LynnEakin.com

The proposal from the Association of Fundraising Professionals ( AFP) for the Government of Ontario to provide a provincial non-refundable tax credit for charitable donations to augment the tax break already provided by the Federal Government needs further policy and financial analysis. It may not be an effective policy at this time for Ontario. The risk is that further tax relief for charitable donations as proposed by AFP will have the provincial government forego, what are increasingly precious tax dollars, without significant gain.

I was at the consultation hosted earlier this year by Imagine Canada when they were considering the federal government stimulus initiative. At the consultations there was a great deal of discussion about the effectiveness (or not) of increasing tax incentives for charitable giving. Canada already has one of the most generous tax relief schedules for charitable donations in the world. There is evidence that increasing tax relief may slightly increase the amount given especially on larger donations where tax planning plays a role. However, we know for the most part, people give for other reasons and then take the tax advantage rather than the other way around.

In addition, the changing pattern of charitable giving also needs to be considered. Fewer donors are giving larger donations. These large donations are not being spread evenly across the sector. Increasingly the quango sector - hospitals and universities are taking larger market share. So increasing tax subsidization of charitable giving may not result in increased democratization of charitable giving and may unduly favour large charities better able to court the large donors. The policy implications of increased tax relief for charitable donations need to be better understood.

As government revenues shrink, government looks for areas in which they can reduce spending. One of the few discretionary areas is spending in the nonprofit sector.  Reductions in government revenues have traditionally resulted in significant reductions in government spending across the sector. We would not want increases in charitable giving to be offset by a corresponding reduction in government expenditures to the sector especially if those that receive the charitable donations are not the same as those receiving reductions in government grants. Moreover since the tax credit incentive is suggested for “all” giving not just “new” giving the reductions in government revenue may exceed the increase in charitable giving. The AFP proposal for the Ontario government is not time limited, and applies to existing donors and donations as well as new donations.

Ontario is not Alberta. In Alberta, when times were good the provincial government brought in increased provincial tax credits for donations. However, in Alberta they fund many fewer services directly from government and prefer a model of encouraging philanthropy from private individuals subsidized with tax incentives. Ontario and the rest Canada does not have the same approach and government funds more services directly.

Underlying a decision regarding provincial tax credits for charitable donations is the policy question- What is the role of charitable donations in our nonprofit sector; what is the role of government and how are the two related? What is our objective for charitable donations in Ontario? Do we want to encourage the broad participation of many for relatively small donations or do we want to encourage big donors to make bigger donations? What does this mean for government policy, and the government’s ability to ensure needed services for citizens? Philanthropy was originally about private individuals helping their communities and fellow citizens. The flexibility and freedom of charitable gifts has been very valuable in our communities - funding innovation and filling gaps in government funding. But if 50% of a charitable donation is essentially a redirection of tax dollars when will government want a say in how charitable donations are spent? Could we be risking the flexible discretion of the charitable donation by seeking too great a tax credit for giving? Where is the tipping point?

The AFP proposal is very helpful for it demonstrates the need of the sector and government to revisit and review the role of charitable donations in our communities. We may be able to design better tax incentives for charitable giving but we need to do our homework first so we know where we are going.