Good morning, Mr. Chairman and distinguished committee members.
Thank you for giving me an opportunity to appear before your committee this morning.
For those of you who don't know me, my name is Don Johnson, and I am appearing today in my role as a volunteer board member of four not-for-profit organizations in health care, education, the arts, and social services.
We are here today to urge your committee to support two measures in the next budget that will stimulate much needed private sector funding for our charities during this global economic crisis, when all levels of government are facing fiscal challenges. The removal of the remaining capital gains tax on gifts, a list of securities in the 2006 budget, has resulted in over $1 billion in gifts of stock to Canadian charities every year since that date. It has been an enormous success. We recommend that the government capitalize on this success by removing the capital gains tax on charitable donations of private company shares and real estate in the 2012 budget.
There are five compelling reasons. First, our charities desperately need additional funding as the demand for their vital services continues to grow. However, all levels of government are focusing on reducing their deficits, primarily through restraint in spending.
Second, the timing is important because the current global economic and financial crisis has created new challenges for charities to secure private sector funding, particularly in gifts of stock.
Third, in producing these measures in the next budget, it is estimated to increase charitable giving by approximately $200 million per annum.
Fourth, in the U.S., gifts of appreciated capital property, which include listed securities, private company shares, and real estate, are exempt from capital gains taxes. These measures would level the fundraising playing field for Canada's charities as we compete with our U.S. counterparts for the best and the brightest talent.
Fifth, currently entrepreneurs who take their companies public are able to donate their stock to worthy charitable causes and be exempt from capital gains taxes on their gifts. However, entrepreneurs who decide to continue as private corporations are denied this benefit. In principle, they should all have the same benefit from giving back to their communities.
Let me address the two main concerns about these proposals. First is the tax revenue cost to the government. The estimated $200 million annual increase in charitable giving will result in the loss of some tax revenues to the federal government. It is estimated the tax revenue cost to the federal government would be approximately $50 million to $65 million per annum. Obviously, the benefits to our charitable sector, $200 million in these proposals, far outweigh the tax revenue cost to the federal government.
Let me address concerns about valuation abuse. There is a public market for donations of listed securities. However, there is no public market for private company shares or real estate. To address this concern about valuation abuse, we recommend the charity would not be allowed to issue a tax receipt to the donor until the charity has received the cash proceeds from the sale of the asset. This restriction should address any concern about potential valuation abuse.
There is also a concern if there's not an arm's-length transaction. If a purchaser of the private company shares or the real estate is not at arm's length from the donor of the asset, we recommend that the charity, not the donor, must obtain two independent, third-party appraisals to confirm the value attributed to the gift is the fair market value.
Let me talk briefly about public support for these measures. There is a high level of awareness and support for these measures across Canada, particularly among the tens of thousands of volunteer board members who serve on not-for-profit organizations, as well as the management and employees of our hospitals, universities, arts and cultural organizations, and social service agencies. Earlier this year, full-page advocacy ads were published on this issue by Canadian charities in 13 newspapers across Canada. The total circulation of those newspapers is 3.2 million and the readership is five million.
Also, two prominent umbrella organizations are supportive. The Canadian Federation of Independent Business, CFIB, has 107,000 members. They are interested and supportive of these measures because all members are private enterprises. Many of them want to give back to their communities, which has contributed to their success.
Second, most of the 1,800 mayors who are members of the Federation of Canadian Municipalities are supportive. Not-for-profit organizations in the municipalities would receive incremental funding from donors who live in their community.