The federal budget of March 29, which is likely to abound in austerity measures, should include at least one piece of good news: an extension of the exemption from capital-gains tax of charitable donations. Gifts of private-company shares and real estate should be treated in the same way as shares listed on stock exchanges.
It has long been observed that Canadians give less in charitable donations – per capita – than Americans: about half as much. Some people (many Canadians included) think that Canadians are simply more parsimonious and less generous, but the evidence is that the tax policies of the United States have favoured such gifts much more than the corresponding Canadian policies.
Donald Johnson, a philanthropist who is a former vice-chairman of BMO Nesbitt Burns, has already proved remarkably persistent and persuasive in bringing about one amendment to the Income Tax Act, which has brought out the previously under-mobilized liberality of Canadians. Largely thanks to Mr. Johnson, donations to charities of publicly traded securities – with unrealized capital gains – no longer give rise to capital gains tax.
That change, which was announced in the 2006 budget, was supported by all four parties in the House of Commons. Since then, it has yielded about $1-billion a year in donations to charitable institutions – which turned out to be especially helpful after the financial crisis of 2008.
Real estate and the shares of private companies were not included in that amendment, because they are far harder to evaluate than shares of a kind that are constantly being traded. But there are ways to provide for the independence of appraisers. Moreover, if the donor does not get a tax receipt until the property is actually sold – to an arm’s-length purchaser, that is – then there is a real, unimpeachable price: a neutral measure of value.
In the U.S., about 80 per cent of charitable donations of these kinds (with unrealized gains, that is) are in publicly traded shares, and 20 per cent are in comparatively illiquid assets. Applying that 80-20 ratio to Canada, Mr. Johnson and his associates estimate that the additional exemption for private shares and real estate would result in $200-million a year more for often hard-pressed charities, but a loss about $50-million to $65-million a year to the federal treasury – a net gain for the public good.
Charitable donations are an opportunity for individuals, families and firms to exercise their own discretion in choosing among the many valuable goals pursued by many organizations – rather than deferring to the state. Consequently, Mr. Johnson’s admirable proposal is based on a conservative principle, and it ought to appeal to a Conservative government.