Ottawa should broaden tax break for donations to charity

Posted on January 2, 2015 in Inclusion Delivery System – Opinion/Editorials – In its next budget the Conservative government should broaden the tax exemption on capital gains to encourage more charitable donations.
Jan 02 2015.   Editorial

Canadians like to think we’re more generous than Americans, but when it comes to charitable giving that’s far from true. In fact, on average we donate only about half as much per person.

One big reason is the tax system: U.S. laws do more to encourage donating to charities by offering more generous tax breaks to people who give money away.

There’s something our federal government can do in the New Year to level the playing field. In its spring budget the Conservative government should broaden the tax exemption on capital gains for charitable donations. It should give the same tax treatment to donations of private-company shares and real estate as is now given to gifts of publicly traded shares.

This is an idea promoted tirelessly by Donald K. Johnson, who had a long career in the investment industry and now serves on many non-profit boards. In 2006 he successfully lobbied for a change to the Income Tax Act that exempted donations of publicly traded stock from all capital gains tax.

That meant people who gave stock to charities no longer faced a big tax bill from Ottawa. Not surprisingly, more of them could be persuaded to part with some of their wealth. All parties in the House of Commons at the time supported the measure, and it has proven to be a resounding success. For each of the past eight years it has resulted in an estimated $1 billion in donations to charitable institutions such as hospitals and universities.

The benefit could be extended by treating donations of shares in private companies and real estate in the same way for tax purposes. That would likely result in additional donations to charities in the region of $200 million a year, according to experts consulted by Johnson. The cost to the federal treasury in foregone taxes is estimated at between $50 million and $65 million – a good ratio in favour of a public benefit.

There are two main objections to this plan. One is that it’s hard to make a proper evaluation of private shares and real estate; as a result, donors may be tempted to inflate the value to get a bigger tax benefit. Under Johnson’s proposal, donors would not get a tax receipt until the property is sold and the designated charity receives the cash, so the marketplace would determine the value of the gift.

The other objection is that it’s just a tax break for the rich. Certainly, anyone with substantial amounts of private stock or real estate available to donate to charity could well be considered rich. But persuading those with more money than they need to part with some of their wealth for the public good can’t be a bad thing in itself – even if they get to keep part of it through a lower tax bill.

Those who believe the proper solution to concentrated wealth and rising inequality is to raise taxes on rich people should not object, either. The federal government doesn’t have to choose between helping charities and increasing taxes on the rich. Raising income taxes on the wealthy is a political decision that doesn’t depend on how charitable donations are treated.

This measure should not be controversial. It would benefit charitable organizations of all types – everything from hospitals, universities and cultural groups to the vast network of social service agencies funded by the United Way across the country. It’s a cost-effective way of unlocking more private wealth for the public good.

The federal Liberals have indicated they support the idea, and so does NDP Leader Thomas Mulcair. The Conservative government should do the right thing and make this change in its next budget.

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