Musings on the 2022 Federal Budget

Finance Minister Freeland brought down the Federal budget on April 7, 2022. CAGP sent its members an acknowledgement of the Budget with newsletter charity analysis from three law firms, Carters, Miller Thompson, and Norton Rose Fulbright. Terrific reviews, excellently done, and we thank them for their quality work and leadership in the charitable community. There were two chief technical proposals in the budget – the disbursement quota (“DQ”) and charitable disbursements to non-qualified donees (“NQDs”). What is the word which describes the reaction to these proposals? – RELIEF!

Yes, relief for the new NQDs proposed mechanisms which rejects the “own activities” and “direction and control” tests and thus eliminates the need to create a story of direction and control. No more stories!

Still not easy. Read the newsletters and see what will be required. It’s still a lot. And we really are not sure how the final legislation will read, or the new policies described. But it should be an improvement not to control the charity. In fact, the budget talks about making grants instead of doing the charity ourselves. Our lawyers will be happy. What were the risks of doing the charity ourselves, should we have been better insured? It will be easier to do the right things, whether internationally or in Canada, with NDQs. There will be, we believe, more private foundations and even DAFs, getting into this business.

One negative is a new concern that will stop a charity from receiving gifts that are meant to be passed on to an NQD. Fundraising for making a grant to a NQD appears to be evil. This seems ridiculous. We are asked, properly, to donate to Canadian charities which will remit funds to NQDs supporting Ukrainians. This new proposal seems absurd. On the other hand, the hoped-for elimination of “own activities” should make it easier to fund charitable real estate grants (say, to build a new emergency ward of a hospital) without worrying about how to obtain title to the real estate.

Yes, relief that the new DQ rate will be 5%. It deserved a change – the reduction to 3.5% twenty years ago was not warranted given the new frontier of investing which was occurring. Is 5% the right number, some would say 4.5%, but it is a good responsible number. Relief that the number is not 9 or 10%, which the pre-budget discussion was fomenting, and which would have had a negative long-term effect on Canadian charity. We do not see improvements to the DQ calculation, such as counting social investments in the calculation which many, including CAGP suggested, but it is a responsible proposal.

Also, we are relieved that there is no new requirement to calculate the DQ on a fund-by-fund basis. What an administrative nightmare that would have been for DAFs! Charities such as universities and hospitals should be pleased that they do not have to look at each fund of theirs and effect a 5% payout.

The DQ rate change may necessitate an examination of investment mechanisms for some charities and foundations to reflect the increased cash flow needs the DQ rate increase will bring.

This and other aspects of the changes will be discussed at CAGPs National Conference in Halifax in June. We look forward to those discussions!

In the meantime ….PHEW!!

Robert Kleinman

Member, CAGP Government Relations Committee

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