The following is an email distributed to York’s faculty on March 22, 2012, with subject: “Commentary from Prof. Neil Brooks on who really pays for the CIGI-York Agreement.”
Apologies for cross-posting
York faculty deplore CIGI Agreement’s hidden costs: Balsillie’s actual contribution to $60 million deal with York University could be as low as $10 million, with taxpayers picking up the tab
York University has announced a $60 million research program based on contributions from Mr. Jim Balsillie via the Centre for Innovation in Government and Information (CIGI) and the Government of Ontario. CIGI is a not-for-profit company chaired by Mr. Balsillie. A commentary by Osgoode tax law professor Neil Brooks, copied below, suggests that the bulk of the $60 million under the CIGI-York Agreement (as much as $50 million, or 83%) is likely to be public money, once the tax credits available to Mr. Balsillie are taken into account.
Under the Agreement, the funds are slated for research in areas such as intellectual property law, in which Mr. Balsillie appears to have an interest due to his ownership of shares in Research in Motion. Unlike other donations to York University, this donation has stringent strings attached that give an unprecedented academic role to the private funder. Although the private think tank may be contributing as little as 17% of the after-tax cost of the academic program, it gains large influence over the use of 100% of the funds disbursed under the Agreement. The university has not explained why it, and apparently the Government, are willing to give such influence to a private think tank.
An open letter from 273 York professors criticizes the Agreement for giving CIGI a role in setting research agendas, hiring and terminating professors, and approving the annual budget of an ostensibly independent academic research program. The University has claimed to have negotiated protocols to protect its interests and academic freedom, but CIGI or the University, or both, rejected the protocols and language proposed by an Osgoode Faculty Council panel which would have, among other things, made CIGI’s obligations enforceable “in the courts”. The protocols are also not subject to the arbitration process that allows enforcement of the CIGI-York Agreement itself.
The funds contributed under the Agreement, including all of the public funds, are to be disbursed by CIGI in quarterly advances over ten years (clause 9 of the Agreement). The Agreement stipulates that all of the public money is to be disbursed before any of the CIGI funds (clause 16), and that CIGI can terminate the agreement and cease its payments ninety days after alleging a ‘material breach’ of the Agreement, subject to the arbitration process (clauses 26 and 34). Astoundingly, the Administration has agreed to this.
Hundreds of concerned faculty have called on the University to submit the Agreement to York’s Senate for appropriate review and amendment.
Many also question why the Ontario Government would commit public postsecondary funding to an Agreement that undermines academic freedom and university autonomy.
Commentary by Osgoode Professor Neil Brooks
Mr. Jim Balsillie contributes $30 million under the Agreement signed in August by himself and Mr. Thomas Bernes on behalf of CIGI, and by York President Mamdouh Shoukri and Osgoode Dean Lorne Sossin. The contribution is conditional on a $30 million contribution from the Government of Ontario. The precise nature of Mr. Balsillie’s contribution and its tax consequences have not been revealed, but the most likely tax implications of these funding arrangements are as follows.
Mr. Balsillie will presumably claim the full charitable tax credit for giving his $30 million, which will reduce his actual cost to about $16 million. The charitable tax credit is equivalent to the top marginal tax rate; in Ontario, this is 46%. Thus, the tax credit will be 46% of $30 million, or about $14 million. Further, these types of gifts are not usually made in cash but in shares of publicly traded corporations, in this case presumably RIM shares. Under the Income Tax Act, when such shares are given to a charity, the capital gains tax on the accrued capital gains is forgiven. In effect, taxpayers are able to claim a tax credit for donating income for which they have paid no tax. A university can then take the shares and sell them immediately. Because the University is a charity, no tax is paid on the capital gains that accrued while Mr. Balsillie owned the shares and for which he received a charitable tax credit. We can reasonably assume that his gift was or will be comprised of shares of RIM, and that Mr. Balsillie’s cost base in the shares is very low. The forgiven capital gains tax could be as high as $6 or $7 million.
In sum, the actual cost to Mr. Balsillie is likely about $10 million. The remainder of the $60 million contribution comes from Canadian taxpayers. Of course, all the overhead costs and much of the related operating costs have already been paid by taxpayers.
Professor Neil Brooks has taught tax law and policy at Osgoode Hall Law School for over 35 years and is the Director of the Graduate Program in Taxation. He co-authored The Trouble with Billionaires (2010) with Linda McQuaig.
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