Unlocking more private wealth for public good
TheStar.com – opinion/editorialopinion
November 14, 2012. Donald K. Johnson
During the late 1990s, when the federal government was focused on reducing and eliminating the deficit primarily through spending cuts, a way had to be found to enable charities to access greater funding from the private sector. Many Canadians who had an interest in giving back to their communities could make major gifts in the form of capital assets that had appreciated in value, but they had limited capacity to make gifts in the form of cash.
In 1997 the government cut the capital gains tax by 50 per cent on gifts of listed securities to charities. In the 2006 budget, the government removed the remaining capital gains tax on such gifts. These measures have been an enormous success. Charities have received more than $1 billion in gifts of stock every year since 2006, and the United Way of Greater Toronto has received more than $117 million in gifts of stock since 1997.
But there is more to be done. With all three levels of government set to engage in spending cuts and restraint, it raises the question of what more governments can do to help our charitable sector.
The single, most effective step for the government to take is to expand the capital gains tax exemption to include gifts of private company shares and real estate. Removing this barrier to charitable giving would unlock more private wealth for public good.
In the United States, gifts of private company shares and real estate represent approximately 20 per cent of total gifts of appreciated capital property, with listed securities representing approximately 80 per cent. Using the U.S. experience as an example, it is reasonable to assume that removal of the capital gains tax on gifts of private company shares and real estate would result in approximately $200 million of donations to Canadian charities every year.
Concerns about the implementation of this proposal can be easily addressed. With respect to the fiscal cost, the loss to government coffers is estimated to be only $50 million to $65 million — far less than the benefits of increased funding to the charitable sector. For those concerned with the potential for valuation abuse, the Income Tax Act could be amended to include a restriction that the charity could not issue a tax receipt to the donor until the charity had received the cash proceeds from the sale of the asset. If there are no plans to monetize the gift, the value could be based on the advice of two professional appraisers.
This proposal features additional benefits as well. For instance, under the current tax system, if you are an entrepreneur who decides to keep your company private and you donate shares in your company to a registered charity you are required to pay a capital gains tax on your gift of shares. This proposal would remove this inequity and would level the playing field for all entrepreneurs who have an interest in giving back to the communities that have played an important role in their success.
From the perspective of the mayors and councillors of our cities and towns, these measures would provide additional private sector funding to the charities in each of their local municipalities.
Clearly, these measures are good public policy. They are also good politics because the federal government would be applauded by all stakeholders in the not-for-profit sector. These include community leaders who serve as volunteer board members, the management teams of these organizations, their professional fundraisers, and the 2.1 million people employed by the charitable sector, as well as the millions who benefit from the vital services it provides.
Although opposition parties typically challenge the government on its initiatives, these proposals would be an exception. The leader of the official Opposition and the finance critic of the Liberal party are both publicly on record as supporting being supportive of these two proposals. Surely, this is one of the few public policy issues on which all parties can agree.
To help ensure these measures are in the next budget, it is essential that all Members of Parliament and senators understand the benefits of these proposals and communicate their support to the leaders of their parties. I urge all Canadians to join this effort to ensure our Parliamentarians hear this message. Together, we can make it happen!
Donald K. Johnson is a philanthropist, former financier and member of the Advisory Committee of BMO Capital Markets. He is to address the Economic Club of Canada on Nov. 15 regarding ways to increase private sector funding for health care, education, social services and arts and culture by expanding the capital gains tax exemption to include gifts of private company shares and real estate.
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