TAX TREATMENT OF CHARITABLE GIVING BY INDIVIDUALS IN CANADA 1

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1 TAX TREATMENT OF CHARITABLE GIVING BY INDIVIDUALS IN CANADA 1 1. BASIC TAX RULES FOR INDIVIDUAL TAXFILERS 2 Basic tax credit In Canada, an individual taxfiler who makes a gift to a charity 3 is entitled to a non-refundable tax credit e.g. a credit against tax they would otherwise pay. 4 If the gift is less than $200, the federal tax credit is calculated at the lowest personal tax rate on the amount of the gift. Where the gift exceeds $200, the credit is 29% of the amount of the gift. A comparable tax credit is also available in calculating provincial taxes, with special rules applicable in Quebec (see Appendix 1 for 2011 federal and provincial charitable tax credit rates) Limit on the amount of the tax credit claimed An individual can claim a tax credit for a charitable gift of up to 75% of net income for the year. Any unused credit can be carried forward for five years and used to offset taxes in those years, subject to the 75% limit in each year. The limit does not apply in the year of death or the previous year. Unused credits not applied in the year of death can be used in the prior year, without any limit based on income. The 75% limit is increased by an additional 25% of any taxable capital gain realized by the donor as a result of making a gift of appreciated capital property, plus 25% of the amount of any recapture of capital cost allowance realized on a gift of depreciable property (to a maximum of 25% of the lesser of the capital cost or the fair market value of the depreciable property). 1 Except where otherwise indicated, the contents of this overview have been adapted from: Charitable Donations A Summary of Tax Considerations by James M. Parks in Canadian Donor s Guide to Fundraising Organizations , 26 th Edition. Published in co-operation with the Canadian Bar Association, Imagine Canada, and Canadian Association of Gift Planners and in partnership with Scotia Private Client Group. Available online: 2 For more information on CRA s administrative position on gifts and receipts, see CRA Interpretation Bulletin IT-110R3 Gifts and Official Donation Receipts. 3 For purposes of this summary references to a charity include charities are registered by Canada Revenue Agency ( CRA ), RCAAAs, certain non-profit housing corporations, Canadian municipalities, the crown, the United Nations and certain foreign charities (including certain foreign universities). 4 These rules for gifts by individuals are found in section of the Income Tax Act. 1

2 2. GIFTS OF CAPITAL PROPERTY Gifts of capital property and capital gains Capital property includes depreciable property 5 and any property that, if sold, would result in a capital gain or a capital loss. Some common types of capital property include: cottages; securities such as stocks, bonds, and units of a mutual fund trust; and land, buildings, and equipment used in a business or rental operation. It does not, however, include the trading assets of a business, such as inventory. A donor of capital property is generally deemed to have received proceeds of disposition equal to the fair market value of the property, even though the person did not actually receive that amount. If the fair market value exceeds the cost, a capital gain will be realized. The inclusion rate (the portion of a capital gain that is subject to income tax) in such cases is 50%. If the property is depreciable property, there may also be recapture of capital cost allowance 6 previously claimed, which is fully included in income. A donor can reduce capital gains tax on a gift of appreciated capital property to a charity by designating in the tax return in the year in which the gift is made, the transfer price as an amount not greater than the fair market value of the property and not less than its adjusted cost base. The donor will then be deemed to have disposed of the property for the designated amount and considered to have made a gift of the designated amount when calculating the tax credit or deduction. This rule lets the donor choose how much capital gain (if any) they recognize for tax purposes on the donation of the capital property. If the fair market value is less than the adjusted cost base, however, the donor does not have a choice: the fair market value must be used. For further information, see CRA's IT-288. Certain restrictions apply in the case of a non-resident individual disposing of Canadian real estate to a charity. Gifts of publicly traded securities As of May 2, 2006, donations of publicly listed securities 7 to registered charities have been exempt from capital gains taxation on gains triggered as a result of the gift, making it more tax-efficient for donors to give securities directly to charity, rather than to sell them and give the proceeds to the charity. As of the same date, the effective inclusion rate for qualifying charitable donations of listed publicly traded securities acquired with employee stock options is also zero. To be eligible for this deduction, 5 This is capital property used to earn income from a business or property, the capital cost can of which be written off through the Capital Cost Allowance over a number of years. 6 In the year an individual buys a depreciable property, such as a building, they cannot deduct the full cost. However, since this type of property wears out or becomes obsolete over time, they can deduct its capital cost over a period of several years. This deduction is called Capital Cost Allowance (CCA). Depreciable properties are generally grouped into classes and taxfilers base their CCA claims on the rate assigned to each class of property. 7 Such as: shares, bonds, warrants and debentures; mutual fund shares or units; or shares or interests in certain segregated funds. 2

