Draft tax changes open door for charitable giving: report

One expert suggests revisiting a scrapped plan to reward a different form of donation

Draft tax changes open door for charitable giving: report
It’s a common political gambit: appease those who are against a proposed measure by giving them something else they want. As Ottawa continues to face resistance to its proposed small-business tax changes, it may want to reconsider one previously abandoned scheme.

The plan concerns the preferential tax treatment for donation of appreciated private-company shares and appreciated real estate to charity. In a column for the Financial Post, CIBC Wealth Management’s managing director for tax and estate planning, Jamie Golombek, wrote that it should have taken effect in January, but was pre-empted by the new Liberal government in its first budget in April 2016.

“The argument for making the change has been that, conceptually, there should be no difference, for purposes of tax treatment on gifting, between the donation of shares of publicly traded securities and those that are not,” said a new report from the CD Howe Institute cited by Golombek.

Since 2006, Canada has offered tax benefits for donations of publicly traded shares, mutual funds, or segregated funds to registered charities. Such donations are eligible for a tax receipt equal to the fair market value of the assets being donated; donors can also avoid paying capital-gains tax on any gains accrued on those donated shares and funds.

“The current attacks [on small business taxation] set the stage for these proposals, which allow for business owners with highly appreciated shares or real estate to make contributions to charity rather than endure the high rates of taxation,” said Adam Aptowitzer, a tax lawyer at Drache Aptowitzer and author of the report.

The report argued that donations of appreciated private-company shares should be subject to a capital-gains inclusion rate of 0%. It didn’t go so far for appreciated real estate because of existing rules under which land deemed environmentally sensitive by the minister of environment is given a 0% inclusion rate when donated to a conservation charity.

Instead, Aptowitzer called for “an inclusion rate higher than zero but less than the current rate to incent donations of real estate without undermining the ecogift program.”

The report framed it as a possible win-win for Canada’s charitable sector and owners of private-company shares and real estate. However, given recent moves toward increasing taxation of the top 1% of income earners and private corporations, Golombek noted that the government’s response to the recommendation is “anyone’s guess.”

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