A Cap­i­tal Idea Amend­ing tax laws to boost char­i­ties

Amend­ing tax law could be a boon for char­ity groups By Ian MacNeill

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HOW DES­PER­ATE is the fed­eral gov­ern­ment to in­crease tax rev­enues? Des­per­ate enough to di­vert into its own cof­fers money that many Cana­di­ans would pre­fer to do­nate to char­ity.

A lit­tle back­grounder. In 2015, the Harper gov­ern­ment pro­posed changes that would have elim­i­nated the cap­i­tal gains tax in cases where pri­vate cor­po­ra­tions dis­posed of shares or real es­tate and do­nated the pro­ceeds to qual­i­fied char­i­ties within 30 days. It was an over­due amend­ment. Pub­lic cor­po­ra­tions have been able to do this for nearly two decades. The pro­posal was unique in one way though; it was sup­ported by all par­ties in the House of Com­mons, in­clud­ing the then-op­po­si­tion Lib­er­als. How­ever, the char­i­ta­ble-works com­mu­nity was pretty much blind­sided when the pro­posed changes were ab­sent from in­com­ing Fi­nance Min­is­ter Bill Morneau’s 2016 bud­get.

“I was sur­prised and very dis­ap­pointed,” says Don­ald K. John­son, a phi­lan­thropist and BMO bank­ing ex­ec­u­tive who re­ceived the Or­der of Canada in 2005 for his char­i­ta­ble ef­forts. He feels that with­out the changes, char­i­ties could be de­prived of as much as $200 mil­lion an­nu­ally. “This is money they can cer­tainly use, par­tic­u­larly hos­pi­tals, be­cause the cost of health care is ris­ing ex­po­nen­tially as peo­ple get older and re­quire more med­i­cal care,” he says.

Crit­ics of the pro­posed changes ar­gue that, in ad­di­tion to cost­ing the gov­ern­ment too much rev­enue, they would be sub­ject to ma­nip­u­la­tion by un­scrupu­lous pseudo-donors who could use the new rules to set up phony char­i­ties that gen­er­ate tax re­ceipts but do lit­tle or noth­ing to im­prove the lives or well-be­ing of or­di­nary Cana­di­ans. Ad­vo­cates like John­son are calling foul, ar­gu­ing that de­priv­ing char­i­ties of the funds they need to con­tinue providing es- sen­tial ser­vices gov­ern­ment and pri­vate in­dus­try ei­ther can­not or will not amounts to “false econ­omy.” For ex­am­ple, if hos­pi­tals run short, it both beg­gars ser­vices and puts in­creased pres­sure on gov­ern­ment to make up for short­falls. As for ma­nip­u­la­tion, that threat could be min­i­mized or even elim­i­nated with ad­e­quate over­sight.

Crit­ics of the changes also try to paint the re­cip­i­ents of char­i­ta­ble do­na­tions as elit­ist or­ga­ni­za­tions cater­ing to the rich, but it’s a disin­gen­u­ous ar­gu­ment at best. The kinds of char­i­ties af­fected will not only be bal­lets and the­atre com­pa­nies but hos­pi­tals and med­i­cal re­search fa­cil­i­ties, food banks, out­reach pro­grams providing sanc­tu­ar­ies for street kids and bat­tered women, ed­u­ca­tional in­sti­tu­tions, churches, in­ter­na­tional aid agen­cies and many more. “Here in the GTA, the United Way alone serves 200 agen­cies providing fund­ing to peo­ple who are in des­per­ate need,” says John­son.

To make mat­ters worse, many po­ten­tial donors in Canada who were lin­ing up to carry through with gift giv­ing once the new rules took ef­fect are ei­ther pulling back or can­celling their plans out­right. Among them can be counted re­tired se­nior ex­ec­u­tive Michael Burns, who says he is shelv­ing plans to do­nate as much as $1 mil­lion to an eye re­search in­sti­tute at Toronto Western Hos­pi­tal and $5 mil­lion to his old alma mater, Trin­ity Col­lege School. “They’re ask­ing peo­ple with pri­vate com­pa­nies to do more be­cause cap­i­tal gains can be quite sub­stan­tial,” he says. “They need to even the play­ing field.”

There are more peo­ple like Michael Burns in Canada, adds John­son, point­ing out that the Fed­er­a­tion of In­de­pen­dent Busi­ness has 106,000 mem­bers, all pri­vate. “There are a lot of peo­ple with sig­nif­i­cant as­sets who were look­ing for­ward to giv­ing back to their com­mu­ni­ties and have had to de­lay or can­cel their plans,” he says.

How­ever, John­son and oth­ers in the char­i­ta­ble-giv­ing com­mu­nity on both the giv­ing and re­ceiv­ing ends of the equa­tion are not giv­ing up with­out a fight. He has writ­ten to all MPs – many of whom are rook­ies in the House and were un­aware of the pro­posed changes or the im­pli­ca­tions of not adopt­ing them prior to their own elec­tion – in an ef­fort to “ed­u­cate” them on the down­sides of the gov­ern­ment’s in­ac­tion. He has also penned let­ters to more than 700 fel­low phi­lan­thropists and in­flu­en­tial Cana­di­ans ask­ing them to make their voices heard in sim­i­lar fash­ion. And if all that wasn’t enough he was also be­hind an open let­ter to the fed­eral gov­ern­ment that was pub­lished in na­tional me­dia and signed by nu­mer­ous pres­i­dents and CEOs of aid agen­cies and ed­u­ca­tional in­sti­tu­tions, in­clud­ing Ja­cline Ny­man of United Way, David Barnard of the Univer­sity of Man­i­toba, Jan­ice Price of the Banff Cen­tre for Arts and Cre­ativ­ity, and Janet Yale of the Arthri­tis So­ci­ety.

De­spite the fed­eral gov­ern­ment’s seem­ing in­tran­si­gence on the is­sue, at least so far, John­son says he re­mains “cau­tiously op­ti­mistic” some­thing can be done. If enough Cana­di­ans make their voices heard, it will res­onate in cau­cus meet­ings and per­haps open the door to less pun­ish­ing giv­ing stan­dards for pri­vate cor­po­ra­tions. To that end, he is ask­ing all Cana­di­ans who be­lieve in the use­ful work char­i­ties are do­ing to contact their local MP and ed­u­cate them on how im­por­tant it is to im­ple­ment the amend­ments. In the short term, he’s look­ing for good news in the fall fis­cal up­date. Fail­ing that, he will keep the pres­sure on and look for­ward to next year’s bud­get. One thing re­mains cer­tain: un­less and un­til changes are made that al­low pri­vate-cor­po­ra­tion donors to make their con­tri­bu­tions with­out penalty, Don­ald K. John­son isn’t go­ing away.

Don­ald K. John­son

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