Thirty-four years ago a government worried about recessions and revenue streams saddled the Canadian public with a new tax. Charities, community organizations, and individuals have been paying ever since.

The Canadian Capital Gains Tax came into existence in 1971 with the passage of Bill C-259. Based on the slogan ‘a buck is a buck’, the new tax law removed the distinction between personal income and capital gains from other assets. It was enacted to help finance the growing costs of the social welfare system and government expenditures.

The tax succeeded in generating revenue for the government, but it also served to stymie potential donor funding for the nonprofit sector, specifically in the area of donations of assets (other than cash) to charities and foundations. Because any charitable gift could now be taxed, regardless of type, there was less incentive for people to give to their chosen cause.

A measure of relief

Recognizing this fact, the government has made adjustments to the Income Tax Act over the years. A major change occurred in 1997, when the capital gains tax on gifts of listed securities (stocks) was lowered to half of the overall taxation rate on income. Prior to this move, there was very little incentive for people to donate gifts of this kind. The measure helped spur more giving by Canadians.

The Canada Revenue Agency (CRA) reports that there are approximately 80,700 registered charities in Canada. According to a 2004 report by the Standing Senate Committee on Banking, Trade and Commerce (SSCBTC), nearly 5.6 million Canadians donated more than $6.4 billion to registered charities in 2003. Despite these impressive numbers, the nonprofit sector believes further capital gain tax relief is needed. This is why organizations are pushing hard for more changes and hoping their proposals will be included in the 2006 federal budget.

Pushing for change

Tad Brown, chair of the Association of Fundraising Professionals (AFP), has been fighting for the elimination of the tax on listed securities for more than four years. “Given the enormous success of [the 1997 reductions], the AFP and others have pushed to have a complete elimination of the capital gains tax, which we believe will increase the amount of gifts to the sector that much more,” he says. Unfortunately, the government has been resistant to this radical idea because it fears a loss of revenue.

“We have tried to make the case that if that is the concern, that is not the right way to look at this,” says Brown. “This is not a loss of revenue; it is an effective tax policy to leverage additional giving to the charitable sector. Although it might not be money that flows directly into the federal budget, it does flow directly into the sector.” Most in the sector would concur.

The Canadian Association of Gift Planners’ (CAGP) chair of government relations, Malcolm Burrows, agrees with the AFP. “It’s proven now, that donors are very comfortable giving securities. We think that the elimination [of this tax] will increase giving further. It’s already the most tax-effective way to give, in terms of an ordinary gift,” he says. But Burrows believes the government still isn’t convinced. “There are real questions in Ottawa about whether they think this makes good tax sense. They think the taxpayer is getting too much of a benefit and not paying enough themselves,” he says. Still, certain elements on the hill have started backing the calls for elimination of the tax.

Finding crucial government support

In 2004, the SSCBTC’s interim report included a full endorsement of the changes proposed by the nonprofit sector. In their recommendations they wrote, “…the capital gains tax applied to donations of selected asset classes…must be eliminated.” They also endorsed the elimination of a discrimination that exists between tax exemptions on donations to private foundations versus public foundations (currently, donations to private foundations are not eligible for preferential tax treatment). Nonprofit representatives have frequently cited the recommendations in the hopes of swaying the Department of Finance to see things their way.

Peter Broder, chair of regulatory affairs at Imagine Canada (IC), helped spearhead the latest efforts of nonprofit representatives in presenting a unified front at the pre-budget hearings in the House of Commons. He remains optimistic that changes are on the horizon. “We’re now hopeful that these proposals will be included in the next budget,” he says. In a recent IC regulatory update Broder writes, “It is possible the government will introduce a full Budget, rather than an Economic Statement in the autumn. This may mean that measures suggested during the pre-budget consultation process will be more fully considered than they otherwise would have been.”

In a 2003 Canadian Centre for Philanthropy brief presented to the House of Commons standing committee on finance, Broder stated that, “…tax incentives – like government support – should afford charities with funding certainty and consistency.” It’s a position maintained throughout the sector.

Fighting for privacy, in public

Hilary Pearson, president and CEO of Philanthropic Foundations of Canada (PFC), wants to ensure that donations made to private foundations are eligible for the same reduced inclusion rate as donations and securities made to public foundations or charities. “PFC came into being in 1999, in part because there was this clear discrimination against private foundations in the tax incentives being offered. We felt that we needed a voice to deal with the Department of Finance,” she says. Pearson feels the time is right to push for private foundation equality in the tax incentives.

“Individuals give around $6.5 billion a year. [Private] foundations give about $1 billion a year. We’re saying that foundations could give that much more if you provide them with the mechanism,” she insists. “We’re talking about public policy supporting private giving. Private giving is crucial in this country and it’s only becoming more so as charities lose access to government monies. People are holding on to their wealth in assets these days, all across the income range. So we’re interested in having these incentives built into the system.” For its part, the government feels it is listening and moving on these issues as best it can.

The government’s position

When asked about the issue, a senior official with the Department of Finance responded this way: “We are continually reviewing the tax system to make sure it is as fair and up-to-date as possible. We are certainly aware of the recommendation to eliminate the remaining capital gains tax on gifts of stock. It is a recommendation that we have heard again this year and we are taking note of it.” The official also noted the following, “To support the important work of charities in meeting the needs of Canadians, Canada’s tax assistance for charitable giving is among the most generous in the world. When federal and provincial tax assistance is taken into account, tax assistance on cash donations to registered charities is about 46 cents on every dollar donated. When listed, publicly traded securities are donated to charities, tax assistance rises to 53% of the value of the donation.” Though the government may feel this is enough, nonprofits want, and need, more.

Remaining hopeful

Back at the AFP, Brown is staying positive. “We remain optimistic. I would hope [the elimination] makes it into the next budget. There is certainly some sense that people are listening,” he says. “The important thing to highlight is that…our recommendation has been endorsed by all of the major umbrella organizations that represent charities across the country. So the sector is completely unanimous in their support.” Meanwhile, charities and foundations nationwide hope that the government will do more than just continue to listen.

Andy Levy-Ajzenkopf is a freelance writer living in Toronto. He can be reached at aajzenkopf@yahoo.com.