Why are charities fighting against a proposed law that would see rich Canadians pay more in tax? This is the first of a three-part series exploring the sector’s advocacy against the Alternative Minimum Tax.

Wealthy Canadians have pressured some of the country’s largest charities and the federal government, threatening to reduce charitable donations if the government doesn’t halt proposed tax changes. 

“The sector is being weaponized by high net-worth individuals,” said a community foundation executive, who asked to remain anonymous, fearing professional repercussions.

“They’re saying, ‘Hey, you guys need to advocate for your very wealthy donors, or else we’re not going to give to you anymore.’”

At issue is the federal government’s promise in Budget 2023 to reduce two tax incentives for charitable donations for wealthy Canadians as part of broader Alternative Minimum Tax (AMT) reforms. 

The government argues that the first substantial AMT updates in more than 30 years are necessary to ensure all Canadians pay adequate taxes and raise revenue. The Parliamentary Budget Officer projects the changes would net $2.6 billion over five years.

But the draft legislation hasn’t gone over well with everyone. 

In response to a federal consultation on the proposed AMT shifts, some high-income Canadians penned letters to the Department of Finance, promising to reduce their donations or donate less than they initially promised to charitable recipients if the changes aren’t halted, according to a Department briefing note obtained through a Freedom of Information Act request. 

Some wealthy donors also contacted Canadian charities with the same message. 

The BC Children’s Hospital Foundation heard from dozens of donors, who said they’d reduce or space their donations out over a longer period if the charity-related AMT reforms became law, said CEO Malcolm Berry. 

In a January meeting with members of the federal Liberal’s Pacific Caucus, Berry raised the issue and read quotes from conversations with donors.

“We’re not going to be able to donate the same amount of money and need to renegotiate our pledge,” said one, according to Berry. 

“These changes are complex and discourage me from making major lifetime donations,” Berry recalled another saying.  

Twelve Alberta community foundations wrote to the Department of Finance, arguing against the donation incentive reductions in September.

“In response to the anticipated changes to the AMT, we have learned that several donors are already planning to alter their charitable giving plans by reducing the number of donated shares,” the letter reads.   

The community foundation executive, who asked to remain anonymous, also said some donors told charities to take action on the issue. 

“That’s actually what’s happening behind the scenes, and that’s what [foundations] are responding to,” he said. 

Foundations say they were not pressured

However, two sector associations that supported hundreds of charities to advocate against the proposed changes said that while donor perspectives played a role in their AMT positions, wealthy donors did not pressure them to advocate.

In September, Imagine Canada, the country’s largest charitable sector association, supported over 1,200 individuals, non-profits, and charities in sending letters to the Department of Finance, demanding the government scrap the proposed charitable tax donation incentive changes. 

Their advocacy was motivated, in part, by hearing from charities who had spoken to donors planning to reduce donations, but their organization was not “weaponized,” said CEO Bruce MacDonald. 

Imagine Canada supports ensuring the wealthiest Canadians pay their fair share of taxes, but it’s not necessary to penalize charities to do so, he said. “These two ideas are not in conflict.” 

The Canadian Association of Gift Planners, a charitable association of fundraisers, financial advisors and lawyers, also helped drive the sector’s advocacy on this issue, rallying 180 organizations to co-sign an open letter to the Department of Finance to remove the donation-related AMT provisions.

Prominent signatories include United Way Centraide Canada, the Canadian Red Cross, SickKids Foundation, Community Foundations of Canada, and Plan International Canada.  

CAGP’s position on the AMT was motivated by an understanding of how the proposed changes would dramatically reduce charitable giving, said CEO Ruth MacKenzie — not donor pressure. 

Several foundation executives concurred. 

Terry Cooke, CEO of Hamilton Community Foundation, spoke with half a dozen donors or their financial advisors about the AMT, but none pressured the foundation to advocate, he said. 

A longtime HCF donor expressed concern the sector was “asleep” on the AMT issue but did not mention altering their giving nor push for advocacy, said Cooke. 

