Lobbying for big givers

Under the measure, a donor includes half the capital gains from the donated securities for tax purposes. Since the federal inclusion rate of capital gains is 50%, that would mean an inclusion rate of 25% for donated securities.

Ottawa has expressed its pleasure over the successful impact of the tax measure, which has been in place on a trial basis since 1997. “From the data available, it appears this measure has been an effective, additional incentive for people to make donations to charities,” said Finance Minister Paul Martin in a press release. Ottawa is consulting with the charitable sector to see if the measure could be broadened.

This is welcome news to the Toronto Community Foundation, a charitable group that rivals the United Way in scope. It may also provide a glimpse of what’s ahead in next month’s federal budget.

The measure would be even more attractive if the inclusion rate was zero, says Donald Johnson, vice chairman of BMO Nesbitt Burns Inc. He lobbied federal Minister of Financial Institutions Jim Peterson to make that change during the fourth annual advisors’ forum, held by the foundation in November.

Johnson cited a recent Deloitte & Touche LLP report that tracks the impact of the measure, looking at gifting before and after implementation of the 1997 measure.

According to the report:

• The average number of gifts of publicly listed securities increased 22-fold between 1996 and 1999.

• The average value of gifts of publicly listed securities increased by 1,832% in the period, to $251,626 in 1999 from $13,022 in 1996.

• The dollar value of gifts of publicly listed securities as a percentage of the receipted donations has increased to 11% in 1999 from 0.9% in 1996, a factor of 12 times.

• More than half the charities in the sample considered the tax incentive legislation to be extremely or very essential to their futures.

Peterson, in his own address to the forum, made the case that the federal government’s tax assistance has increased the impact of tax measures. The most recent “National Survey of Giving, Volunteering and Participating,” released by Statistics Canada in mid-August, found that although the number of Canadians who made charitable gifts remained steady at 78%, the total amount donated increased by an estimated 11% to more than $4.9 billion. “The average annual amount donated by Canadians in 2000 — $259 — also increased by $20 since 1997,” he said.

The figures show increased giving among average Canadians, but Johnson’s lobby efforts are largely on behalf of high net-worth families. In his submission during the pre-budget consultations to the House of Commons standing committee on finance in mid-October, Johnson argued that the Sept. 11 tragedy and a declining economy have left charitable fundraising organizations with a difficult challenge.

“Our charities need the government’s help to provide an additional stimulus for donors to give and at least partially offset the adverse impact of giving post-Sept. 11,” he said in the submission.

The single most cost-effective stimulant, Johnson told the committee, would be elimination of capital gains tax on donated publicly traded securities. Not only will this promote more extensive charitable giving in Canada, but it will also bring this country’s charitable giving policies in line with similar policies in Britain, where donors are completely exempt from capital gains for gifts of listed securities.

Charitable policy also plays a part in the brain-drain phenomenon, Johnson told the committee: “Canada’s universities, hospitals, research centres and arts organizations are competing with the U.S. and Britain for the most talented professionals in each of these areas. Gifts of appreciated capital property account for 90% of donations to U.S. endowments. The income from these endowment funds is crucial to providing competitive compensation for faculty, medical professionals [and] research scientists, as well as performing and visual arts professionals.”

With declining government-sector support, it is imperative that Ottawa “strengthen Canada’s ability to compete for the best talent.”

In 1997, tax policy experts estimated the tax revenue loss of the 50% reduction to be between $10 million and 35 million. A complete exemption could cost the treasury $20 million to $70 million.

“Because of tax cuts,” Johnson told TCF members, “the cost of eliminating the tax, today, would be only $6 million to $21 million.” But the benefit of additional donations of shares would be much greater than any tax revenue loss, he said.

Initially, smaller charities did not support the government’s move, Johnson conceded, but the ripple effect of increased donations to organizations such as the United Way, which passes on the benefits to smaller charities, has changed that attitude. IE