Donald K. Johnson is a director of the Toronto General & Western Hospital Foundation, a member of the 2019 Major Individual Giving Cabinet, United Way of Greater Toronto, and a volunteer board member of Business/Arts and the Advisory Board at the Ivey Business School at Western University.
A proposal to remove the capital gains tax on gifts of private company shares and real estate should be supported by all parties in the federal election campaign.
This measure will resonate with small business owners who wish to give back to their communities. There are hundreds of thousands of small business owners in our country and 110,000 are members of the Canadian Federation of Business (CFIB), all private organizations. Not only would small business owners be very grateful, but it would help the millions of Canadians who are served by our hospitals, social service agencies and universities, as well as arts and cultural and religious organizations that would benefit from the additional donations it would generate. This increased funding, which we estimate would be approximately $200-million each year, would come at a time when all levels of government – federal, provincial and municipal –are facing significant fiscal challenges.
There is a very high level of awareness and support of this proposal – which was proposed in the 2015 federal budget but not enacted – among all stakeholders in the charitable sector across Canada. These include the management, employees, fundraisers, volunteer board members and donors who would like to give their appreciated capital assets to their communities, as well as the millions of Canadians who are served by our charities.
From a public-policy perspective, this measure would address an inequity in the current Income Tax Act by providing the same tax treatment for donations of shares by owners of small businesses as is currently the case for owners of shares in publicly listed companies. Why should entrepreneurs be treated differently? In addition, it would provide Canadian charities with the same opportunity to raise private-sector funding on the same basis as their U.S. counterparts. Private-sector donations are key to providing funding to support research at hospitals and universities and ensure our organizations have the latest technology.
Our proposal is that the owner of the private company shares or real estate must sell the asset to an arm’s length party and donate all or a portion of the cash proceeds to a charity within 30 days. Because the buyer must be at arm’s length from the seller, this addresses any concern about valuation abuse.
In the United States, the donor must transfer the ownership of the private company shares or real estate to the charity and the charity needs to monetize the asset. The tax receipt for the donor is based upon an appraisal and, because the donor is retaining the services of the appraiser, there is naturally a concern about the potential for valuation abuse. Also, there are significant costs associated with the transfer of the assets from the donor to the charity and additional costs for the charity to retain the services of an agent to monetize the asset. The Canadian proposal is much better for both the donor and the charity. The donor is in the best position to obtain the best price for the asset and the charities would much prefer receiving cash rather than having to monetize the asset.
The Special Senate Committee on the Charitable Sector issued its report in June, 2019, and Section 3 recommended incentivizing the donation of real estate and private company shares.
The committee conducted 24 public hearings where it heard from 160 witnesses, including government officials, legal and policy experts, donors/philanthropists, volunteers, front-line workers and board members. These witnesses represented a wide range of organizations of all sizes from across the sector and around the country. The committee also received written briefs from more than 80 individuals and organizations. As we now have a non-partisan Senate, all parties should give serious consideration to the committee’s report.
We urge all parties − Liberals, Conservatives, NDP, the Greens and the Bloc Québécois – to include this measure in their election campaign platforms.
All charities across Canada will be looking forward with anticipation to the coming election campaign. Their fingers are crossed that all parties will be supportive of this important political and public policy issue. It is one of the few public policy issues on which all parties can agree.