Ottawa is giving a long-awaited gift to Canadian charities. The 2006 budget proposes to eliminate the income inclusion of capital gains that are incurred by taxpayers when they make donations of listed publicly traded securities to charitable organizations and public foundations.

Currently, the inclusion rate for charitable donations of listed publicly traded securities to eligible charities is 25%.

For several years, charitable sector advocates have lobbied Ottawa for this tax relief. In 1997, Ottawa dropped the inclusion rate for publicly traded securities to 25% from 50% — the general rate for capital gains inclusion into income. Now gains will be eliminated completely.

“This is a welcome move that should stimulate substantial charitable gifts, many of which have been put on hold pending this widely anticipated announcement,” says Jamie Golombek, vice president of taxation and estate planning at Toronto-based AIM Funds Management Inc.

Since 2000, an individual who makes a qualifying charitable donation of listed publicly traded securities which were acquired under an employee stock option plan has been eligible for a special deduction equal to the 25% capital gains inclusion rate. The 2006 budget proposes to eliminate the inclusion rate for this deduction, too.
These measures will apply to donations of eligible securities made on or after May 2, 2006.

Ottawa is extending the same tax relief to gifts made under the Ecological Gifts Program, which provides a way for Canadians with ecologically sensitive land to protect natural areas and leave a legacy for future generations.

Since 2000, donations to approved conservation charities of ecologically sensitive land have been eligible for special tax assistance. In addition to the charitable donations tax credit (for individuals) and the charitable donations deduction (for corporations), 25% of any capital gains that accrued on the land had to be included in the donor’s income. The budget proposes to reduce the capital gains inclusion rate for such donations to zero. This measure will apply to donations made on or after May 2, 2006.