Evidence of meeting #40 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was charities.
A recording is available from Parliament.
4 p.m.
Executive Director, Jewish Community Foundation of Montreal, Canadian Association of Gift Planners
We don't have the exact figures. Let's just break it down to see what it really is. It's a 10% added bonus, right? So they would be entitled to the normal credits that they would get. We're talking about a 10% bonus. We're not talking about wealth. For people who've donated more than $10,000, it doesn't affect them.
So if you're talking 10% and you're saying that if this can create an extra $300 million, that's a $30 million cost. That's the way I would put it. We can't picture.... We can't get the numbers without Finance, really, based on estimates, to really say what this could be. But if you add $300 million of new additional giving by a group of Canadians, that would cost you $30 million.
4 p.m.
Conservative
The Chair Conservative James Rajotte
Thank you.
Thank you, Mr. Julian.
We'll go to Ms. McLeod, please.
February 7th, 2012 / 4 p.m.
Conservative
Cathy McLeod Conservative Kamloops—Thompson—Cariboo, BC
Thank you, Mr. Chair.
I also would like to reiterate the thank you for the great work that your organizations do. I think every single community is much richer for these important organizations and how they contribute.
I've had people come into my office who have spoken very enthusiastically about the stretch tax credit, whether it be some of our artists or other groups. Then—I don't know if you read the notes from our last meeting on this particular issue—all of a sudden I had what felt like a bucket of cold water dumped, in terms of the stretch tax credit and where it might actually go, which was anywhere from some research indicating that the tax credits were marginal versus other research that said it really did change behaviour.
There was a certain caution that was put out there—that tax equity is an important principle for tax policy—because you would have different tax treatments for individuals who had made identical gifts in a particular year. There were also some concerns about people gaming the system, that it was complicated, and it would be open for gaming in terms of what happens.
It would be really beneficial for me to hear your response—again, I'm not sure you had the opportunity to actually read some of the comments made in that meeting—and for you to share your thoughts with me about what they expressed as concerns about a stretch tax policy.
4:05 p.m.
Chief Executive Officer, United Way of Burlington and Greater Hamilton
If I could quickly respond to that, having analyzed our specific donor base in Hamilton—Burlington, our more affluent donors give the same donation every year. A $10,000 donor gives $10,000 every year. It's consistent. You call and they say, “Count me in.”
We see this as a real win for middle- and low-income individuals, who will be encouraged to give more. That's really the heart and soul of our donor base. That's the group that we tend to try to move into leadership categories from the $500 to the $1,000 to the $2,500. That, for us, would be a real win, because that's a motivator for people who are looking for incentives to help give.
The other benefit we believe would be borne by such an initiative is that while there may be a slight drop in revenue to the federal government, there will be less reliance by our agencies on funding by government to deliver programs and services, in which case they will have the needed resources and the waiting lists will be reduced. It becomes an indirect win in our local communities.
4:05 p.m.
President and Chief Executive Officer, Imagine Canada
I'll maybe just speak on a few points.
On what research shows in terms of tax incentives, surely no research will show that 100% of people give because of tax incentives. That's clear. But pretty much all research has shown that it does play a role. The CSGVP, which is a big Statistics Canada survey on giving and volunteering that is done every three years, shows that just over 50% of Canadians said they would give more if the tax credit was more generous. The survey we just did with Ipsos Reid shows that 82% of people were favourable. One of the academics who appeared before you last week showed that her research was actually showing the same thing. It's not the only thing, absolutely, but we think it could make a real difference.
It's different from simply hiking the tax credit. The stretch element to it, in our sense, really would allow us to challenge Canadians and make it into something where.... We remember ParticipACTION. We remember that type of thing where we called upon Canadians to go further than they could actually go, or had gone in the past. The stretch element makes that so. It's a tax credit, yes, but I think the stretch is a bit different.
On the gaming front, these are essentially small donors. Some people will always be a bit more strategic in the way they do things. The experience we have had is—and I'm sure people like Len, who are very close to the people who are making those donations, would agree—very few people I know would want to hurt a charity, or push the money they want to give to the charity back out because they want a few more tax credit dollars in their pockets. That could happen. I really don't think that's how Canadians think of things, generally.
