moved that Bill C-312, an act to amend the Income Tax Act (percentage of gifts that may be deducted from tax), be read the second time and referred to a committee.
Madam Speaker, it is a pleasure to have the opportunity to debate my private member's Bill C-312. Let me thank my colleague from Delta—South Richmond for seconding the bill.
Bill C-312 would amend the Income Tax Act with respect to the percentage of gifts that may be deducted from tax. I will read a brief overview of exactly what this private member's bill is all about:
The purpose of this enactment is to increase the deductibility of charitable gifts up to $1,150 a year to be no less than for political contributions. It applies to gifts, up to that amount, the same formula for calculating the deduction that is used for political contributions to registered parties and candidates. The deduction for gifts above that amount remains unchanged.
The enactment actually covers Crown gifts and cultural gifts as well because they are added to charitable gifts to calculate the deduction under the act and the expression “total gifts” means total charitable gifts up to 50% of income plus total Crown gifts plus total cultural gifts.
The rationale for this private member's bill is really about levelling the playing field. As members know we are all proud to be Canadians and we believe that Canadians should be treated equally. That is one of the pillars of our democracy. Politicians should not have any advantage over regular citizens who work hard and pay a lot of taxes. In fact 46 cents out of every dollar is paid out in tax in one form or another. For that purpose it is even more important for citizens to get the same breaks as politicians.
This bill is really about equality for Canadians. It is about being treated in this country on an equal footing. Regardless of what politicians believe, which is that they should have an added advantage certainly during election times when raising funds, I believe that politicians should not have an advantage over other citizens who would like to contribute to the charity of their choice. Therefore, this bill would level the playing field.
In essence, Bill C-312 is about taking away political advantage for political donations. Politicians I believe and most people in this country believe should be treated no differently from the average Canadian. Not all donations should have the same weight.
This bill unfortunately is not votable. Obviously it was politicians who decided that it should not be made votable. In fact when I presented myself before the committee there was an instance when members of the committee thought I was mixing apples and oranges. I really do not think we are mixing apples and oranges. I believe that Canadians need to be treated in an equal fashion. Politicians are Canadians and so are the citizens of this country, so it is really not about apples and oranges.
What I would like to do at this time is run through the bill so that the people who are watching will know what it is about. As I first indicated, Bill C-312 would amend the Income Tax Act with respect to the percentage of gifts that may be deducted from tax.
Subsection 118.1(3) of the Income Tax Act would be replaced by the following:
(3) For the purpose of computing the tax payable under this Part by an individual for a taxation year, there may be deducted such amount as the individual claims, not exceeding
(a) 75% of the lesser of $100 and the individual's total gifts for the year if the total does not exceed $100, plus
(b) 50% of the amount by which the individual's total gifts for the year exceed $100 and do not exceed $550, plus
(c) 33 1/3% of the amount by which the individual's total gifts for the year exceed $550 and do not exceed $1,150, plus
(d) the highest percentage referred to in subsection 117(2) that applies in determining tax that might be payable under this Part for the year multiplied by the amount by which the individual's total gifts for the year exceed $1,150.
(2) Subsection (1) applies to the 1998 and subsequent taxation years.
The proposals necessary to change the calculation for the charitable donation credits for income tax would take place in such a manner.
The Income Tax Act would have to be amended, as I indicated earlier, in order to make the calculation of the tax credit for the first $1,150 of charitable donations in order to make the treatment equivalent to or better than the tax credit for political contributions of $1,150.
With respect to political contributions, the taxpayer may at present deduct from income tax otherwise payable under Part I of the Income Tax Act an amount in respect of contributions made in the year to a registered party or an officially nominated candidate in a federal election or byelection.
According to subsection 127(4) of the act, the above terms have a meaning assigned to them in the Canada Elections Act.
Pursuant to subsection 127(3), the political contribution deduction is calculated as a percentage of the actual contribution made by the taxpayer in the year.
The taxpayer may deduct (a) 75% of the first $100 contributed; (b) 50% of the next $450 contributed; and (c) 33 1/3% of the next $600 contributed. The maximum deduction is therefore $500 and is available where the taxpayer has contributed $1,150. Where the contribution in a year exceeds $1,150 no amount is deductible in respect of this excess and the taxpayer may not carry such an excess over and take a deduction in another year.
