BRIEF FROM THE
CANADIAN ASSOCIATION OF GIFT PLANNERS
EXECUTIVE SUMMARY
The following is a summary of the Canadian
Association of Gift Planners brief to the Standing Committee on Finance
regarding pre-budget consultations for 2012. We feel that our recommendations
will help create and sustain a more prosperous future for all Canadians. Specifically,
these tax changes overall should be implemented to ensure that our nation has
the infrastructure required by Canadians and enables the fastest growing
revenue stream for the charitable sector to continue to prosper in the world of
the future.
Recommendations:
CAGP-ACPDPTM is making three
recommendations. One related to the establishment of
Charitable Remainder Trusts; one related to tax incentives for gifts of assets and one for tax incentives related to gifts of income.
Increase the flow of charitable funds in
the wake of the recession and encourage Canadians to enhance their charitable giving
by establishing a “stretch” charitable tax credit, as advanced by Imagine
Canada and other sector organizations.
Move to extending the exemption from capital gains inclusion rates to certain gifts of real estate.
CAGP-ACPDPTM submits that the Department of Finance: move forward quickly with changes to the Income Tax
Act to clarify the law surrounding donations to Charitable Remainder
Trusts.
The Canadian Association of
Gift Planners/Association canadienne des professionnels en dons planifiés (CAGP-ACPD™)
is comprised of 1300 charitable gift planners from across Canada who adhere to
strict standards of ethics. Three-quarters of members are employed directly by
charities to assist donors. One quarter work in the private sector in the
fields of law, trusts, accounting, life underwriting and financial planning.
The purpose of the Canadian
Association of Gift Planners is to support philanthropy by fostering the
development and growth of gift planning. The Association creates awareness,
provides education and is an advocate of charitable giving.
Recommendation #1
Establishing a charitable “stretch” tax credit
There is no doubt that many organizations in
the charitable sector are facing higher than usual demand for their services as
a consequence of the recession. At the same time, for some organizations,
their ability to carry on their mandate is challenged by the symptoms of the
financial crisis including less access to government funding, a temporary
slowdown in donations, and some substantial declines in the value of
foundations’ endowments.
On the other side, there is also no doubt
that Canadians want to help the charitable community during their time of need.
There have been many stories of giving and compassion shown during this
recession. CAGP-ACPDP™ supports Imagine Canadas’
proposal of a stretch tax credit that would apply to donated amounts that exceed a donor’s previous highest giving level. This
new measure would be based on an individual tax payer’s best previous year of
giving using 2010 as a baseline. They are recommending a stretch tax credit of 29 per cent or 39 per cent on these new donations (depending, whether
the amount is below or above $200) – an increase of 10 percentage points higher than the current level. This
measure would provide incentives to Canadians to continue to increase their
level of giving year after year in order to increase their previous year’s
baselines and to continue benefitting from the stretch tax credit. This new
and unique measure would encourage middle-income earners and first-time doors
to give annually – up to a maximum of $10,000.
The “stretch” tax credit provides a way for
the average Canadian to make a difference. It complements recent incentives
encouraging gifts of assets aimed primarily at higher income Canadians with an
initiative that is less exclusive and recognizes that most Canadians can donate
income when a welcome tax incentive is in place.
The intent of this “stretch” tax credit is to
potentially change giving behaviour through a new direction in tax policy – a
policy that is relatively simple to implement. We ask the Standing Committee
to strongly consider this opportunity to open up a channel of giving for
Canadians that has not been seen before.
Recommendation #2:
Gifts of Real Property
Since introduced in 2006, the exemption from
tax on capital gains for gifts of publicly-traded securities to public
charities has been highly effective. Canadians have widely used this form of
giving and charities across the country have benefited from such gifts.
In 2006, CAGP-ACPDP™ also recommended that
the government amend the Income Tax Act to eliminate the capital gains tax on
donations of real estate and land to public charities as well as to private
foundations. Extending this incentive to gifts of real property would further
increase the capital base available to charities.
Real estate is one of the most widely held
asset classes in Canada, but rarely donated to charity. Given the success of
the nil capital gains inclusion rate for gifts of public securities, expanding
the incentive to gifts of appreciated real estate would greatly benefit the
sector and society. The proposal eliminates the tax on capital gains
realized from the sale of taxable real estate where the proceeds from the sale
are gifted to charity within 30 days of the date of the sale or the tax on
capital gains realized when a donor gifts real estate to a charity that will be
used by the charity directly in pursuing its charitable purposes.
