Some Nuances to Keep in Mind When Measuring Giving - LawNow Magazine

Some Nuances to Keep in Mind When Measuring Giving

Not for Profit Law ColumnWe are all familiar with those who find themselves subject to public or media criticism responding with the old saw that what they did, or what they said, was “taken out of context.”  Sometimes there is merit to that complaint, sometimes not.  Usually, we associate being taken out of context with an individual or situation. But it can apply in other circumstances – and the use of statistics is a prime example.

This brings me to a recent Edmonton Journal report on a Fraser Institute study on charitable giving in Canada.  The report repeats the now familiar assertion that Canadians are less generous in their charitable giving than Americans, suggests they may be becoming more so, and laments a recent decline in the number of tax filers claiming donations on their returns.  On their face these suppositions seem reasonable. However, explored further, they are less credible.

There is, and has been for some years, a legitimate basis for concern about the tax filer data on which the Fraser Institute study is based.  During the last decade, the percentage of Canadians claiming tax credits on their returns has been stagnating.  Overall donations have tended to grow, however, owing to changes in demographics and in the size of the average donation.  The latest data indicate that may no longer be the case.

 …the suggestion that the gap in generosity between Canadians and Americans may be widening is open to question.

But before concluding that, one must look at the context.  In the early 2000s, a number of donation tax schemes emerged that purported to offer donors a substantially greater tax credit for their gift than actual out-of-pocket costs. This was accomplished by a number of different structures, but the effect of the schemes was typically that tax receipts were issued for amounts substantially more than the value of the gifts that went to charities or their beneficiaries.  Hundreds of millions of dollars and perhaps more were claimed illicitly.

The Canada Revenue Agency (CRA) responded with an aggressive auditing program of the charities associated with the schemes.  Promoters of the arrangements were targeted for audits and legal actions as well.  As part of the initiative, the CRA also announced that taxpayers participating in the schemes could expect to have their tax returns audited.  The CRA efforts resulted in the revocation of the registration of scores of charities and the re-assessment of countless taxpayers.  The courts have generally upheld the regulator’s approach.

The breadth and popularity of the schemes suggests that earlier figures on total donations were likely overstated, and that some percentage of tax filers reporting credits were motivated more by the generous tax treatment they believed they were receiving, rather than by an authentic giving intention.  So, it is not surprising that the latest figures have softened.

In light of this, the suggestion that the gap in generosity between Canadians and Americans may be widening is open to question.  As well, the different natures of the charitable sectors in the two countries – especially the discrepancy between the types of organizations eligible for support through tax credits or deductions –  needs to be considered in comparing the jurisdictions.

Often, explanations of differences in Canadian and U.S. giving are framed as stemming from variations in tax rates and governments “crowding out” the charitable sector by undertaking work that could better be done by the voluntary sector.

Additionally, there are marked disparities in the Canadian and American regulatory treatment of foreign activities, investment in social entrepreneurship and non-partisan political engagement.   In general, it is easier for American donors than their Canadian counterparts to see their contributions channelled into these types of activities.  The profile of the religious community and the structure of post-secondary education and medical care in the two countries undoubtedly influences giving patterns, and – certainly in the case of the second and third areas – may give rise to different perceptions of the appropriate role for government in supplying these services.

Consider post-secondary athletic activity.  In both Canada and the U.S. participation in sports at the university or college level is considered charitable since it is seen as contributing to the development of a well-balanced student and a necessary complement of mental well-being.  However, the scale of post-secondary sports in the U.S. is exponentially larger than that in Canada.

Often, explanations of differences in Canadian and U.S. giving are framed as stemming from variations in tax rates and governments “crowding out” the charitable sector by undertaking work that could better be done by the voluntary sector.  The Edmonton Journal article notes that Canadians pay higher taxes than Americans, and that Americans receive greater charitable tax deductions.  As well, the Fraser Institute spokesperson in the piece, Charles Lamman, suggests that the greater support to charities provided by the Canadian government can cause a “displacement effect”, whereby charities fundraise less and taxpayers give less because they believe the government is taking care of charitable responsibilities.

Leaving aside the argument of what properly constitutes charitable versus government responsibilities, there is another contextual consideration.  If this displacement effect indeed exists, it needs to be remembered that tax revenue is raised at a much lower cost than charitable fundraising dollars, and that it is the net, not the gross, charitable dollars that, in the end, are available to support charitable work.

When Mark Twain famously quoted Benjamin Disraeli on “lies, damned lies, and statistics” one would expect neither had ever turned their minds to the Canadian charity world in the early part of the 21st century – but perhaps they were on to something.

 

Authors:

Peter Broder
Peter Broder is Policy Analyst and General Counsel at The Muttart Foundation in Edmonton, Alberta. The views expressed do not necessarily reflect those of the Foundation.
 


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