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Government sin of omission may lead to your sin of commission

Budget 2018From the perspective of the charity and not-for-profit sector Budget 2018 was a relatively quiet affair dealing mostly with technical matters. However, in enacting changes to the regime which deals with donations to foreign universities the Budget has created an immediate issue for anybody that donates to these schools. What is unknown is whether this was intentional.

For many years the Income Tax Act contained special provisions which allowed foreign universities that met certain criteria to be included as qualified donees in Canada (a gift to a qualified donee has similar treatment as a gift to a registered charity). This was done by an order of the Federal Cabinet that added the foreign university onto Schedule 8 of the Regulations to the Income Tax Act (generally called the list of Prescribed Universities). As removal from the list similarly required action by Cabinet, in 2011 Parliament enacted a dual requirement for foreign universities to be both Prescribed by Cabinet and registered as a charity by the CRA. This allowed the CRA some amount of control over the list.

In 2011 all prescribed universities were registered as charities. Indeed the CRA website still refers to the list of universities as “Prescribed universities currently registered”. Budget 2018 views the system as unnecessarily redundant and proposes to eliminate the need for Cabinet involvement and that foreign universities will apply for registration as a qualified donee with the CRA. (Although it does not seem that the application for registered university status will be as onerous as the application for registered charity status). And Schedule 8 is specifically repealed.

The difficulty though is that the wording of the legal amendment makes it clear that the foreign university must have applied for registration. It then specifically repeals Schedule 8. As a result, unless the university actually applied to be registered with the CRA (which would be exceedingly few if any), transfers from Canadians to foreign universities are, as of today, gifts to non-qualified donees. This means that individuals and corporations that make gifts directly to foreign universities (rather than their Canadian Friends group) would not be entitled to a tax receipt. And “Canadian Friends of” organizations that make gifts to the foreign university as of today would be making gifts to non-qualified donees and are therefore subject to revocation.

We hope that this is simply an oversight in the legislative drafting but until the matter is specifically addressed by the Department of Finance we would recommend that any organization immediately suspend its transfers to foreign universities.

By: Adam Aptowitzer

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Drache Aptowitzer LLP

Tax and Charity Lawyers at Drache Aptowitzer LLP
Drache Aptowitzer LLPis one of Canada’s foremost experts in the law related to charities and non-profit organizations. Their team of bloggers is led by Adam Aptowitzer LLB. He is a lawyer practicing in the areas of charity and tax law. He is a member of both the bars of Alberta and Ontario. He has been speaking and writing on the topic of charity law for several years and been published in numerous publications including the Canadian Taxpayer, the Canadian Fundraiser and the Not-for-Profit News and has been cited as an expert in many publications including the National Post.Read more here
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