If you’ve ever made a donation to a charity in Canada, you know that your gift is usually eligible to receive a tax receipt. This probably wasn’t your biggest motivator for giving, but it helps. This week you might have read about the new Federal Budget, and like us, you might be curious about what some of these changes will mean for donors and charities in Canada. The good news is a series of new tax rules will make it easier than ever for you to support your favourite charities in the future.
The biggest change? As of 2017, you will be able to donate proceeds from the sale of your private company or real estate without having to pay capital gains tax. What does this mean? Well, let’s say you sold some property and were looking to donate a part of the proceeds to charity. Under the old laws you would first have had to pay a tax on the profit of the sale, and could then donate a portion of the remaining amount. With the new rules you could donate first and only pay tax on the remaining amount. In short – more money to the charity and less money to the government (it’s estimated that the rule will cost the government about $265 million over the next four years).
This change reminds me of the 2006 budget; when the federal government allowed us to donate shares in publicly traded companies, tax free. These changes boosted charitable giving in Canada by an estimated 1 billion dollars a year. It’s a staggering statistic, and now with even more ways to donate, charities are hoping that these numbers will continue to go up.
Jacline Nyman, CEO of United Way Centraide Canada, seemed very optimistic about the results when quoted in Wednesday’s Globe and Mail.
“If people can look at transferring major assets like real estate or private securities, this is a really exciting moment in time. In my experience, donors do look at their out-of-pocket expense post-tax, so it does really encourage a greater amount of philanthropy.”
Not everyone is so optimistic. Michael McKnight, president and CEO of United Way of the Lower Mainland in British Columbia told Business Vancouver he thinks “this will affect only a small number of larger donors and a few select charities.” Maybe he’s right. What does seem likely is that these exemptions will be much more attractive to wealthier donors that typically give larger amounts to larger charities.
One key charitable tax change not included in the budget was the proposed “Stretch Tax Credit for Charitable Giving”. The tax would reward donors with a more generous tax credit rate of 39%, if they increased their donations over and above what they had given on average in the last five years. The tax credit would also attract first time donors who would have receive a higher tax break for their donation.
“At a time when giving has been stagnant or even declining, the Stretch would have made it easier for all Canadians to give more to their favourite causes,” said Bruce MacDonald, President and CEO of Imagine Canada. The advocacy group lobbied strongly in favour of the stretch tax and maintain that it should be a top priority for future budgets.
At the end of the day the budget sends a clear message. The government believe in the power of your charitable donations and want to invest in Canadian philanthropy. Incentivizing your donations, and giving you more flexibility, should financially benefit the charitable sector, and aid our effort to help build strong communities. There is still work to be done, but this is a step in the right direction that should show positive impacts in the near future.