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.
Conservative
Executive Director, Jewish Community Foundation of Montreal, Canadian Association of Gift Planners
That's an income gift. If you're looking at capital, removing people's capital balance sheet gift—
Executive Director, Jewish Community Foundation of Montreal, Canadian Association of Gift Planners
I said credit.
Conservative
NDP
Peter Julian NDP Burnaby—New Westminster, BC
Thank you very much, Mr. Chair.
I'd like to come back to you, Ms. Cooper, in talking about the ecological gifts program. You're recommending that it be set from five to 10 years in gifts of ecologically sensitive lands. I'm wondering if you have any sense of what proportion of the gifts is simply not accessible to the tax benefits because of this current five-year limitation.
Also, if you could come back to the issue of the capital gains extension, I'd be very interested as well, because you seem to feel that it would be a negative as far as preserving ecologically sensitive lands is concerned. I'd like it if you could go into a little bit more detail there.
Director, Canadian Land Trust Alliance
Sure. With respect to the extension to 10 years, the only information we have is anecdotal. We took a hard look at the tax expenditure numbers; if they generally are unreliable for all gifts, there's not that much more data with respect to ecological gifts. So it's entirely anecdotal. We know that our members are structuring this way because the tax credit falls off the table at the end of six years, so really, as a percentage, it's difficult to say.
I think what we're saying is that we're entirely in favour of the existing ecological gifts program. It has been a good program. It has a good track record. It's structured very deliberately to avoid any abuse. You don't even get your credit until you have a certified value. We really believe in the program because it has demonstrated results in terms of the overall acreage of land that's protected.
The concern with extending the capital gains exemption to all gifts of real property is that you eliminate the built-in incentive for sensitive land to go to an organization that protects it. When it goes to an organization that isn't a lands trust, that organization has almost a charitable fiduciary duty to sell it to the highest bidder, which is a developer. So in many instances, that land is not going to be protected.
NDP
Peter Julian NDP Burnaby—New Westminster, BC
Thank you for that.
I would like to broaden the question. Ms. Glover had a very relevant question: which is your priority? Is it the stretch tax credit? Is it the issue of capital gains?
One thing that struck me in the presentation done by the Ministry of Finance is the government assistance for capital gains donations as opposed to cash donations. It said that “46 per cent of the cost of cash donations” is paid for supported by government. When you take the exemption from the capital gains tax, “the rate of assistance” from government “on donations of listed securities is typically 60 per cent, and can be as high as 69 per cent”.
If we're talking about what your priorities are, certainly we all share the priority of increasing giving, presumably from as broad a population base as possible, but does it concern you as well that the capital gains contribution from government is so much higher than the cash benefit? Again, I'm going to get back to the stretch tax credit. A stretch tax credit would increase the support for cash donations, so it would help to rectify what seems to be an imbalance.
That's for anyone who chooses to answer.
Director, Canadian Land Trust Alliance
On ecogifts, the expense is there, and it's an expense that's been borne since 1995, to varying degrees, because the exemption has been diminished over time. The perception is that the expense is there because it has an independent policy objective that relates to the national conservation program. So it's an expense, an acknowledged expense, but it has a different policy basis than general charitable giving.
Conservative
Member of Advisory Board, BMO Capital Markets, As an Individual
On the issue of the removal of the capital gains tax and all appreciated capital property, I think at the end of the day it really comes down to the donor: what is the donor's interest?
If the donor is interested in the ecologically sensitive land, that's where they'll make the donation. If they have an interest in health care or education, they'll make the donation there. I think that's really the donor's decision.
I wouldn't be particularly concerned if we had the same tax treatment for those gifts as for gifts to other charities.
Executive Director, Jewish Community Foundation of Montreal, Canadian Association of Gift Planners
To answer the question about the cost of capital gains exemption, the numbers you're showing are not regular. If you're a 44% Ontario taxpayer and you donate marketable securities to a charity, the odds are it's not going to cost the government 69¢ for that gift.
If your cost base is 50%, then it might be a cost of 56¢ to the government. In today's market you don't have very many gifts that have a cost base of under 50%, so I don't see those numbers as being the actual. Yes, there could be an outlying situation where you have zero cost base, but I don't see those numbers as really being representative of capital gains.
For the gifts we're talking about for private company shares, they're not getting those capital gains taxes. You're not selling those private company shares to anybody. No one is buying them, so there's no capital gain except on death.
Conservative
The Chair Conservative James Rajotte
Thank you.
I'm going to take the next round. I want to follow up with Imagine Canada on the stretch tax credit.
Following up on what I think Mr. Adler was getting at, do you have a concern that people will be structuring their donations such that they can maximize the stretch tax credit?
I'll give you an example. If someone has $500 or $1,000 to donate, instead of donating it this year, they'll stagger the donation level so they can maximize it by getting that 10% increase every year. They don't give as much as they can, say, in this calendar year, but they stagger it over a number of years in order to maximize the stretch tax credit.
Is that a concern at all for you?
President and Chief Executive Officer, Imagine Canada
I think in theory that's possible. You will have seen an economist who was writing about that in The Globe and Mail a little while ago. In theory, yes, I think that's an economic problem.
