Good morning, Mr. Chairman and distinguished committee members. Thank you for giving me an opportunity to appear before your committee this morning.
My name is Donald K. Johnson, and I'm appearing today in my role as a volunteer board member of five not-for-profit organizations in health care, education, the arts, and social services. In this capacity I'm actively involved in fundraising as well as donating personally to help each of these charities achieve their missions.
I'm appearing today to request that your committee give consideration to recommend that the government include two measures in the upcoming budget that will stimulate greater private sector funding for the not-for-profit sector on the basis that it's more tax effective than direct government spending.
The economic action plan will be implemented and completed by next spring, and the prime focus going forward is balancing the budget. The government has committed not to raise taxes or to reduce transfer payments to the provinces. In order to achieve a balanced budget, the focus must be on reducing spending on low-priority government programs, limiting future increases in government spending, and limiting measures that could potentially cost the government tax revenues.
Because the federal and provincial governments are not in a position to increase funding for the not-for-profit sector during the next few years, Canada's charities are also facing significant fiscal challenges. The demand for the services in health care, post-secondary education, social service, and the arts continues to grow. What can the government do to address this dilemma? You can capitalize on the enormous success of the 1997 and 2006 budget measures that initially reduced and ultimately eliminated the capital gains tax on gifts of listed securities. These measures have resulted in billions of dollars of incremental private sector funding for our not-for-profit sector. The capital gains tax exemption can be expanded to include gifts of two other significant appreciated capital assets: private company shares and real estate.
Charitable donations of both of these asset classes are exempt from capital gains tax in the U.S. Extending the exemption from the capital gains tax for charitable gifts of these assets would unlock additional private wealth for public good on the basis that it's much more effective and targeted than the bureaucratic process of direct government appropriation. Any concern about valuation abuse can be addressed by one simple measure: the charity would not issue a tax receipt to the donor until it has received the cash proceeds from the sale of the asset.
Also, if the purchaser of the asset is not at arm's length from the donor, the charity would need to obtain two independent professional appraisals to confirm that the charity is receiving fair market value for the sale of the assets. For each $100 million of incremental charitable giving, the federal government would forego approximately $11 million in capital gains tax. The donor would of course receive a charitable donation tax credit from the federal government for $29 million, the same as for a gift of cash.
The total tax revenue cost to the federal government would be approximately $40 million. Now, there's a high level of awareness and support for these measures across Canada, particularly among the tens of thousands of volunteer board members of our not-for-profit organizations and the management and employees of our hospitals, universities, arts and cultural organizations and social service agencies such as United Way. In particular, I'd like to mention three prominent organizations that are supportive.
The Canadian Federation of Independent Business has 107,000 members. They have understood and are supportive of these measures because all members are private enterprises. It is estimated that over one-third of family owned independent businesses in Canada will be sold or transferred by the end of this decade. Also, most of the 1,800 mayors who are members of the Federation of Canadian Municipalities are supportive. Not-for-profit organizations in municipalities would receive incremental funding from donors who live in their community, but there's no tax revenue cost to the municipality because they derive their revenues primarily from property taxes, not income taxes. Not-for-profit organizations in smaller and rural communities, in particular, would benefit from gifts of private company shares and real estate. Also, the C.D. Howe Institute published an e-brief last September endorsing both of these measures.
Now, it is also important to recognize that the Liberals, the NDP, and the Bloc Québécois have publicly confirmed their support. Charities across Canada thanked the Liberals and the NDP for their support with full-page advocacy ads published in The Globe and Mail, The Toronto Star, and the Ottawa Citizen last December.
Charities in Quebec thanked the Liberals, the NDP, and the Bloc Québécois for their support in full-page advocacy ads published in La Presse and Le Devoir last January.
We urge the finance committee to recommend that the government implement these measures in the upcoming budget. This is one of the few public policy issues upon which all four parties can agree and for which all Canadians will be very grateful.
Thank you for your attention. I'd be pleased to answer any questions.