3 the shares must be donated in the year and within 30 days of the options being exercised. Other existing conditions related to donations of publicly traded shares, eligible charities and stock option deductions must also be met. An employee may also be allowed to deduct a portion of their stock option benefit if the proceeds from the disposition of the securities acquired through the stock option plan are donated. To qualify for this deduction, the employee must direct a broker or dealer who is appointed by the grantor of the option, or by an entity not dealing at arm s length with the grantor, to sell the securities immediately and donate all or part of the proceeds of the disposition to a qualifying charity. The deduction will be equal to the amount that would have been deductible had the securities been donated as described above, and prorated to reflect the proportion of the proceeds that are in fact donated. Taxpayers who own eligible unlisted exchangeable securities can exchange them without causing tax to be payable on a gain. There is no tax on a gain on the exchange, and the donor can receive a receipt for the donation of the listed securities received on the exchange, again without recognizing a gain. This beneficial treatment applies to capital gains on the exchange (with some exceptions) of unlisted securities for listed securities where: At the time they were issued, the unlisted securities included a condition allowing the holder to exchange them for the listed securities The listed securities are the only consideration received on the exchange The listed securities are donated within 30 days after the exchange. Gifts of non-qualifying securities A non-qualifying security is, generally, a security where the owner of the security (e.g. a shareholder) is not at arm's length with the issuer of the security (e.g. a private company). A gift of a non-qualifying security to a charity is generally ignored in determining a tax deduction or credit in most cases. Specifically excepted are obligations, shares or securities listed on prescribed stock exchanges and deposits with financial institutions. If, however, the property is disposed of within five years of receipt of the gift, or the property ceases to be a non-qualifying security within the five year period, the individual will be treated as having made a gift at that time. This rule does not apply to an excepted gift, which is generally a gift of a share made to an arm s length qualified donee that is not a private foundation, and where the donee is a charitable organization or a public foundation, the donor deals at arm s length with all of the donee s directors and officers. CRA considers the relevant time when the donor must deal at arm s length with the donee is immediately after the gift. The objective of these rules is to deny a tax credit for certain types of gifts, including shares of privately held companies, subject to some relief if the donee disposes of the security within five years. 3

4 The rules apply where the non-qualifying security is donated to a trust of which the registered charity is a beneficiary. The March 22, 2011 budget proposed new rules for non-qualifying securities. If these proposals are enacted, in determining eligibility for a tax credit or tax deduction, recognition of a gift will be deferred until the time within five years of the donation that the qualified donee has disposed of the non-qualifying security for consideration that is not another non-qualifying security. This measure will apply in respect of securities disposed of by donees on or after March 22, Gifts of flow-through shares In appropriate situations, donors can donate listed flow-through shares that are subject to a monetization arrangement enabling a charity to sell them immediately, despite securities law restrictions, to a third party that agrees to provide liquidity. Until recently, if the shareholder donated the shares, there was no tax on the resulting capital gain, and there was also a tax credit available based on the fair market value of the shares (assumed to be the price at which the charity is able to sell the shares to the third party). The deduction, the elimination of tax on the capital gain, and the charitable tax credit all reduced the overall tax cost of the initial investment and the subsequent donation. However, in order to prevent taxpayers from acquiring and donating flow-through shares at little or no after tax cost, the March 22, 2011 federal budget changed the rules to allow the exemption from capital gains tax on donations of flow-through shares only to the extent that cumulative capital gains in respect of dispositions of shares of that class exceed the original cost of the flow-through shares. This measure applies for shares issued pursuant to a flow-through share agreement entered into on or after March 22, CRA has also indicated that flow-through shares acquired as part of a gifting arrangement are not excluded from the definition of tax shelter 9 and therefore need to be registered with CRA. 10 Failure to obtain a registration number could result in the disallowance of credits or deductions that would otherwise be available. 8 Deloitte, Canadian Tax Alert, Federal Budget Highlights, March 22, Online: 9 According to CRA, a tax shelter includes either a gifting arrangement or the acquisition of property, where it is represented to the purchaser or donor that the tax benefits and deductions arising from the arrangement or acquisition will equal or exceed the net costs of entering into the arrangement or the property. Also, a gifting arrangement where the donor incurs a limited recourse debt related to the gift will be a tax shelter. Generally a limited recourse debt is one where the borrower is not at risk for the repayment. Source: 10 A promoter of a tax shelter must acquire a tax shelter identification number before selling the tax shelter property. In addition, the promoter must provide CRA with the list of investors or participants, including their names, social insurance numbers, and other prescribed information. The identification number allows the CRA to track these arrangements and the taxpayers who participate in them. 4

