Federal Budget 2008 Summary for Charities
February 28, 2008
The federal Budget presented on February 26, 2008, contained only a few announcements affecting charities. These provisions are briefly detailed below.
Donation of Medicines
Since the 2007 Budget corporations can donate medicines from inventory to charities for a deduction equal to the fair market value of the medicines plus an additional special deduction of the lesser of:
- 50% of the amount by which the fair market value exceeds the cost of the medicine, or
- the cost of the medicine.
This additional deduction was only available to registered charities receiving CIDA funding who would distribute the medicines outside Canada. The 2008 Budget will change the definition of the charities eligible for this special additional deduction.
Qualifying charities will now require the approval of the Minister of International Cooperation, when appointed, in accordance with regulations to be enacted. The charities will be required to comply with the principles and objectives of the World Health Organization Guidelines for Drug Donations plus have expertise in delivering medical donations to the developing world. Eligible medicines must be donated at least six months prior to their expiration date. These changes become effective for donations made on and after July 1, 2008.
Capital Gains and Donations: Exchangeable Securities
Since the 2006 Budget individuals who donated publicly listed securities to a registered charity were eligible for a tax credit equal to the value of the donated shares. Any capital gain realized at the time of the donation was exempt from taxation. Following the 2008 Budget this capital gain exemption will be extended to the donation of unlisted shares which have been exchanged for publicly listed securities. There are three conditions:
- The unlisted securities must be issued with a condition allowing them to be exchanged for publicly traded securities.
- The publicly traded securities must be the only consideration received in the exchange.
- The publicly traded securities must be donated to a registered charity within 30 days of the exchange.
Private Foundations: Excess Corporate Holdings
A very small number of charities are classified as private charitable foundations. Budget changes have been announced for donations of unlisted shares to private charitable foundations under the excess business holdings regime. These rules allow a capital gains exemption for the donation while attempting to prevent individuals closely connected with the private charitable foundation from using this donation mechanism for personal advantage. The changes are highly technical. They do not apply to most charities.
Anti-Terrorism Mechanisms
The 2008 budget announced funding of $10M over two years for the Canadian Security Intelligence Service and the Charities Directorate of Canada Revenue Agency to fund anti-terrorism mechanisms. No details have been provided.