The system for calculating recaptured depreciation will remain
unchanged. Thus deemed proceeds of disposition created by the donation would
continue to be credited to the building pool up to original cost. This will
result in immediate recapture or a reduction in the amount subject to capital
cost allowance. For proceeds over the original cost- this will create the
capital gain to be exempt from tax.
Conclusion:
We propose that gifts of appreciated real estate be exempt from
capital gains. A further detailed
description of this proposal is available on request.
Recommendation #3:
Charitable Remainder Trusts
This Committee recommends that the Department of Finance move
forward quickly with changes to the Income Tax Act to clarify the law
surrounding donations to Charitable Remainder Trusts.
This recommendation is consistent with the
Standing Committee’s request to identify how “relatively ineffective measures
be changed to ensure that they have the intended effects”. The Government has
taken many positive steps to improve the ability of the charitable sector to
engage the public in its missions and raise donor dollars to support those in
need. The Charitable Remainder Trust is an attractive structure to older
donors (age 65+) to use to support their charities of choice during their lifetimes.
Clarification of the Charitable Remainder Trust rules in the Income Tax Act will
promote donor and advisor confidence and ensure proper regulation of this gift
vehicle. We believe this device will take on a prominent role in structuring
near end-of-life asset gifts by middle income Canadians.
History of the Charitable Remainder Trust
The Charitable Remainder Trust has been acknowledged by the
Department of Finance and Canada Revenue Agency as a valid tool for giving
significant gifts of assets that needs clarification in Canadian law. In the
spring of 2003 at the request of these Departments, a proposal was tabled by
CAGP-ACPDPTM for a legislative framework for Charitable Remainder
Trusts under Canadian law. While both Finance and CRA have been cooperative
with CAGP-ACPDP, the major regulatory changes within the sector have delayed
this initiative.
We have recently provided the Department of
Finance with a detailed proposal on how to improve these rules. The proposal
was prepared by CAGP-ACPDP™ and is available upon
request.
What is a Charitable Remainder Trust?
A Charitable Remainder Trust is a “life income” gift that allows
individual donors age 65+ to create a trust, retain a life income and, upon
their death, the remainder interest goes to charity. Since the trust is
irrevocable the donor also receives a current tax receipt for the future value of the capital in the trust. It is an important giving technique
internationally, but due to lack of clarity in Canadian law, Charitable
Remainder Trusts have not been widely used here.
An Example
Mrs. Donor, age 80, lost her
husband 2 years ago. She has been a life long supporter of the United Way and
has included it in her will. She has decided she wants to make the gift now,
but has a concern that she has enough income in future years to support her
lifestyle.
With a charitable remainder
trust she would get income for life and the charity gets the capital at the
time of her death, as the gift is irrevocable. She will also receive a tax
receipt for the present value of the future interest of the charity, which
would be approximately 70% of the amount contributed for a donor of this age.
The amount of the receipt is always discounted and determined by looking at age
and life expectancy. Most importantly, Mrs. Donor is recognized today by the
United Way for her generosity.
Key Proposed Changes
The CAGP proposal asks for
the inclusion of a new gifting vehicle to be defined in the Income Tax Act (Canada) as charitable remainder trust. Such a trust must have a qualified
donee as a beneficiary and would provide for annual distributions to an income
beneficiary that in most cases would be the donor, but could be the donor and
his or her spouse or a third party. The proposal contemplates that the
transfer of property to a full charitable remainder trust would be a gift for
tax purposes. The charity would be required to value the remainder interest
which is left to the benefit of the charity and can issue a tax receipt for
that amount. The proposal asks that incentives available in the Income Tax
Act to gifts made directly to charities apply to the transfers of property
to a charitable remainder trust. Otherwise it contemplates that the transfer
of property into the charitable remainder trust would be taxable in the same
way a transfer to a charity would be taxable. It is contemplated that the
charitable remainder trust would be exempt from tax but that the annual
distributions made to a beneficiary would be taxable under the Income Tax
Act. In other words, the proposal tabled is as consistent as possible with
the current provisions of the Income Tax Act and the administrative
policy which supports the charitable remainder trust with some uncertainty
under the current regime.
Conclusion
The Charitable Remainder
Trust is a prudent and effective giving tool that could unlock significant
gifts of assets from donors age 65 years and older. We ask for the support of
this Committee to bring some urgency to the Charitable Remainder Trust proposal
currently with the Department of Finance. The continued discussions on this
proposal are an excellent example of collaboration by both Government
Departments and the charitable sector. The time has come for a final push to
adopt the Charitable Remainder Trust proposal in the Income Tax Act for the
benefit of Canadians.