Tax cut seen boosting charity gifts

Experts in the charitable giving field are hopeful that the Conservative government of Stephen Harper will follow through on a promise to eliminate capital gains taxes on equity donations.

Such a move would have a huge impact, according to a report penned by Don Drummond, chief economist at TD Bank Financial Group. Dubbed a “sleeper tax-cut” by Drummond during the election campaign, the promise received little media attention.

“I think it will certainly be a boost to charitable giving,” says Dave Ablett, manager of advanced financial planning support at Investors Group. “I think you’ll see a significant increase in the number of people deciding to take advantage of this.”

The TD report calculates that Canadians hold a massive $1.3 trillion in equities, with capital gains accounting for half of that amount.

Ablett say that baby boomers make up the lion’s share of those who have accrued capital gains in the equity market and that this group is now realizing they have more than enough capital top fund their own retirement and now want to leave a legacy.

The current 25% inclusion rate dates back to a 1997 policy decision to encourage more private donation to charities.

“This preferential tax treatment contributed to a 190% increase in the donations of listed shares to charities between 1997 and 2000,” Drummond said in the report. “The elimination of the remaining 25%, if introduced in the Tories’ first budget, could lead to a further dramatic increase in such donations in future.”

In dollar terms, equity donations soared from $69.1 million to $200.3 million within three years.

“If this measure is passed, we expect donations of securities to charities to skyrocket,” says Jo-Anne Ryan, vice president, philanthropic advisory, TD Waterhouse. “The additional tax savings from donating securities to charity will result in a direct shift of social capital from the government’s hands to individual donors who can allocate those funds to the causes that are most important to them.”

Ablett says charitable donations have been trending higher in recent years and there is little danger of cash donations simply being cannibalized by equity donations.

“I think what it will do is shine more attention on charitable giving as a whole,” he says. “Gifts of securities will probably go up at a faster rate than what people are contributing. I think charitable giving is starting to get a higher profile now.”

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com