP ResourcesCharities, Fundraisers Call New Tax Plan a “Mixed Bag”—Appreciate Simplification, Concerned About Impact on Giving
Wrapping Up 2012: Important Tax Reminders for U.S. Nonprofit Professionals
AFP, Nonprofit Coalition Urge Congress to Preserve Charitable Tax Deduction
Take Action – Write to Your Member of Congress
Take Action Today to Oppose Any Tax Reforms That Would Harm Charitable Giving!