– The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies through research that is nonpartisan, evidence-based and subject to definitive expert review.
CANADA – While controversy swirls around the federal government’s small business tax reform proposals, Ottawa has a significant opportunity to open a rich vein of wealth for Canada’s charitable sector and simultaneously increase tax planning options for owners of private company shares and real estate, according to a report by the C. D. Howe Institute.
In “No Need to Reinvent the Wheel: Promoting Donations of Private Company Shares and Real Estate,” author Adam Aptowitzer recommends Ottawa extend favourable tax treatment to the donation of private company shares and real estate.
“In terms of the public good, these moves would tweak the current system to unlock new means of financing Canada’s charitable sector,” says Aptowitzer, a leading tax lawyer.
For several years, notes the author, voices in the charity community have been advocating for change to the regime by which private company shares and real estate may be donated to charity. “The argument for making the change has been that, conceptually, there should be no difference, for purposes of tax treatment on gifting, between the donation of shares of publicly traded securities and those that are not,” he states.
Previous proposals to rectify the situation, which died quietly, were overly complex and had unintended consequences, adds Aptowitzer.
Instead, he recommends that Ottawa enact special treatment of private company shares by simply excluding the capital gain from taxable income. If the shares are never disposed of by the charity, then the donor is never entitled to a receipt. This system accomplishes the same object as the one achieved under the now abandoned proposals.
In the case of real estate, the author notes the distinction between the tax treatment of land deemed environmentally sensitive by the minister of environment and other real estate.
Previous proposals had the unintended effect of undermining the donation of environmental property to conservation charities across Canada. The author proposes methods to help ensure the valuation of the property by the market, increase the incentive to donate ordinary real estate, and still keep a super incentive to preserve environmental property.
As a model for an appropriate system, says the author, we can look to the regime for the donation of private company shares.
“These reforms would unlock the store of wealth in private shares and real estate as an avenue for charity financing, and increase the tax planning options for holders of these assets,” concludes Aptowitzer.