The last point is on the awareness of the tax credit. We feel that if this were to go forward, the Canada Revenue Agency would then be able to tell Canadians on a yearly basis, as they do for the RRSP, how much they can actually put into the whole stretch tax credit idea. That, I think, would raise awareness of the tax credit in a major way and would make a big difference.
Many Canadians don't know the tax credit actually exists. This would be a way to raise awareness and let Canadians know this is out there, and at the same time challenge them.
4:05 p.m.
Conservative
The Chair Conservative James Rajotte
Thank you.
Thank you, Mrs. McLeod.
We'll go to Mr. Brison, please.
4:05 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
Thank you, Mr. Chair.
Thank you to each of you for appearing before us today.
As we're making our considerations during these times of tougher budget decisions, it's really important that we consider what the real cost is to government. Some of you alluded to the reality that the Department of Finance attributes a tax expenditure figure—I believe they said $34 million a year, for instance—for the capital gains exemption. In reality, that is based on the assumption that the disposition of the shares would have occurred in any case, which we know is quite possibly not the case. Realistically, as a committee, it's really important, when considering the actual costs to government, to consider that the attributed costs the Department of Finance uses do not really reflect the actual costs. In fact, the actual cost could be a lot less, and in many cases could be nothing, because the shares would not have been disposed of otherwise.
I want to delve into this whole issue of the contribution of private equity and the elimination of capital gains tax on those donations. It strikes me that, particularly in rural and small town Canada, there are a lot of small town millionaires who've done very well. They are not super rich people, but they've done well. They could contribute significantly some of their wealth to the non-profit sector. This comes at a time when there are a lot of succession issues as well for these business people in their 60s and 70s in rural and small town Canada, whose children may be in Montreal or Toronto or Vancouver or Calgary. What do you see as the potential to potentially unleash a generation of wealth to charities in rural and small town Canada as a result of eliminating the capital gains tax on gifts of private equity?
4:10 p.m.
Member of Advisory Board, BMO Capital Markets, As an Individual
You make a very good point. The catalyst for major donations—eliminating the capital gains tax on private company shares—would be at a time when the entrepreneur is deciding to retire and the children aren't going to take over the business. The owner is going to end up selling the business. That would be a catalyst for significant, increased charitable donations. It would also give the owner of the private business the same tax treatment as the entrepreneur who starts a public company and donates his or her shares to charity.
4:10 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
Potentially, small town and rural Canada is suffering. There's a lot of difficulty attracting non-profit capital to those communities, so it could really make a big difference in the kinds of communities I represent.
In terms of land donations and eliminating capital gains tax on gifts of land, I'd appreciate your views on agricultural communities, in particular, such as the Annapolis Valley, which I represent, where there's a lot of pressure on farmers in terms of development. Their main asset happens to be their land. Many of them would like to see their farmland preserved for agriculture. There are land trusts now being developed and funding raised from community members.
I'd appreciate your views on the capacity to help, not just in terms of parkland and recreational properties but also in terms of helping to preserve prime agricultural land in places like the Annapolis Valley. I think that should be part of your pitch as well.
4:10 p.m.
Director, Canadian Land Trust Alliance
Thank you for the question.
The program for ecological gifts is limited to ecologically sensitive land. The way the federal government and provincial governments have a say in the criteria for what is ecologically sensitive very often includes the protection of agricultural land as land that qualifies as being ecologically sensitive. There are a number of land trusts, in fact, that are farmland trusts. Their objective is to protect prime.... It's not necessarily agricultural land in a commercial sense. Certainly, farmland trusts do exist, and if they meet the ecological sensitivity criteria, they are the subject of a number of ecological gifts.
There's a great big gift, out in Alberta, of one of the original ranches from back at the turn of the century. That ranch is now going to be preserved in perpetuity as grazing land and as ranch land, and it will be protected from the development coming out of Calgary.
4:10 p.m.
Conservative
The Chair Conservative James Rajotte
Thank you, and thank you, Mr. Brison.
