Finance Minister Flaherty’s first budget is music to the ears of Canada’s 82,000 registered charities, with the announcement that the capital gains on donations of publicly traded securities to charitable organizations and public foundations will be tax free.

Charities have been asking for such relief since 1997. Since then, individuals and corporations donating publicly traded securities to public charities have received preferential capital gains treatment and have only had to include 25% of capital gains realized on the donation as taxable income instead of the normal capital gains inclusion rate of 50%.

The elimination of the remaining 25% as announced in the 2006 Budget has the potential to cause a surge in such donations in the future.

In October 2004, TD Waterhouse launched the Private Giving Foundation, an independent registered charity and a simple, effective way to leave a lasting legacy as an alternative to setting up a private foundation. In just 18 months, total donations to the Private Giving Foundation have exceeded $30 million with over 80% comprised of donations of securities.

Jo-Anne Ryan, vp, philanthropic advisory services, TD Waterhouse Canada Inc. and executive director of the Private Giving Foundation, has already begun to feel the effect of the budget. Since the budget announcement, Ryan has taken calls from donors who have expressed their intent to transfer over $2 million in securities to the Private Giving Foundation.

“I believe that we are just scratching the surface. The total market value of publicly traded stocks held by Canadians is an astounding $1.3 trillion with unrealized capital gains accounting for almost half of these holdings,” said Ryan, in a release.

“The potential if these securities holdings are converted to charitable donations is huge. Not only does this provide a tremendous opportunity to increase donations today, but also facilitates excellent planning opportunities for individuals who plan to give later in life and may want to buy stocks now in order to accomplish this.”

Many advocates of removing the remaining taxation of capital gains on gifts of securities argue that stock donations will rise 50%. If so, this would provide more than $100 million in additional funding to charities.

Don Drummond, senior vp and chief economist, TD Bank Financial Group, believes that the boost could be even greater, particularly once people become aware of how attractive this measure is from a tax perspective. “Without any capital gains taxation, many donors will actually make money from a gift relative to what they originally paid for the stock. In other words, the charitable donation credit could exceed the purchase price if the value of the shares has appreciated significantly,” explained Drummond.