As shown in the most recent Statistics Canada donations figures (released on November 23rd) the economic downturn had a significant effect on charitable giving, though the raw figures presented overestimate the monetary aspect of this effect.
- In 2009, Canadian taxfilers claimed a total of $7.8 billion in charitable donations.
- 5.6 million Canadians, representing 23.1% of taxfilers, claimed a charitable donation in 2009.
- The raw data appear to indicate that 2009 continues a significant decline in donation amounts that began in 2008 – however, these figures do not take into account the role of tax shelters and are potentially misleading.
- If the amounts involved in tax shelters are excluded, donations were flat between 2007 and 2008 and dropped less than the raw figures indicate in 2009 (3.4% rather than 5.4%).
- The percentage of taxfilers claiming donations dropped from 24.1% in 2008 to 23.1% in 2009.
- The drop in taxfilers should be grounds for considerable concern because it is not greatly affected by the tax shelters issue and the size of the drop is virtually without precedent.
(La version française du rapport se trouve ici.)
Statistics Canada released its latest annual figures on charitable donor statistics on November 23rd. These figures reflect donations claimed by Canadian taxfilers on their personal income tax returns for the 2009 tax year.
Unfortunately, as with the release last year (covering the 2008 tax year), there was no article summarizing the data released in The Daily as had been common practice in prior years. However, a summary table containing much of the information that was the basis for previous releases was released. Part of this table is reproduced below. The complete table can be viewed on the Statistics Canada website.
Many in the sector have been awaiting these figures as an indicator of the full effect of the economic downturn on donations. The downturn began in Canada in late 2008 and the 2009 data reflect the first full year since the downturn.
In 2009, Canadian taxfilers reported a total of $7.8 billion in charitable donations (see Table 1). This was down approximately 5.4% from the $8.2 billion reported for 2008. This decrease is particularly significant because superficially it seems to continue a decline that started in 2007, when reported donations totaled $8.6 billion. However, as I will explain below, this isn’t the whole story.
The number of taxfilers claiming donations also dropped significantly. In 2009, 5.6 million Canadians (23.1% of taxfilers) claimed donations. This is almost 180,000 fewer Canadians than the 5.8 million (24.1% of taxfilers) who claimed donations in 2008. Although this decrease is part of a very long-term trend, 2009 marks the largest year-to-year drop recorded since 1997.
The Role of Tax Shelter Arrangements in Donation Amounts
While we should be concerned about these decreases, the raw data from the Statistics Canada database paint a picture that appears worse than it is. In particular, these data are silent on the role of tax shelter arrangements, which significantly distort the donation picture.
While relatively few donors are involved in tax shelters, the donation amounts are considerable. Between 2003 and 2009, the Canada Revenue Agency estimates that approximately 172,000 Canadians became involved in tax shelter schemes involving claims of inflated receipts totaling more than $5.4 billion.
As seen in Figure 1, 2006 was the peak year for these tax shelters, when they accounted for some $1.3 billion in charitable receipts issued. However, CRA has been auditing these tax shelters and has been disallowing a very large proportion of the receipted value claimed by taxfilers (around 90-95% in 2008). In response, participation in these tax shelters has become much less popular. From the peak in 2006, the amounts involved have declined significantly, to a low of $284 million in 2009.
If these tax shelters are removed from the donations figures reported by Statistics Canada, a somewhat different picture emerges. Rather than showing a steady decline in claimed donations from 2007 onwards, claimed donations are flat between 2007 and 2008 and only drop in 2009 (see Figure 2). In addition, the 2009 drop is smaller than the raw figures would indicate (3.4% rather than 5.4% or $257 million rather than $439 million).
An Analyst’s Perspective
As was widely expected, the economic downturn had a noticeable effect on charitable donations. However, while the decrease in the total amount donated was significant, it was not as large as the raw data indicate and it does not appear to reflect a steady decline from 2007. Given long-term trends of increasing donations, it seems unlikely that 2009 marks the start of a large scale reversal, though we clearly must continue to monitor the situation closely. This is something that we are doing with our Sector Monitor program and in a later post I will present relevant data from the Monitor.
More concerning to me as an analyst, however, is the decline in the number of donors. The size of the drop in 2009 is virtually without precedent. Further, it is part of a very long-term decline in the percentage of taxfilers claiming donations. Unlike with total donation amounts, there is reason to believe that unless something is done this trend will continue.
Although it is impossible to say whether large or small donors (as defined by the amounts donated) were most affected by the downturn, we can say that the sheer number of Canadians who ceased to claim donations means the effect has to have been fairly broad. As an analyst, my view is that we should be particularly concerned about this if economic pressures continue over the long-term because of the possibility that some Canadians may “fall out of the habit” of donating.
I hope this has been useful to you and I would welcome your comments. I look forward to covering other aspects of charitable donations in coming weeks.
Senior Research Associate, Imagine Canada