In a move that has Canada's charitable sector reeling, the federal government quietly announced in last month's budget that it was not proceeding with draft legislation that would have exempted capital gains from tax when the proceeds from the sale of real estate or private company shares are donated to a registered charity.
This measure was introduced by former Finance Minister Joe Oliver in last year's Tory federal budget and was to come into effect for donations beginning Jan. 1. It was cancelled by the Liberal government without any warning or explanation.
By way of background, individuals who make donations to registered charities are eligible for a federal non-refundable charitable donation tax credit of 15 per cent on the first $200 of annual charitable donations. The federal credit rate jumps to 29 per cent for cumulative donations above $200. When provincial credits are added to the federal ones, your total credit can be as high as 50 per cent, depending on your province of residence.
“First-time donors” can also take advantage of the temporary First-Time Donor's Super Credit, which provides an additional 25 per cent non-refundable tax credit on up to $1,000 of donations.
Since 2006, donations of publicly traded shares, mutual funds or segregated funds to a registered charity not only get you a tax receipt equal to the fair market value of the securities or funds being donated, but you can also avoid paying capital gains tax on any accrued gain on the shares or funds donated. Similarly, if you're an employee who has received stock options, you can avoid paying tax on the stock option benefit by choosing to donate the proceeds of option exercise to charity within 30 days of exercise.
The proposed rule would have put donations of the proceeds from the sale of appreciated private corporation shares or appreciated real estate on a similar footing as donations of publicly traded securities and was praised by the charitable sector when it was introduced last year as a wonderful incentive that would spur the philanthropically inclined to consider major gifts to a variety of Canadian charities in 2017 and beyond.
Indeed, one board member of a major health charity, who didn't want to be named, said he was in the midst of working on a massive capital fundraising campaign to be launched in January to encourage major donors to take advantage of the new rule.
Late last month, Imagine Canada, a national charitable organization whose cause is supporting Canada's charities, published an open response to the federal budget by Bruce MacDonald, the CEO and president, and Brian Emmett, the organization's chief economist.
They expressed their disappointment in the cancellation of this proposed change, writing that “(t)he decision not to proceed with the income tax exemption in respect to capital gains of the donation of real estate and shares of private corporations sends a troubling message related to the creation of a regulatory environment that will enable charities to thrive, fulfill their missions and continue to be a powerful contributor to the economic well-being of this country.”