Donald K. Johnson is a director of the Toronto General & Western Hospital Foundation and a member of the 2019 Major Individual Giving Cabinet, United Way of Greater Toronto.
Charities across Canada have been urging the federal government to provide the same tax treatment to the donation of shares in private companies and real estate as currently applies to gifts of publicly traded shares. The case for including this measure in the budget on March 19 is very compelling.
The elimination of the capital gains tax on gifts of listed securities in the 2006 budget has resulted in gifts of stock of more than $1-billion virtually every year since 2006. It is estimated that extending this measure would result in additional donations to charities of $200-million a year. The fiscal cost to the government of the forgone capital gains tax would be around $50-million to $65-million. The cost of the charitable donation tax credit is the same as for gifts of cash. The fiscal cost of the proposal is shared by the government (i.e. the taxpayer) and the donor. Direct government spending is borne 100 per cent by the taxpayer.
This measure would enable Canada’s charities to access donations of these appreciated capital assets on the same terms as our U.S. counterparts, with whom we compete for the best and brightest talent. It would also address an inequity in the current Income Tax Act. Entrepreneurs who take their company public are exempt from capital gains tax on donating shares to charities, whereas entrepreneurs who keep their company private do not have the same benefit.
There are 109,000 members of the Canadian Federation of Independent Business and they are all private organizations. Removing this inequity would give these entrepreneurs an opportunity to give back to the communities that have played an important role in their success. Also, any concern about valuation abuse is addressed by the fact that the owner must sell the asset to an arm’s-length party and donate the cash proceeds to a charity within 30 days in order to be exempt from the capital gains tax on their donation. This structure is better than the U.S. system where the donor has to transfer the ownership of the asset to the charity and the charity has to monetize the asset, which involves significant cost.
The decision on whether to include this measure in the budget is not made by the Department of Finance; it is made by the Minister of Finance with the support of the Prime Minister. Before making a decision, the Minister of Finance must consider any concerns raised by the Department of Finance. Each of these concerns are already addressed in this article. Importantly, the minister must listen carefully to charities in his constituency and their opinion on this measure. He must also listen to the feedback from Liberal MPs who have discussed this proposal with charities in their constituencies.
Governments like to have some good news in a pre-election budget and this measure would resonate with all stakeholders in the charitable sector in each province across Canada. It would result in positive media coverage and help the government address the negative media coverage it has experienced over the past few weeks. If it is not included in the budget, it is reasonable to assume that the Conservative Party will have this measure in their election platform. The Conservatives had this measure in the 2015 budget but it was not included in the budget bill so it was not passed into law.
All charities across Canada will be looking forward with anticipation to the budget that will be delivered on March 19. Their fingers are crossed.