Federal Budget 2022

There is big budget news in the Federal Budget, 2022! Two key pieces relate to direction and control and the disbursement quota. We’ve summarized these two items along with other information relevant to charities from both the Budget and the Supplementary Information.

Below each summary is a link to the source documents. Note that the Budget links are as close to the topic as possible, but aren’t pinpoints, so you might have to scroll just a bit to find the precise section.

Direction & Control

Proposed changes are made to implement “the spirit of Bill S-216, the Effective and Accountable Charities Act” which is currently scheduled for second reading on May 13 in the House of Commons. A total of $165M from 2022-2027 has been allocated to fund stronger partnerships in the charitable sector.

Budget 2022 would allow charities to transfer resources (“make qualifying disbursements”) to non-qualified donees if they further the charity’s purposes and the charity ensures the funds are used for charitable activities.

Resource Accountability

How would a charity show accountability for its resources? Budget 2022 proposes these requirements:

  • A pre-grant inquiry that provides reasonable assurances the resources will be used for purposes set out in a written agreement; it would include the following information about the recipient:
    • Identity
    • History
    • Practices
    • Activities
    • Areas of expertise
  • A written agreement
    • Terms and conditions of funding
    • Description of charitable activities by recipient
    • Requirement that funds not be used for any other purpose
    • Requirement that records relating to the use of the funds be maintained and accessible for at least 6 years after the relevant tax year
  • Monitoring
    • Periodic reports (at least annual)
    • Details of how funds spent
    • Sufficient evidence to show funds used for intended purposes
    • Show review and approval by granting charity of the reports
  • Full and final reports
    • Outline results achieved
    • Details of how funds spent
    • Sufficient evidence to show funds used for intended purposes
    • Show review and approval by granting charity of the final reports
  • Disclosure
    • Public disclosure on information returns of information relating to grants over $5,000

Additional Changes for Direction & Control

There are a couple additional changes to support the move away from direction and control:

  • Books and records – Budget 2022 would require charities, when asked by Canada Revenue Agency (CRA), to take all reasonable steps to obtain receipts, invoices or other documentary evidence to show grantees spent the funds appropriately
  • Directed donations – Budget 2022 would address concerns about charities acting as conduits by prohibiting registered charities from accepting gifts that are expressly or implicitly conditional on making a gift to a person other than a qualified donee

Budget: Stronger Partnerships in the Charitable Sector (PDF p 195)

Supplementary Information: Charitable Partnerships (PDF p 15-16)

For background on S-216: Update: Bill S-216 on Direction and Control

Disbursement Quota (DQ)

The DQ would increase from 3.5% to 5% for the portion of property not used in charitable activities or administration that exceeds $1M. The Income Tax Act will be amended to clarify that management and administration expenditures do not count toward satisfying the DQ.

CRA would have discretion to reduce a charity’s DQ for a particular tax year. The Budget proposes to publicly disclose information related to these decisions.

It also proposes to remove the accumulation of property rule.

These measures would be effective on or after January 1, 2023 and would be reviewed after five years.

Additionally, CRA will improve its collection of information as to whether charities are meeting their DQ and information about donor-advised funds.

Budget: Boosting Charitable Spending in our Communities (PDF p 196)

Supplementary Information: Annual Disbursement Quota for Registered Charities (PDF p 14-15)

For background on DQ: Disbursement Quota Consultation

CRA Funding

The Budget would give $1.2B more funding to CRA over five years, beginning 2022-23 to:

  • Expand audits of large entities that engage in aggressive tax planning
  • Increase investigation and prosecution of suspected tax evasion
  • Expand education outreach programs

Revenue recovered through these efforts is projected to be $3.4B over five years.

Budget: A Fair Tax System (Reinforcing the Canada Revenue Agency) (PDF p 211)

Anti-Racism Strategy & National Action Plan on Combatting Hate

The Budget would provide $85M over four years, starting in 2022-23 to Canadian Heritage to launch a new Anti-Racism Strategy and National Action Plan on Combatting Hate.

The intent is to support community projects that ensure Black and racialized Canadians, and religious minorities have access to resources to raise awareness of issues related to racism and to support full participation in the Canadian economy.

It would also provide $11.2M over five years to Canadian Heritage and Global Affairs Canada in response to religious discrimination. The funds would be allocated to:

  • Special Envoy on Preserving Holocaust Remembrance and Combatting Antisemitism ($5.6M)
  • Special Representative on Combatting Islamophobia ($5.6M)

Budget: A Diverse and Inclusive Canada (Fighting Systemic Racism, Discrimination and Hate) (PDF p 184-185)

Supporting Black Canadian Communities

Employment and Social Development Canada would receive $50M over two years for the Supporting Black Canadian Communities Initiative (see, for example Federal Black-Led Philanthropic Endowment Fund). The Minister of Families, Children and Social Development is responsible for exploring more options to continue its support of capacity building within Black-led and Black serving community organizations.

Budget: A Diverse and Inclusive Canada (Supporting Black Canadian Communities) (PDF p 185)

GST/HST Health Care Rebate

Charities and not-for-profits that provide health care services like those available in hospitals are eligible for an 83% GST/HST rebate if the health care service is being delivered with the active involvement of a physician or in a remote community, a nurse practitioner.

Budget 2022 would expand eligibility for charities and not-for-profits by removing the “remote community” restriction to include those with active involvement of a nurse practitioner regardless of location.

It would apply to rebate claim periods ending after Budget Day.

Budget: Tax Fairness and Effective Government (Table, Additional Actions) (PDF p 217)

Supplementary Information: GST/HST Health Care Rebate (PDF p 53-54)

For All the Details…

Budget 2022

Tax Measures: Supplementary Information

Noteworthy is provided for general information purposes and does not constitute legal or professional advice. Every organization’s circumstances are unique. Before acting on the basis of information contained in this blog, readers should consult with a qualified lawyer for advice specific to their situation.

Sign up for Noteworthy today!

Stay up to date on our recent news articles and updates!