44th Parl. 1st Sess.
June 2, 2022 10:00AM
Mr. Speaker, I appreciate the opportunity to take part in today's second reading debate on private member's bill, Bill C-240. As we know, the bill would provide an exemption from capital gains tax in respect of donations to charities resulting from certain arm's-length dispositions of real estate or private corporation shares.
At the onset, I would like to make it clear that I support the intent of the bill, which is to say that I support and encourage the making of charitable donations. However, the bill is problematic in how it aims to achieve this.
First and foremost among my concerns is that the proposed measure in the bill is regressive. This means that it would primarily benefit a particularly small class of high-income individuals rather than encouraging charitable giving by the broader public. More specifically, it would disproportionately benefit those who are holding private corporation shares or real estate other than a principal residence, which is to say, higher-income Canadians. That makes the bill unfair and puts it at odds with our government's goal of cutting taxes for the middle class while raising them on the top 1%.
For example, we have increased support for families and low-income workers through programs such as the Canada child benefit and the Canada workers benefit, which have helped lift over one million Canadians out of poverty since 2015, including 435,000 children. We have also increased the guaranteed income supplement top-up benefit for low-income single seniors and enhanced the GIS earnings exemption, and we are increasing old age security for Canadians aged 75 and older in July 2022.
We will continue to examine ways to improve the tax and benefit system to ensure that it is well targeted and fair. However, providing a tax break that disproportionately benefits the wealthy is not in keeping with this approach. What is more, the measure is poorly targeted at achieving the bill's goal of supporting charitable donations. The proposed measure could in fact result in a windfall gain to donors without actually increasing the amount of their charitable giving to charities. That is because donors could simply substitute their existing cash donations to charities with donations of private corporation shares and real estate in order to receive greater tax benefits.
Considering the significant flaws in this proposed legislation, it is important to bear in mind that the Government of Canada's tax support for charitable donations is already recognized as being among the most generous in the world. The primary mechanisms for delivering this tax support are the charitable donation tax credit for individuals and the charitable donation tax deduction for corporations.
For the 2019 tax year, individuals are estimated to have claimed over $11 billion in such donations through this provision, with federal tax assistance on these donations amounting to approximately $3 billion. At the same time, corporations are estimated to have donated $3.1 billion through this provision, with federal tax assistance of approximately $655 million.
In terms of the charitable donation tax credit for individuals, the tax assistance received through the CDTC more than offsets any paid tax on the income used to finance the donation for the vast majority of individuals who donate more than $200 a year. The CDTC provides a 15% credit on the first $200 of annual donations, and for most donors, the CDTC provides tax assistance at 29% on the portion of donations over $200. What is more, donors with incomes subject to the 33% marginal rate can also claim a 33% credit on the portion of donations exceeding $200 made from this income.
In addition to this federal tax assistance, all provinces and territories have charitable donation tax credits, with the average provincial credit being approximately 17%. In fact, total combined federal-provincial tax assistance averaged out to be around 46% on donations above $200 in 2019. For donors with taxable income in excess of the highest rate, tax assistance on donations would be around 50% in most provinces and as high as 54% in Nova Scotia and Alberta.
Moreover, the government already offers special incentives to encourage donations of important assets such as publicly listed securities, ecologically sensitive land and certified cultural property through an exemption from capital gains tax for most such donations.
When the exemption from a capital gains tax is included, the total tax relief provided on such donations can be as high as 81% when provincial incentives are added. The charitable donation tax credit can generally be claimed up to 75% of the donor's net income in a year. Unused donations can be carried forward for up to five years, or up to 10 years in the case of ecologically sensitive land.
Unfortunately, Bill C-240 may actually undermine the effectiveness of the tax incentives provided under the ecological gift program. That is because currently the only type of real estate donation that is eligible for the full capital gains exemption is ecologically sensitive land that has been certified as such by Environment Canada and donated to certain qualified recipients to ensure conservation.
Under the proposed measure, this targeting of support to donations of ecologically sensitive land would be blown wide open. That is because under this proposal, donations of the proceeds of the disposition of real estate to any charity would receive the same tax assistance, and this could introduce a perverse incentive for potential donors to simply sell their land to a third party, like a real estate developer, and donate the proceeds to any charity thus avoiding the ecogift certification and valuation process. In short, it could result in a donor getting the same tax benefit from turning ecologically sensitive land into a parking lot as they would get from donating it to an entity that would preserve and protect it.
The measure is also expected to be costly. In February 2021, the Parliamentary Budget Officer estimated that the cost of this measure to the federal government would be approximately $778 million over five years. That is a lot of money to dedicate largely to wealthy Canadians at a time when we are working to rebuild from the impact of the COVID-19 pandemic.
Supporting Bill C-240 would almost certainly increase the pressure on government to also provide special exemptions for donations of other types of property, such as virtual currency or cash gifts made after tax income.
Such tax changes would ideally be undertaken through the budget process, which enables the government to fully consider trade offs, balance priorities and undertake new fiscal commitments only to the extent that they are affordable. A private member's bill like Bill C-240 does not afford us that scope.
These serious shortcomings must be weighed against the generous and effective incentives for charitable giving that are already in place to encourage people to donate more to charities across Canada by reducing the after-tax cost of giving. Having done so, our government simply cannot lend its support to this private member's bill.
I am thankful for the opportunity to make that and my position clear on this issue.
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Mr. Speaker, it is a pleasure to be here today to speak on this important bill from my great colleague.
