Canadians are donating more money than ever to charity, even though the number of donors claiming charitable donations is declining, according to a recent report from Statistics Canada.

The report states that $8.5 billion was donated in 2006, up 7.6% from $7.9 billion the year before. The number of individuals making gifts, however, dropped by 1.4%.

Although the report did not distinguish between gifts of cash and securities, it’s possible that the elimination of capital gains taxes on donated securities may, in part, be driving the upsurge.

The federal budget changed the rules for capital gains on securities donated directly to private charitable foundations, making them tax-exempt. That expanded on the changes in 2006 that permitted the donation of securities to public charitable foundations without triggering taxes. The donation of securities creates an advantage for both the taxpayer and the charity, by avoiding the capital gains generated by the sale of the shares prior to donation and thereby increasing the amount available to be donated. The taxpayer also receives a substantial tax credit.

These exemptions have been used by at least two high-powered business moguls who have made multimillion-dollar donations. In the same month last year that Ottawa announced the first tax change, well-known mining and real estate tycoon Peter Munk donated $37 million in stock to the cardiac centre at Toronto General Hospital. That news came on the heels of an announcement by Larry Tanenbaum, who donated $50 million in stock to the United Jewish Appeal, also known as the UJA Federation of Greater Toronto.

Come next spring, there may be more spikes in the donations of shares to charities — that is when the anticipated close of the private-equity takeover of BCE Inc. will pose a capital gains problem for thousands of Canadian inves-tors. For those with a philanthropic bent, the buyout will present an opportunity to take advantage of the new tax rules.

“It’s the largest corporate takeover in Canadian history,” says Jo-Anne Ryan, vice president of philanthropic advisory services for TD Waterhouse Canada Inc.

The $50-billion deal — in which the telecom titan will be taken private by a consortium that includes the Ontario Teachers’ Pension Plan Board, Providence Equity Partners Inc. and Madison Dearborn Partners LLC — is expected to close in late March. Many BCE shareholders are retired seniors who have held the stock for decades. Ryan cites the example of a couple who first bought BCE at $12 a share in 1983 under its dividend reinvestment plan; they will be unloading their holdings at $42.75 a share.

“That type of capital gain [will not be] uncommon,” Ryan says.

According to a TD Bank Financial Group report released in May, this capital gains pool is expected to continue to grow. “The total market value of shares outstanding could exceed $3 trillion in 10 years time and as much as two-thirds of the total could represent capital gains,” wrote Craig Alexander, TD’s vice president and deputy chief economist. “The key recommendation is that donors should choose to give the securities that have experienced the greatest capital gain per share.”

BCE, of course, is not the only deal that is posing a capital gains issue for investors. Ryan says the bank has seen a “huge increase” in people donating securities, partly the result of a recent flurry of mergers and acquisitions, many of which were all-cash deals.

For those Canadians considering using the tax-minimizing provisions of the revised laws, Alexander warns prospective donors that the tax benefits of making the gift will not fully offset the value of the donation: “It is important to stress that donations are still an act of generosity.”

Ryan agrees: “In each and every case, the individual would be financially better off selling the securities for cash and retaining the funds for personal spending or investment. However, the federal and provincial governments have deliberately reduced the financial burden of giving by providing tax incentives. Donors should not feel guilty about taking advantage of the preferential tax treatment, since it is the intent of governments to encourage greater contributions to charities.”

Donations are “an act of generosity and caring on the part of Canadians,” she adds.

Tina Tehranchian, a certified financial planner and branch manager at Assante Capital Man-agement Ltd. in Richmond Hill, Ont., outlines how donating shares that have increased in value can result in a greater benefit than selling them before making a donation:

@page_break@> a person who wants to donate shares worth $10,000 that were purchased many years ago for $2,000 would realize a capital gain of $8,000 and pay taxes of about $1,800 if subject to the top marginal rate of about 45%. The result of donating the shares under the old tax rules would be a net benefit of $2,700, representing the $4,500 value of the donation credit less the $1,800 tax on the capital gain.

> under the new rules, which eliminate capital gains taxes on shares donated to charity, the person would still be entitled to the $10,000 tax receipt but would enjoy the straight net benefit of $4,500.

Although multimillion-dollar donations make for splashy headlines, data from the StatsCan report shows that a more typical donation by a Canadian resident is in the low three figures.

The median donation by the 5.75 million people who filed taxes in Canada in 2006 was $250, up $10 from the year before, and the average age of donors across the country was 52.

The territory with the highest median donation was Nunavut, with $450; the lowest province was Quebec, with a median donation of $130. (Donations can be carried forward and claimed for up to five years, so the 2006 number could include gifts from any of the previous five years.) The two provinces with the highest percentage of donors are Manitoba, with 28% of returns indicating a donation, and Ontario, with 27%. IE