First of all, I'd like to thank the committee for inviting me to appear as a witness and to provide some suggestions to help achieve the objectives on this important public policy issue.
While I'm here as an individual, my title is member, advisory board, BMO Capital Markets, and I am a volunteer board member on four not-for-profit organizations. I really am here to speak on behalf of charities that support the people on which your committee is focused.
In further enhancing the skills of working Canadians and providing support for persons with disabilities, a major opportunity exists through a tax-effective measure as an alternative to direct government funding for agencies that provide these services. These organizations, including colleges, universities, and social service agencies such as United Way Centraide can all be rendered more effective by a modest tax amendment.
On behalf of not-for-profit organizations and education, health care, social services, and arts and culture, I made a submission to the House of Commons Standing Committee on Finance during its pre-budget consultation hearings last fall. A copy of my submission is attached to my speaking notes in both English and French. It outlined the opportunity to increase charitable donations by $200 million per annum, which would benefit all Canadians who are served by our charitable organizations.
Our recommendation is that the government remove the capital gains tax on charitable gifts of private company shares and real estate in the 2017 budget, which will be tabled on March 22.
Charitable donations to organizations in the not-for-profit sector are much more tax effective than direct government funding because the fiscal cost is shared between the government and the donor. A portion of the incremental charitable donations would be directed to colleges and universities that provide skills and training to our workforce, including those with disabilities. A portion would also be directed to social service agencies, such as United Way Centraide, that provide such support.
The 2015 budget included a measure such that if the owner of private company shares or real estate sold the asset to an arm's-length party and donated all or a portion of the cash proceeds to a registered charity within 30 days, the donor would be exempt from capital gains tax on that portion donated to a charity. Although the measure was in the budget, it unfortunately was not included in the budget bill that was passed in June 2015, a few months prior to the election, and, consequently, it was not enacted into law. As you may know, the 2016 budget stated that the government was not going to proceed with this measure.
Although it was the Conservative government that tabled the 2015 budget, this measure had the support of all three parties. Scott Brison, who was then finance critic for the Liberal Party and is now President of the Treasury Board, was publicly supportive. Thomas Mulcair, then the leader of the NDP and currently the interim leader, was also supportive. So it is reasonable to assume that both the Conservatives and the NDP would be supportive of this measure if it were included in the 2017 budget.
The case for its inclusion is compelling. First, the forgone capital gains tax on these donations is only $50 million to $60 million a year, and the charitable donation tax credit is the same as for gifts of cash.
Second, because the donor must sell the asset to an arm's-length party, this ensures that he or she receives fair market value for the sale and addresses any concern about valuation abuse.
Third, introducing this measure addresses a current inequity in the Income Tax Act. It provides the same tax treatment for donations of private company shares and real estate that currently applies to gifts of other appreciated capital assets and listed securities.
Entrepreneurs who keep their company private would be treated the same as entrepreneurs who take their company public.
Finally, the vast majority of these donations would be incremental, and would not be a substitution for cash donations.
United Way Toronto and York Region is an excellent example of how the disadvantaged in our society would benefit from this measure. I'm pleased that my colleague Pedro is here from United Way Toronto and York Region and is participating as a witness this morning.
I'd like to share with you how United Way in Toronto has benefited from the removal of the capital gains tax on gifts of listed securities. From 1956 to 1996, the total gifts of listed securities to United Way of Toronto amounted to only $44,000—that's over 40 years. From 1997, when the capital gains tax was cut in half, to 2016, gifts of listed securities to United Way in Toronto totalled over $176 million, as a result of the removal of the capital gains tax on gifts of listed securities. United Way Toronto and York Region provides crucial funding for over 200 agencies in the GTA and the York region. This is a measure that can help significantly in skills and social development.
Now, as your committee's report will not be delivered to the House of Commons until after the 2017 budget, which is going to be tabled on March 22, communication of your support to Minister of Finance Bill Morneau and Prime Minister Justin Trudeau at your earliest opportunity would be much appreciated.
That concludes my remarks. I'd be happy to answer any questions.