The COVID-19 pandemic has hit Canadian charities extremely hard. Today I am happy to stand in the House and discuss a measure that would see the potential for a new revenue stream for our struggling charities across the country. Amending the Income Tax Act to provide an exemption from capital gains tax in respect of certain arm's-length dispositions of either real estate or private corporation shares to charities is an extremely important measure to see implemented. The bill would see to it that the proceeds of any arm's-length sale would qualify for exemption if donated within 30 days of disposition. The value is, of course, determined in the market by the sale and is not determined by the seller.
Each of us in the House has a charity, or in fact several, that would be near and dear to our own hearts. About 10 years ago, I created a not-for-profit organization called The Josie Foundation. That is one that is very near and dear to my heart, along with so many others. It is important that we understand just how difficult it was for charities to raise funds as they normally would because of the pandemic and the strain that it put on charitable organizations.
The importance of charitable organizations in Canada is without question, and we want to remind all people of the importance of volunteerism. Many hard-working Canadians volunteer their time. They get on the charities that are near and dear to their hearts and whatever charity they are working on benefits our country in a great way. All members of the House and every political party in Canada inside these walls would agree that we must do anything we can to help charities. This bill would increase the amount of charitable giving by incentivizing donations through this tax measure. Again, Canadian charities need all the help they can get right now.
I will note that this measure was proposed in the 2015 budget by the Stephen Harper government, but in the 2016 budget, it was confirmed that the Liberal government did not intend to proceed with this measure. With this bill, we are trying to address the downturn in charitable giving that has been a trend for a while and was exacerbated during the pandemic. COVID-19 has had a massive impact on the charitable sector with the inability to raise funds at events, as well as donors being less likely to donate because they were personally struggling financially. When we add the concept of inflation to the mess and the problems charities are having raising funds, there is a really poor situation for the charities in this country.
With inflation running rampant, the financial struggles to Canadians are rising. In turn, this is putting more pressure on household disposable income, which is driving down available donation revenue. It should be noted that the charitable sector represents $151 billion, or 8.1% of Canada's GDP. Currently, the Income Tax Act allows for this tax treatment for the proceeds of the sale of publicly traded shares. This bill would provide similar tax treatment for the sale of private shares and real estate. The Special Senate Committee on the Charitable Sector recommended the government implement this measure as a pilot project in June 2019 in its “Catalyst for Change” report, recommendation 34.
People at home and potentially people in the chamber are wondering whether the bill seems to disproportionately favour those who are high-income earners. The answer is that it is important to note that not a single donated dollar remains in the hands of the donor. Each dollar benefits the charity that receives it. This bill would make these donations more affordable for donors, no matter what their income level is. It is very good for charitable organizations. Many small business people are not necessarily high-income earners, but would be incentivized to make donations if they did not have to pay the capital gains tax associated with the sale of their businesses.
As to whether the nature of the tax is regressive, this is something that could be ascertained through expert testimony at the finance committee if the bill were ever to pass. We know we have to pass this bill.
If this bill does not pass, the people in every charitable organization in the country are going to feel sad, but they are also going to feel ashamed. Government members and parliamentarians know that this is the type of bill that each of us can represent. It transcends partisanship. We can look at this bill and each of us can understand how important it is for us to help this sector.
Another question that people might have is how the benefit flows from the tax incentive to the charity. When business owners decide that they wish to sell shares in their businesses, under this bill, proceeds from the sale of those privately held shares would qualify for a capital gains tax exemption if donated to a charity by the donor within 30 days of the close of the transaction. It is great news for charitable organizations. For the purpose of clarity, the shares of the donor's company could not be donated, but rather the proceeds derived from the sale of those shares could be donated. This mechanism helps avoid any valuation ambiguity, as the sale must be an arm's-length sale for the purpose of value.
Some may wonder how often people gift shares and how often people gift real estate, in particular outside of a will. The bill would not incentivize gifting private company shares or real estate. Rather, it would incentivize the donation of the sale proceeds derived from the sale of private company shares or real estate. One example is important as it pertains to real estate. Someone who invested in a small apartment building or a duplex several years ago is now retiring and decides to sell the place. Currently, when they sell, they will be required to pay capital gains tax, which would be roughly the equivalent of 25% of the increase in value of the property during the period of time it was owned. Under Bill C-240, those proceeds could be donated, in their entirety or in part, to a charity of the donor's choice and the donor would receive an exemption from the tax. In the end, we would incentivize somebody to be more charitable in our country, which would benefit charitable organizations.
Some might ask about the benefit to cost that is associated with this legislation. Someone correctly pointed out that a Library of Parliament report references two different types of tax costs. The first is the tax cost related to the forgone capital gains taxes. As I mentioned earlier, this equates to roughly 25% of the actual gain. The second cost is the cost due to behavioural change, as the goal of the bill is to increase charitable giving. Additional charitable tax receipts would also be issued. This is a win-win all day for charitable organizations, for the people who benefit from the great work of charitable organizations and for our great country when we put forth legislation such as this that would actually make a real difference in our society.
The federal tax costs related to the issuance of tax receipts may vary based on the amount of the contribution and individual income, but my understanding is that the cost is roughly 25% to 30% of the contribution. This, too, could be clarified by testimony.
I want to thank you again, Mr. Speaker, for allowing me to bring forth this insightful commentary. I would be happy to meet with any members of the House, but I want to say again that Bill C-240, sponsored by my great friend from Winnipeg, is the type of bill that every political party can be proud of and that every member of the House can support. They are not supporting a political party here. They are supporting every charitable organization in this country, and we will proudly take all of their support. We need it. This is good for Canadians.
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