We'll go to Mr. Hoback, please.
4:10 p.m.
Conservative
Randy Hoback Conservative Prince Albert, SK
Thank you, Chair, and I'd like to thank the witnesses for being here today. It's great to see you.
I'm going to pick up where Mr. Brison left off, on the capital gains on real estate and just how that would work. Mr. Johnson, I'll probably direct a lot of my questions to you. It's just that I only have five minutes. I’ll maybe stick to one area and hope that my colleagues will pass on to you.
When we talk about capital gains on real estate, what you're proposing is that you'd be able to donate real estate without paying any capital gains. Is that correct?
4:15 p.m.
Member of Advisory Board, BMO Capital Markets, As an Individual
Yes, that is correct.
4:15 p.m.
Conservative
Randy Hoback Conservative Prince Albert, SK
I'm wondering then, would we not see in tax planning instead...? A person who is looking at giving that year—he has $100,000 he'll donate to charities or he can give land. Now, if he sells the land and gives it to you, he'll pay 50% tax, or he can just give you the $100,000. Won't you just see substitution in tax planning? It doesn't necessarily increase the money given, but just on what type of giving actually happens.
4:15 p.m.
Member of Advisory Board, BMO Capital Markets, As an Individual
I think most of the gifts of land and real estate would be incremental to what the donor would normally be giving. If the donor's current capacity to give is his or her ability to donate cash, and they own a significant asset in the form of real estate, which has a low cost base, they're just going to hold onto that real estate. However, if you remove that tax barrier to giving, then they do have the capacity to make a much more significant gift.
Under the Canadian Income Tax Act, the real estate would not actually have to be transferred to the recipient charity. The individual could sell the real estate and donate the cash proceeds, or a portion of the cash proceeds, to a charity within 30 days and still be exempt from capital gains tax.
4:15 p.m.
Conservative
Randy Hoback Conservative Prince Albert, SK
Under that process, then, you'd have 30 days. If I intended to give you real estate, you would say, okay, go ahead and sell it; you've got 30 days to sell it and then donate it. Or you'd have to donate the cash after you've sold it, within 30 days. Is that correct?
4:15 p.m.
Member of Advisory Board, BMO Capital Markets, As an Individual
You'd donate the cash within 30 days of having sold the asset.
4:15 p.m.
Conservative
Randy Hoback Conservative Prince Albert, SK
So if it took a year to sell or two months, it doesn't matter?
4:15 p.m.
Member of Advisory Board, BMO Capital Markets, As an Individual
It's better for the actual donor to sell the real estate than to transfer the real estate to the charity because charities typically don't have the capacity to address all the issues associated with real estate. The owner of the real estate would know all that and would know who the best buyer of the real estate asset was.
4:15 p.m.
Conservative
Randy Hoback Conservative Prince Albert, SK
That makes sense, because why would a charity want to be disposing of land? That possibly creates other issues if they're the ones disposing of it.
How do you square this with the taxpayer who makes donations but who doesn't have land? When you look at a situation where...because a taxpayer has donated land, he's avoiding capital gains exemption. If I'm a taxpayer who makes a wage of $1 and I'm going to pay charity, well, then I'm not getting that tax-exempted. So how do you appease those who say you're giving unfair advantage to people donating land versus people donating cash?
4:15 p.m.
Member of Advisory Board, BMO Capital Markets, As an Individual
On Scott Brison's point, if the donor is responsible for paying a tax on the donated asset, then in the vast majority of cases they're simply going to hold onto the asset. So the government is not going to get the capital gains tax revenue because the donors simply hold onto the asset, whereas if you remove the barrier to giving, they will donate the asset. So, effectively, the cost to the government is the charitable donation tax credit, similar to cash.
The government is giving up a foregone capital gains tax, but in reality it's sort of a discounted present value of a future capital gains tax. In the vast majority of cases, the individual would simply hold on to the asset rather than sell it.
4:15 p.m.
Conservative
Randy Hoback Conservative Prince Albert, SK
So the next owner who purchases the land will have capital gains when he goes to sell that land, and then the government would recapture it at that time.