Bill C-256 proposes to provide capital gain exemptions for the sale of real estate or private corporate shares when the proceeds are donated to charity.
Introduced to Parliament in late 2020, the private member’s bill would amend the Income Tax Act to reduce capital gains tax to zero if listed conditions are met. Some of those conditions include:
- that the gift is made within 30 days after the disposition
- that any advantage received is accounted for
- that the purchaser is at arm’s length to both the taxpayer and the charity
Similar legislation was introduced in 2015 but was never enacted. The Senate Report on the charitable sector, Catalyst for Change, dedicates an entire section to the topic. In that report, the committee outlined potential advantages and disadvantages to eliminating capital gains tax on donations of the proceeds from private company share and real estate sales.
Advantages and disadvantages are listed together and include:
- increased funding for the sector
- equity between entrepreneurs (those who keep companies private versus those who take them public)
- equity among charities (there was debate amongst the witnesses on the breadth of benefit that would result),
- taxpayer equity (with debate about whether it would disproportionately benefit wealthier donors and the advantages of voluntary wealth redistribution)
- cost to the federal government (estimated amount of charitable donation tax credit that would result is $65-70 million)
In the end, the committee recommended that Canada Revenue Agency (CRA) launch a pilot project to evaluate the impact on the charitable sector of exemptions donations of private shares from capital gains tax. Bill C-256 moves forward with that idea, but avoids the difficulties of in-kind donations and valuation by incentivizing donations of proceeds rather than the shares or property themselves.
Whenever donations are incentivized, proper safeguards need to be in place to prevent manipulation and abuse, but when those are in place, expanding sources of donations for charities is good news for the sector.
CCCC’s CEO, Rev. John Pellowe notes that, “charities add to the richness and strength of our nation, positively impacting local communities where we live, learn, worship, and serve. Healthy charities help create strong civil societies. CCCC is supportive of policies such as this one that promote greater civic engagement by encouraging charitable donations, especially in light of ongoing pandemic-related challenges.”
Noteworthy is provided for general information purposes and does not constitute legal or professional advice. Every organization’s circumstances are unique. Before acting on the basis of information contained in this blog, readers should consult with a qualified lawyer for advice specific to their situation.