One of the bills on Parliament’s table this session is C-256, a private members’ bill sponsored by a Conservative MP from Manitoba. The bill is called “Act to amend the Income Tax Act (donations involving private corporation shares or real estate)” and it proposes the elimination of capital gains tax on the items in its title. That is to say, if you sell real estate or private corporation shares, and donate the proceeds from that sale to a charity, then those proceeds should pay zero capital gains tax.
In order to enjoy the capital gains tax reduction, the bill requires that:
- the donation be made within 30 days of the sale;
- any advantage to the seller/donor is accounted for; and
- the purchaser be at arm’s length from both the seller/donor and from the charity that receives the donation.
Bill C-256 is therefore essentially an incentive to increase charitable donations. A similar idea was explored and developed in the 2019 Senate Report on the charitable sector, which dedicates an entire section to discussing the advantages and disadvantages of eliminating capital gains tax on the donation of such assets in-kind. The Senate Report quotes an estimate that such a measure could increase charitable donations by $200 million per year – not an insignificant sum, although it’s impossible to say how the pandemic would affect the math on this. Other contributors to the report were more reserved in their speculation about the likelihood of this kind of impact.
The report also references concerns that certain kinds of charities (mainly large institutions like hospitals and universities) would benefit disproportionately from the increase in donations, and that smaller organizations would see much less of an advantage. The other side of this coin is that the tax advantage to the donors would probably be enjoyed mostly by wealthier taxpayers, who are more likely to be in possession of these appreciated assets. The point is also made that this could negatively affect the Ecological Gifts Program by undercutting the incentive that program provides for donating ecologically sensitive land to recipients who will properly care for it. Finally, there were significant concerns about the details and logistics of the in-kind donations.
Despite the concerns, there was a general consensus in the report that the measure could be beneficial to the charitable sector overall. The result of the Senate Report’s analysis was a recommendation that the Canada Revenue Agency develop and implement a pilot project to evaluate the proposal’s impact on the charitable sector.
This bill appears to be an outgrowth of this discussion, but it sidesteps the problems around in-kind donations by eliminating the capital gains tax based on donation of the proceeds of selling real estate and private company shares, rather than the donation of the assets themselves. Private members’ bills rarely pass into law, but we are interested to keep an eye on the discussions around the bill, particularly on how to provide safeguards against the concerns raised in the Senate Report. Bill C-256 was introduced and given its first reading in November 2020, and is still awaiting a second reading.
 Available online: Catalyst for Change: A Roadmap to a Stronger Charitable Sector, Report of the Special Senate Committee on the Charitable Sector, p. 102
Alexandra Tzannidakis is an associate lawyer at Drache Aptowitzer LLP. She practices in the areas of Tax and Charity Law. She can be reached at email@example.com.