Thank you, Mr. Chair, for the opportunity to appear before your committee on such short notice.
I'm appearing as an individual who is a volunteer board member of four not-for-profit organizations: the Toronto General & Western Hospital Foundation, the Ivey Advisory Board of the Western Business School, Business for the Arts, and the major individual giving group in Canada, the United Way.
The 2015 budget included a measure that would have increased charitable donations by $200 million per annum, and that measure had the support of all three parties. The measure stated that if the owner of private company shares or real estate sold the asset to an arm's-length party and donated the cash proceeds to a charity within 30 days, they would be exempt from capital gains tax on that donation. To everyone's surprise, the 2016 budget stated that the government would not proceed with this measure.
The purpose of our submission is to outline why including this measure in the 2017 budget would help the government achieve its 2017 budget measures, and also to address concerns that had been raised by the Department of Finance.
First, why would this measure help the government achieve its 2017 budget objectives? Our social services agencies, such as United Way and Centraide, provide vital services to the unemployed, indigenous peoples, those with disabilities, and seniors. Hospitals are the largest recipients of charitable donations, and seniors represent a significant percentage of patients. Increased donations to our hospitals, universities, social service agencies, and arts and culture organizations would create new jobs and stimulate economic growth.
Many large donations, as a result of this measure, would provide funding for infrastructure projects for many of these not-for-profit organizations and contribute to economic growth. Entrepreneurs play an important role in growing our economy, with a focus on innovation, new products, and infrastructure. The Canadian Federation of Independent Business, which represents 109,000 private companies headed by entrepreneurs, is supportive of this proposal.
Now, all municipalities, large and small, are logically supportive. They derive their revenues from property taxes, not income taxes; there is therefore no fiscal cost to the municipality. However, not-for-profit organizations in all municipalities benefit from the increased charitable donations. It's a great opportunity for the federal and provincial governments to stimulate donations to not-for-profit organizations in all municipalities across Canada.
The committee also has to take into consideration concerns that are raised by the Department of Finance. There are four main concerns, based upon my conversations with the deputy minister of finance and his tax policy professionals.
The first is the fiscal cost of this proposal to the federal government. The forgone capital gains tax on these donations would be only $50 million to $65 million per annum, but the charitable donation tax credit is the same as for gifts of cash. From the forgoing of $50 million to $65 million of tax revenues to the federal government, charities would receive $200 million from the private sector.
The second concern was valuation abuse, because private companies' shares and real estate do not have a public market, unlike listed securities. However, any concern about valuation abuse is addressed by the fact that the donor must sell the asset to an arm's-length party. That ensures that the donor is achieving fair market value, the best price for the sale of that asset. That addresses any concern about valuation abuse.
Some people are concerned that Canada's charitable donation tax incentives are already very generous. Well, they are generous in many ways; however, the current Income Tax Act has an inequity. If you're an entrepreneur who takes your company public and donates shares to a charity, you're exempt from capital gains tax. However, if you're an entrepreneur who keeps your company private, like these 109,000 entrepreneurs, and you donate your shares to a charity, you have to pay a capital gains tax. That's an inequity. This measure would address that inequity.
The final concern was that this measure would enable donors to switch their cash donations by changing their donations to donations of private company shares of real estate. Experts have estimated that 90% to 95% of these donations would be incremental, and only 5% or 10% would be substitution. So there's no concern about valuation abuse.
Some of your committee members may have already seen these full-page letters that were addressed to the Prime Minister with copies to the leaders of the opposition parties and their finance critics. One was published and it was signed by prominent charities, outlining why this measure makes sense in the 2017 budget. One was published on the outside back cover of The Globe and Mail, the National Post, the Toronto Star, and The Hill Times, and in French in Quebec, signed by Quebec charities. I've brought copies of these full-page letters for handout, if any of you have not had a chance to read them.
Basically in conclusion, we urge the finance committee to recommend that the government implement these measures in the 2017 budget. It would be a great legacy for all Canadians for generations to come.
Thank you for inviting me to this pre-budget consultation hearing.