I don't think that's how Canadians behave generally. For most individuals who want to support a particular charity, for the extra tax credit they're going to put in their pockets I see very little benefit to want to stagger that, rather than help the charity when it needs to be helped.
Will some of that happen? Some may decide to do that. I think you can do that with a variety of different tax policy issues. But we certainly don't think that will be a major behaviour that we will generally see.
Conservative
The Chair Conservative James Rajotte
I want to follow up on Monsieur Giguère's question.
With the stretch tax credit you'd go to a three-stage credit instead of a two-stage credit. If the Department of Finance said you could have one or the other—you could have a one-stage credit where you move the under $200 donation to the equivalent above the $200, or you could have the stretch tax credit—which one would be preferable?
President and Chief Executive Officer, Imagine Canada
I think we'd go for the stretch tax credit. Again, going back to the policy goals of the stretch tax credit, one is to broaden and challenge Canadians to constantly give more by stretching, and charities encouraging them to do that.
With regard to the second policy goal, which is about volunteering and community engagement, I think you'll get that through the stretch credit; you won't get it through one tax rate.
I think my answer to Monsieur Giguère was that I don't see 29% as a problem, but I don't see that it would meet the policy goals we've been talking about, certainly not, as we were saying, for the future of the country over the long term.
Conservative
The Chair Conservative James Rajotte
I do want to return to this debate with respect to donation of property or land.
Ms. Cooper, you raised a valid point, and Mr. Johnson, you responded to it. But frankly, if I look at donation of land in south Edmonton, in my riding, if someone's going to donate, say, the large pond area, a developer is going to give an awful lot more for that land than you will make from a trust. I'll let you expand on your answer you gave to Mr. Julian.
It seems logical to me that if we do put in place what you're asking, it would make her job and the Land Trust's job a lot harder, especially in areas that are growing. Maybe there's some interest in preserving those ecological areas, but there are an awful lot of developers who want to take that land and develop it.
Member of Advisory Board, BMO Capital Markets, As an Individual
I think at the end of the day it really comes down to the donors. Where does the donors' interest lie, in which area of the charitable sector? Are they more interested in the environment and preserving the land they own for the future or are they more interested in making a donation to another area of the charitable sector?
If the developer were interested in acquiring the land, that's the fair market value, and presumably if the donor gave the land to a trust, she should get a tax receipt based upon what the land would be worth if it were sold to a developer.
Director, Canadian Land Trust Alliance
Certainly, the receipt to the donor is going to be the same in either case. The problem is the recipient organization. The motivation of that organization is going to vary, and if it's land in south Edmonton, heck, if you gave it to the United Way, their fiduciary obligation is to maximize the resources of the charity, so arguably as a charity law lawyer, I'd have to say you sell it to the developer, because that's how you maximize the charitable resources of the organization.
Unfortunately, that means that land isn't protected in perpetuity. There's no dancing around that one, unfortunately, and that is the concern my members have with respect to that.
The ecological gifts program originated out of Environment Canada as part of a multi-pronged approach to deal with the issues of species at risk and dwindling habitat. They have sticks in terms of enforcement provisions for offenders, but they also developed carrots, and this was the carrot that was developed out of Environment Canada to encourage the protection of this land. That program has developed very gradually over time into the one that it is because of the results it has demonstrated.
Conservative
The Chair Conservative James Rajotte
Thank you.
Unfortunately, I'm out of time, but that is an issue I'm sure we'll have to follow up on.
We'll go to Mr. Brison now, please.
Liberal
Scott Brison Liberal Kings—Hants, NS
I have a question on the role of flow-through shares as a catalyst to strengthen charitable giving, particularly from the extractive sectors, and what role you see for flow-through shares and the use of flow-through shares for the non-profit sector. I think it's important for us to understand that.
Executive Director, Jewish Community Foundation of Montreal, Canadian Association of Gift Planners
I can try.
One year ago we changed the taxation of flow-through shares when they're donated to a charity as marketable securities. We eliminated the capital gains exemption, and the reasoning for it was it was too rich. I understand that.
At the end of the day, it's this question of policy and what you want to get out. If this means that in Ontario you don't have these kinds of incentives and financing for the mining company, then at the end of the day that's a cost to people of Ontario and to long-term viability to the people of Ontario, because mining is part of it.
In Quebec today, because the Quebec government still believes in these incentives and they have their own legislation, these flow-throughs are still happening. Therefore, a fair amount of investment is happening through these flow-through charity mechanisms for the north of Quebec. The Quebec government is happy about that because it's their future; it's the future of the people of Quebec, in their eyes.
So it's a question of looking at policy and what's there. Certainly, flow-throughs have been around for 40 years in Canada. It's helped us. Donations of marketable securities have not been around for 40 years, but that's helped us as well. Just combining these two efforts has maybe resulted in substantial tax effects.
I see one of the proposals of one of the organizations said you've eliminated the capital gains exemption, but why eliminate it completely? Why not take half the capital gain exemption, which it was originally for marketable security, and bring that back? This would still make it viable in a sense in provinces like Ontario, but there's still a cost to the donors. Instead of it being what it could have been last year, a 15% cost, it was a 30% cost of the donation and you still have that mining opportunity in Ontario.
Liberal
Scott Brison Liberal Kings—Hants, NS
The change in policy, the more restrictive approach, has hurt charitable giving.
