Dear Friends of the JFM

by Josh Kerr | Dec 15, 2023


We are writing to update you on recent operating amendments within the last two years by the federal government that present specific complex challenges to the operating environment for the JFM and other community and private foundations across Canada; as well as the front line charities directly delivering services to the community. During 2021, the charitable sector spent $308 billion into the community. The federal government and the charitable sector generally work in concert to provide financial support and services to the community. However, recent changes introduced by the government through amendments to the Income Tax Act, significantly increase complexities to the operation of The JFM and other charities across Canada. Rather than working in concert, the federal government implemented these amendments even after receiving submissions from foundations and charities across Canada advocating alternative reasonable strategies to accomplish the government’s objectives.

Therefore, this communication is a call to action to you as JFM constituents to understand the new potential operating environment for the charitable sector, and to please write to your MP voicing your concerns over these amendments which JFM would characterize as punitive. From 1964 to 2022 the JFM has distributed $91 million to the community, now committing approximately $7 million annually. It is our responsibility to steward your gifts today and for those community needs that come after us. We need to plan for reasonable growth for tomorrow. Growth is not merely for growth’s sake; it represents increasing annual distributions and maintaining purchasing power to the community over the long term. The recent amendments by the government are an impediment to the JFM and other charities over the long term.

Increase to the Minimum Distribution Rate

The 2022 federal budget increased the minimum distribution rate from 3.5% to 5.0% commencing in 2023. This means that at the end of 2022 the annual minimum disbursements to other charities for 2023 must be $7.4 million (previously at 3.5% - $5.2 million) an increase of $2.2 million within one year! During 2022 the JFM actually distributed $5.7 million. This is because for decades, the JFM predominantly has distributed amounts greater than the minimum requirement. The JFM recognizes the vital and increasing needs of transferring cash to organizations to assist in funding their various objectives. Anecdotally during the market crash of 2008, when the JFM technically did not have to distribute a dollar, (and several foundations across Canada did not distribute), it still delivered a full annual distribution. This reflects the priority we place on providing consistent and stable annual distributions.

While a mandated increase in annual minimum distribution to organizations may appear to be a “good thing”, it is not sustainable over the long term. The government has always indicated (going back to the last change in 2004) that when the minimum distribution rate is reviewed, the government would prioritize the current investment environment as a priority consideration. At the time of this amendment in 2022, the long-term median portfolio return for the JFM was 5.3%. The annual cost of distribution and operations was 5.7%. This net deficit does not even speak to inflation. Instead, the government bowed to politics by appeasing to advocates of special interest groups demanding the perceived “distribution deficit” in Canada be addressed. Some groups were advocating for an increase in the minimum distribution quota to 10%! While the JFM, along with its colleagues across Canada were open to dialogue to consider all options on this topic, the government acted without really considering with sufficient weight the low return environment at the time its decision was made.

Today, expected long-term investment 20-year returns have improved incrementally to 6.4% for the JFM’s portfolio. However, a minimum 8.5% annual return is required to maintain the purchasing power of endowments and annual distributions in today’s market environment. This would require assumption of considerable incremental risk in the asset mix of the JFM’s portfolio, with allocations to highly volatile (and illiquid) assets such as private equity or other esoteric assets. Such allocations and associated risk is not appropriate for a community foundation the size of the JFM or its constituents. The current value of the professionally managed investment portfolio is $150.0M. Under the current asset mix that value is expected to drop to $141.2M (if there were no further donations). Correspondingly the forecasted annual distribution commitments of $7.0M in 2043 would be worth about $4.8M in 2023 dollars. To exacerbate matters, the current inflationary environment is perpetuating double digit increases by the JFM’s major vendors ranging from ongoing operating software, cyber security & technical support, to professional fees and insurance.

In conclusion, the new minimum distribution rate of 5.0% is not sustainable within the current asset mix over the long term under current market conditions and will eventually result in the liquidation of contributed capital – for most community foundations in Canada.

Changes to the Alternative Minimum Tax (AMT)

The 2023 Federal budget proposes amendments commencing in 2024 to the AMT regime which are intended to “broaden the base of high-income individual taxpayers that should be subject to alternative minimum tax through denial of certain tax deductions, the reductions of non-refundable tax credits and an increase in the AMT tax rate.”

• Only 50% of non-refundable tax credits will be included to reduce the AMT calculation (previously 100% was included to reduce the AMT tax calculation)

• 30% of capital gains from donations of publicly listed securities will now be included in the AMT calculation (previously 0% of capital gains were included)

• Although the increase in the exemption of taxable income from $40,000 to $173,000 appears to be a “positive” for taxpayers; the proposed increase to the federal capital gains tax rate is from 16.5% to 20.5%. This 4% increase in the tax rate is equivalent to a “back door” increase in the capital gains inclusion rate to approx. 62%.

These AMT amendments will reduce the financial incentive for high income individuals to make large transformational gifts to charities. Transformational gifts are philanthropic commitments that can positively change the trajectory of a program, project or even an entire organization. The JFM support’s the government’s efforts to ensure that wealthy Canadians pay their fair share of taxes. However, even if the impact of the AMT changes (conservatively) amount to a 5% reduction in overall donations, charitable sector revenues will decline by $500+ billion.

Charitable donations are in a unique category because they represent neither personal consumables or wealth-enabling expenditures. This is in comparison to tax deductions and tax credits that are considered preferential by the government such as the personal amount, medical expenses and childcare expenses (etc.) which represent personal consumption expenditures. In conclusion, we can’t summarize it any better than the Canadian Association of Gift Planners…

By restricting access to full donation tax credits in the AMT system speaks to a false narrative that Canadian individual taxpayers who make altruistic decisions to support charities are somehow enriching themselves by claiming a donation tax credit. Any claw back of the charitable donation tax credit, in the regular income tax system or under the AMT regime undermines the federal government’s long-standing policy to support the work of the charitable sector through its tax policy and disrupts private wealth transfer to charity in Canada.

We don’t know with certainty the degree the new AMT proposals will impact high-value donations; historically transformational donations represent approximately 35% of total charitable gifts. It would not be unreasonable to assume that as much as one-third of the $11.8 billion of annual charitable giving by Canadians would be negatively impacted.

Please ask your MP to present your position to Parliament to:

1. Amend the minimum disbursement quota from 5.0% to 3.5%;

2. Amend the new Alternative Minimum Tax regime to include 100% of donation tax credits and apply a capital gains inclusion rate of 0%;

For simplicity, please include this letter with your covering letter. If you would like to do so online please visit for a listing of MP email addresses.

In conclusion, the purpose of this letter was twofold. To provide awareness regarding recent material changes in government policy that may impede annual distribution and growth of foundations and charities over the long term. To request that community members contact their respective MPs and MLAs to share your concerns. Rest assured that the Board of Directors and management are keeping apprised and updated on these matters. As well other major advocacy groups for the charitable sector such as Imagine Canada, the Canadian Association of Gift Planners and the Canadian Bar Association are currently advocating in similar fashion to Ottawa.

Ultimately, no matter what the income tax and operating policies set by the government, the Jewish Foundation will steward the community’s assets in a sufficient and appropriate manner with a view to both today and tomorrow.