5 3. GIFTS IN EXCHANGE FOR ANNUITIES FROM CHARITIES Prior to December 20, 2002 a donor could transfer cash to a charity which undertook to pay an annuity for life to the donor or the donor and, where applicable, a spouse. As the annuity payment received by the donor would be a blend of interest and capital, only the interest portion would normally be taxable. If the donor transferred cash to the charity in excess of the amount expected to be received over the term of the annuity, the excess was considered under CRA s administrative policy to be a gift and the charity could issue a tax receipt for the excess. CRA s policy as stated in IT-111R2 entitled Annuities Purchased from Charitable Organizations was not to tax any portion of an annuity payment received by a donor in such circumstances. The Department of Finance announced a number of proposed changes in the period December 2002 to Nov 2007 but these had not been enacted as of April 30, 2011, as the bills in question all died on the order paper. Nevertheless, CRA is administering the law as if the changes captured in the most recent Bill Bill C10 (2007) were in place, since they will be retroactive. Under the proposed changes, the value of property received from a charity in exchange for a gift must be determined and that value will become the cost of that property to the charity. Where an amount is transferred to a charity by a donor and the advantage received by the donor is a stream of annuity payments, the amount of the gift will be equal to the excess of the amount transferred by the donor to the charity over the amount that would be required to purchase an annuity that would provide the same payments. CRA expects charitable annuities to continue as a means of fundraising which could be more advantageous to the donor than in the past. For example, for a donor with a life expectancy of eight years, who actually lives for eight years and makes a cash payment of $100,000, in exchange for annuity payments of $10,000 for each of those eight years, the cost of the annuity that will pay $80,000 over eight years is $50,000. Under the former administrative practice, the donor would be entitled to a tax receipt for $20,000 in the year of the payment and would receive a total of $80,000 as annuity payments tax-free. Under the proposed changes, the donor will receive a tax receipt for $50,000 in the year of the gift, and will receive $80,000 in annuity payments, of which $30,000 will be included in income over the eight years, as blended payments. 4. GIFTS OF LIFE INSURANCE POLICIES Gifts of life insurance policies 11 allow a large donation, at a relatively small cost to the donor and can be organized in a variety of ways. 11 For more information on the CRA s administrative position on donations of life insurance policies, please see CRA Interpretation Bulletin IT-244R3 Gifts by Individuals of Insurance Policies as Charitable Donations. 5

6 Life insurance policy purchased by charity but premiums donor paid A charity can purchase a life insurance policy on the donor s life on the understanding that the donor will pay the premiums directly to the insurance company. The charity can then issue a tax receipt to the donor for the premiums paid. On the death of the donor, the charity will receive the death benefit, but it will not be a gift by the donor. Transfer of existing policy to charity by donor/policy holder but premiums donor paid Alternatively, the donor can transfer an existing policy to the charity and undertake to pay future premiums. The charity can issue a receipt for the fair market value of the gift, which may be the cash surrender value of the policy less any outstanding policy loans. The charity can also issue a tax receipt for the premiums paid. CRA has acknowledged that the cash surrender value of a donated policy may not necessarily be the fair market value of the policy. In particular, CRA has stated that, consistent with standard valuation principles applicable to other types of property, the fair market value of a policy should be determined based on all of the relevant factors. As a result, if a qualified valuator determines that the fair market value of the policy exceeds its cash surrender value (less any outstanding policy loans) that higher amount can be shown as the eligible amount in a receipt issued by the charity. CRA has also confirmed that in determining the income that must be reported by the donor on a gift of a policy to a charity, the cash surrender value rather than the fair market value will be relevant. As a result, the donor will be subject to tax on the amount by which the cash surrender value (less any outstanding policy loans) exceeds the adjusted cost basis (a defined term) of the policy. CRA has confirmed that this will not be affected by the issuance of an official receipt by the charity reflecting a fair market value that is higher than the cash surrender value. Donor gift to enable charity to pay premiums on a donated life insurance policy If a charity is concerned that it will not be able to pay the premiums on a donated policy, the donor may make a further cash gift, which the charity can use to purchase an annuity to provide regular payments to pay the premiums as they become due. The cash payment should be eligible as a separate gift and the charity will generally be able to treat the annuity, along with the insurance policy itself, in a manner that does not cause problems in meeting its disbursement quota. 6

