Canada Budget Eliminates Capital Gains Tax on Gifts of Appreciated Securities
(May 8, 2006) In a huge victory for the fundraising profession, the 2006 Canada federal budget includes a provision to eliminate the capital gains tax on gifts of appreciated securities to charities.
The proposal, which AFP has pushed for many years, would take effect immediately and is expected to dramatically increase giving by the hundreds of millions of dollars annually.
“There are major donors across the country who have been waiting for this type of incentive so they can make their gift,” said Susan Mullin, CFRE, director of development at the York University Foundation and chair of AFP’s Government Relations Committee. “The opportunities for charities to build their capacity and expand programs have now multiplied with this provision.”
The budget document notes that “[s]ince the capital gains inclusion rate was initially reduced in 1997, donations of listed securities grew from $69 million to about $200 million in 2004. While many factors influence the donation of listed securities, it is estimated that the elimination of the capital gains tax on these donations may support about $300 million in annual donations.”
The budget also applies the same provision (eliminating the capital gains tax) to the Ecogift program, through which Canadian landowners may donate ecologically sensitive land, or easements and covenants on such land, to conservation charities to ensure its preservation in perpetuity.
“AFP has been the key proponent of this policy change for many years, but it’s very much been a team effort,” said Paulette Maehara, CFRE, CAE, president and CEO of AFP. “I want to thank all of the organizations who have worked with AFP over the years on this issue, and every member of AFP who has contacted their members of Parliament in support of this change. In particular, our volunteer leadership – especially the chairs and members of our Canadian Government Relations Committee through the years – have made so many outstanding contributions to this effort.”
More Work on Private Foundations
The government did not extend the provision to gifts of appreciated securities to private foundations, noting it had concerns about current legislative safeguards related to conflict of interest. However, it promised that it would hold discussions with foundations and other interested parties to try to develop legislation that would address those concerns. If appropriate rules were developed, the government indicated that it would bring them forth to Parliament and extend the capitals gains tax provision to private foundations.
AFP will continue to work with other charitable organizations in extending the capital gains tax exemption for private foundations.
In another budget provision related to charities, $50 million will be provided over two years to enhance and expand the Canada Council for the Arts' support of the arts in Canada.
The portion of the budget relating to charitable organizations is available below in the Attachments section. Comprehensive documents discussing the 2006 budget in detail are available on the Finance Canada website.