Since the deduction is from part I, tax otherwise payable, it is in the nature of a tax credit. Where the taxpayer is not otherwise required to pay income tax for the year in an amount at least equal to this credit the benefits of the credit are lost. The taxpayer cannot receive this credit as a tax refund.
Section 118.1 provides for a non-refundable tax credit to individuals in respect of certain gifts made by them which qualify as charitable gifts, crown gifts, cultural gifts or ecological gifts. This credit is applicable against income tax otherwise payable under part I of the Income Tax Act and is determined in accordance with the formula described in section 118.1(3).
The formula is based on the individual's total gifts for the taxation year, meaning the total of the lesser of the individual's total charitable gifts for the year and generally 50% of the individual's income for the year in 1996 and later years up from 20% in 1992 to 1995; the individual's total crown gifts for the year; the individual's total cultural gifts for the year; and the individual's total ecological gifts for the year.
The relevant definitions of the above terms are contained in section 118.1(1). According to section 118.1(3) the tax credit for an individual in respect of total gifts for a taxation year is calculated at two rates, 17% of the first $200 of donations plus 29% of the donations over $200.
In order to change the calculation of the tax credit for the first $1,150 of the total charitable gifts to make it equivalent to or better than the tax credit for $1,150 in political contributions an amendment would be required to section 118.1(3). The wording would depend on whether the intention was to change the calculation of the tax credit for only total charitable gifts or for total gifts since total charitable gifts comprise only a portion of the total gifts on which the present calculation of the tax credit is based.
Assuming that the calculation of the tax credit for the first $1,150 of donations was changed to be the same as the calculation for the tax credit for $1,150 in political contributions, a determination would also have to be made as to what the legislated formulae would be for calculating the tax credit on the portion of donations in excess of $1,150.
Turning to the revenue implications of the proposal in Bill C-312, the most important change is the increase to 75% credit of the first $100 as opposed to the 17% of the first $200 given the existing rules and 50% of the next $450. The average charitable donation claim in 1993 was $626 according to Revenue Canada's taxation statistics. Subject to standard rules the federal tax credits generated would be $158. If this representative donation had instead been subject to the political contribution credit rules, the earned credit would have been $325, a difference of $168 multiplied by a hypothetical 5.4 million taxpayers.
Another approach to estimating the revenue implication of the proposal is static microsimulation which was done using Statistics Canada's social policy simulation model and database. Responsibility for the results and the interpretation lies with the present author. This involves rewriting the algorithm of calculating the charitable donations tax credit to reflect the proposal at hand and using the model to estimate the net impact of federal revenues.
Assuming that for charitable contributions above $1,150 the credit rate would be thirty three and one-third per cent instead of the current twenty nine per cent. Matching the political contributions credit for amounts below that, the impact on federal revenues is estimated to be about $800 million. The simulation approach thus matches quite nicely with estimates above employing averages.
After $1,150 it will go back to 29%. This is a static exercise, which is to say that we assume in doing the calculation that individuals do not choose to donate more because of the more favourable treatment. If it is the case, that more favourable treatment does not generate any new or incremental revenue for charities, all that is changed is the cost of giving.
It would be more realistic to assume that individuals choose to donate more, in which case charitable events would increase and federal revenues would decrease more than they do in the static exercise. How charitable givings would increase is a matter of speculation. It depends on what estimates one chooses for the rate of tax induced giving, which means how much the after tax cost of donation influences the amount donated.
There has been a reasonable amount of empirical work on this question and the jury is still out. While taxes do positively affect charitable livings, on the margin the magnitude of that effect is uncertain.
The incremental federal cost of increased giving depends on who is doing the giving. This is because for amounts above $550 the credit rate is only changing from twenty nine per cent to thirty three and one-third per cent, a relatively small shift. For smaller donors the credit rate is changing from 17% to either 50% or 75%, which may have a significant impact on donation rates. In other words, we may well find a large number of new donations under the $100 level and a large amount of new or increased donations in the $100 to $550 range. This would obviously influence charitable receipts in a positive way and a federal revenue in a negative manner.
