Today the CBC published an article, “Mormon Church in Canada moved $1B out of the country tax free — and it’s legal“. Tonight on The Fifth Estate, there was a report on the same topic. The article reviewed gifts from Mormon organizations in Canada and worked out that about one billion dollars went to Brigham Young University in the United States, which is a qualified donee under the Canadian tax system. It meets the criteria of a qualified donee because it is a registered foreign university that provides degrees and has also typically had at least two Canadian students studying at the university each year for the last five years.
If a university meets these requirements and applies to CRA, CRA can put the university on a list of registered foreign universities, and they can then receive donations from Canadian registered charities. We have an article which describes how that process works.
The CBC article above touches on a number of angles, including: the large amount of funds going from Canada to certain foreign universities; how transparent the LDS church is about funds raised in Canada and what the funds are used for; religious giving and tithing; the value of donations, which while costing governments money may also result in some savings for governments; the treatment of minority students such as LGBTQ at Brigham Young University; questions raised around the world about LDS fundraising and potential scrutiny of other regulators. It will be interesting to see if further information becomes available.
It is hard to work out, with so many donors, how much these donations cost the Canadian tax system. I would think that the cost, when you look at both Federal and Provincial tax subsidies, plus the non-inclusion of investments gains, is probably more in the area of a 50% tax benefit, but it is hard to determine, and that is a guess on my part. Some donors will get no tax benefit, and others will get a 70% tax benefit. This type of list of foreign universities allows Canadian individuals, corporations, or Canadian registered charities to make an unrestricted gift to a foreign university included on the list. This is a uniquely Canadian invention. I’m not aware of any other countries that have such a system. So just to be clear, you don’t have to ever have visited the foreign university, have studied at the foreign university, or have had family members study at the foreign university to be eligible to donate and receive significant tax benefits in Canada for the donation. Any Canadian can donate to the foreign university on the list and receive the same tax benefits as if they donate to a Canadian university.
As you can appreciate, education is extremely important. Higher education is, on many levels, an important part of the educational system in Canada and abroad. I like the idea of making it easy for Canadians to donate to foreign universities, but the question has to be asked as to whether the requirements allowing donations to these foreign universities are stringent enough and whether, overall, the system as it actually works is fair when compared to how it could work theoretically.
For example, once a different US university lost its 501(c)(3) status from the IRS (which is similar to registered charity status) because it had explicitly racist criteria and my understanding is that it wouldn’t allow Black people to study at the university. So, when Americans donate to that university, they do not get a tax benefit; however, because the group was a Registered Foreign University in Canada (and is still a university and still had Canadian students studying there), CRA did not remove them from the list and a donor in Canada could still get a huge tax benefit from donating to that institution. Do we want Canadian taxpayers subsidizing that type of foreign university?
While some donors may get no tax benefit for donations, as they may not have any Canadian income for their donations, other wealthy donors donating appreciated marketable securities may receive up to a 70 or 80% tax benefit. The cost to the Canadian tax system is quite large.
From an equity perspective, there are concerns across many countries that higher education, while very important, might be taking in a disproportionate amount of fundraising revenue compared to, say, organizations fighting poverty. This is not only a Canadian issue but also the case in many countries. Also, there are huge discrepancies between certain prominent universities in each country and how much fundraising they are able to do compared to less prominent universities.
When you look at the list of the top US donations in some years to US charities, you might have to go through many pages of donations before you get to a poverty relief organization. Harvard, Stanford, and Princeton receive large amounts of funds and, in some cases, there have been questions around the utilization of their funds and how much is just being stored in long-term investment accounts. The same criticism is sometimes leveled against some hospitals, but they don’t benefit from this unique Canadian system.
With COVID and the increasing urgency of certain needs, there’s nothing wrong with asking questions when an organization has $10 billion in assets and it is investing those funds and not using them for charitable purposes, whether it is a good investment of taxpayer money to encourage more funds to be added to those large investments? Different people will have different perspectives on this.
Should there be an additional requirement or requirements to the existing requirement of being a university and having Canadian students study there? For example, if a university is explicitly racist, should it be allowed to be on the list? If a university is overtly partisan and supports certain political candidates or parties, should it be allowed on the list? If a university has so much money invested that it could run the university for a couple of years without charging any tuition or receiving any fundraising funds, should that university be subsidized by the tax system? If CRA determines that the public harm caused by an institution is more than the public benefit, should they be on the list? Should there be special rules for universities in the Global South that makes it easier for them to get on the list? Should the definition of the universities that can be included be expanded to include higher education institutions that, in some countries, don’t issue degrees?
Also, I encourage people to look at the complete list of Registered Foreign Universities and ask the question of whether the groups on the list align with where the greatest needs are in this world in terms of higher education. The list is divided into three parts – the United States, United Kingdom of Great Britain and Northern Ireland, and, finally, other countries. You might come to the conclusion that the list is not fairly distributed based on need. For example, there are a number of countries that have a large number of universities, such as the United States with 548 universities listed, and there are other countries, such as India, which only have one university on the list.
If one feels that supporting educational institutions in the United States is more important than assisting such institutions in India, you won’t have a problem with this. However, if you feel that higher education in India is equally important, or more important, and requires more support from Canadian taxpayers, you might question why there are 548 groups receiving huge tax incentives in the United States and only one in India.
It may be that there is only one university in India that is qualified for the status because you need to have two or more students from Canada studying there. It is unlikely but possible. It is also possible the people in higher education in India don’t know about the lucrative tax incentive system we have in Canada.
Irrespective of the “why”, if a large amount of money is potentially going to countries that don’t urgently require the funds or to institutions that don’t seem to urgently need such funds, it behooves policymakers in Canada to ask questions about whether this is the right system to have or if adjustments are needed to be made to the system.
Just to help people understand the issue and to understand who is responsible for it, as people are often confused between the role of CRA and the Department of Finance: CRA’s sole job is to take in applications from foreign universities and assess those applications based on criteria in the Income Tax Act. There is nothing CRA can really do to change the criteria and system. It is the Finance Department that needs to consider whether changes are needed and, if so, make those changes to the Income Tax Act.
Here is some information from our CanadianCharityLaw.ca website that relates to either Registered Foreign Universities or other elements in this story:
Lists of largest gifts to foreign universities
Gifts by Canadian Registered Charities to the Registered Foreign Universities in 2019
Largest Gifts from Canadian Charities to other Qualified Donees for 2015
Largest Gifts from Canadian Charities to Foreign Qualified Donees for 2014
Largest Gifts from Canadian Charities to other Qualified Donees for 2013
Largest Gifts from Canadian Charities to other Qualified Donees for 2012
Largest Gifts from Canadian Charities to other Qualified Donees for 2011
Largest Gifts from Canadian Charities to other Qualified Donees for 2010
Other articles on registered foreign universities
Foreign Universities Applying for Prescribed University Status in Canada 2018
Canadian charities giving to Indigenous Charities and Qualified Donees – 2019
Gifts by Canadian Registered Charities to the Registered Foreign Universities in 2019
Prescribed foreign universities can have their qualified donee status be revoked by the CRA
Which Universities Outside of Canada are qualified donees and “prescribed universities”? (2011)
CRA letter on Canadian students attending Canadian campus of foreign university/distance education (2010)