Lorne Jackson, board president of the Canadian National Christian Foundation, a Christian donor-advised fund foundation, said there was no weaponizing of the sector going on — it’s just factually accurate that donors will give less if donation incentives are reduced. 

“I wish I could say they’re altruistic and that they’re really wanting to be generous. But…if you took the tax part away, they’d be a lot less generous.

“That’s unfortunate, but that’s the way it is,” he said. 

“Undemocratic” advocacy? 

Factual though it may be, contacting a charity to say you’ll reduce your donation unless the government changes course is an “indirect threat” meant to encourage advocacy, said Thomas Malleson, an associate professor at King’s University College in London, Ont. who studies inequality and taxation. 

The same is true of similar letters to the government, they said.  

Malleson said this sort of leveraging of wealth and access to power to pressure for policy change is “undemocratic,” yet consistent with historical efforts by elites to reduce taxation. 

This advocacy is often successful, they said. 

A study analyzing nearly 1,800 American policy debates over two decades found that a policy was only modestly more likely to be adopted if it had the support of middle-income Americans. 

By contrast, a policy was significantly more likely to be adopted when it had a substantial share of support from high-income Americans. 

Canada’s elites have less influence than their American counterparts because of lower inequality here, they said. “But the general pattern of elite domination everywhere is the same.” 

Olivier Jacques, an assistant professor at the University of Montreal who studies inequality, disagrees that the advocacy is undemocratic, believing wealthy Canadians sending letters and making phone calls are just part of how “collective action works.” 

Still, he said there is significant strategic value to wealthy Canadians in getting charities onside with their policy position. 

Wealthy Canadians can make their case to the government much more effectively when working in coalition with charities with a better public image, Jacques said. 

Donations will drop, but feds won’t say by how much

The Department of Finance conducted an estimate on the impact of the proposed AMT changes on charitable contributions but has refused to release it. 

Emails between colleagues within the Department of Finance discussing the analysis obtained by Future of Good through a Freedom of Information Act request are nearly entirely redacted. 

Asked why the government was unwilling to release the figures, Jesse Bartsoff, a communications advisor for the Minister of Finance, did not answer, reiterating only the government’s policy motivation for the AMT changes. 

The C.D. Howe Institute, a Canadian think tank, conducted its own analysis, estimating AMT changes would result in a four per cent decrease in donations.

In 2021, this would have amounted to about $500 million less for Canadian charities, according to the report. 

But though most agree the changes will lead to a drop in donations, not all believe it’s sufficient rationale for the government to ditch the changes. 

The MakeWay Foundation, a national public foundation, supports AMT shifts despite the likely decrease in donations because of a belief the changes will help reduce inequality. 

“While these changes won’t solve the growing issue of economic inequality, maintaining preferential tax treatment for the ultra-rich will only make the problem worse,” they argue in a policy brief. 

Malleson agreed. “The key issue is whether it’s better to tax rich people to pay for the society we want, or not tax them — and hope that they donate in ways that are good for society. 

“There’s no question in my mind that the first path is better.”  

MakeWay also argued the impact of the proposed AMT changes on the charitable sector is overstated. 

The donation drop from the AMT will impact a small subset of the country’s wealthiest charities, among them foundations, universities, and hospitals — the latter two of which rely much more heavily on government funding than donations, the foundation said. 

AMT changes delayed

But charities for and against the proposed tax changes must wait longer than expected to see what the government decides. 

In December, the government did not change the law as had been proposed in the 2023 Budget. 

Bartsoff did not say whether the charitable sector’s advocacy impacted the delay, but some charitable sector stakeholders believe it has. 

The Department of Finance was surprised by how strongly the sector reacted to this proposal, MacDonald said. “I think it’s giving them pause for thought.” 

In November’s 2023 Fall Economic Statement, the government said it will proceed with the AMT changes “as modified to take into account consultations and deliberations since their release.”  

MacDonald said this language leaves the door open for removing the charity-related provisions.  

“Until the legislation has dropped, the game is still afoot.” 

The story was updated to correct Olivier Jacques’ title, and to update the subheading to reference that foundations said they were not pressured.

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