7 Alternatively, the charity might rely on a promise from the donor (or another donor) to make annual donations to pay the premiums. This would create some risk for the charity. The ability of the charity to continue to pay the premiums on a donated policy may be a factor in determining the eligible amount of the gift based on the fair market value of the policy. If there is reason to believe the policy will lapse because the charity cannot pay the premiums, the fair market value of the policy may be adversely affected. Under proposed changes, however, the eligible amount of a gift of a life insurance policy will be the lesser of its fair market value and the cost of the policy to the donor, if the gift is made within three years of the day on which the policy is acquired see section on Recent and Proposed Changes below. In some situations, the value of the gift could be less than expected if the policy has not been held for at least three years. Charity as beneficiary of donor owned policy As a further alternative, the donor whose life is insured can continue to own the policy, and name the charity as the beneficiary. The donor will receive no tax relief for the premiums paid or the value of the policy, since nothing currently is being given to the charity. The charity that is the named beneficiary, will receive the death benefit on the donor s death. The donor is deemed to have made a gift to the charity immediately before death, if the charity receives the death benefit under the policy within 36 months after death. The fair market value of the gift is deemed to be the fair market value, at the time of the individual s death, of the right to that transfer. Bequest to charity paid through proceeds of life insurance policy after death A donor can also use life insurance proceeds to pay a bequest in a will to a charity. The donor who owns an insurance policy can fund the bequest, naming the estate as beneficiary of the policy. The will would include a bequest equal to the death benefit from the insurance policy. On the donor s death, the estate would pay the bequest to the charity and receive the life insurance proceeds free of tax. The charity would issue a receipt for the amount of the bequest. The gift could then be used to reduce tax in the terminal return or in the return for the prior year, if there are excess credits. In some provinces, probate tax on the value of the proceeds passing through the estate may be a factor. A direct designation of a charity as a beneficiary will be treated as a donation in the year of death of the insured. 7

8 5. GIFTS OF RESIDUAL INTERESTS A donor can give property to a charity, but maintain the right to use the property for his or her lifetime. Alternatively, the donor can establish a charitable remainder trust 12 by transferring cash assets to a trust, reserving a right to receive payments for life and transferring the balance on death to a charity. If certain conditions are met, CRA considers the donor has made a gift which will qualify for a tax receipt. This type of gift could be made during a person s lifetime or by a will. In such cases, it is necessary to value the residual interest. This value will be the fair market value of the transferred property (usually cash) less the present value of the reserved interest, taking into account an appropriate discount rate, the life expectancy of the donor, current interest rates and any other relevant circumstances. This type of gift is analogous to a charitable annuity. If there is a right to encroach on the capital of the property, CRA takes the view that the value of the residual interest will be nil. A trust will generally be required for gifts of property other than real estate, so a residual interest in the trust is donated to the charity. For example, an individual donor may wish to donate a work of art to a charity, but retain possession of the art until her death. In these circumstances, if the donor transfers title in the art to a trust of which the charity is the residual beneficiary at the time of the gift, the donor has made a gift of a residual interest in the trust, the value of which is based on the factors mentioned above. A gift of a residual interest may result in a capital gain to the donor if the value of the property exceeds its adjusted cost base, determined in accordance with a formula applied by CRA. The gift of a beneficial interest in the capital of a charitable remainder trust is not automatically treated as a gift of a non-qualifying security, but the general anti-avoidance rule may apply if the trust holds non-qualifying securities. In determining whether a gift of a beneficial interest in the capital of a trust is a non-qualifying security, CRA will consider whether the trust is affiliated with the donor immediately after the gift was made. If the donor retains a beneficial interest in the income of the trust, the donor may be affiliated with the trust. The Department of Finance is considering changes in the ITA dealing with charitable remainder trusts, but no amendments have been introduced. 12 CRA s administrative position on this type of gift is set out in IT-226R Gifts to a Charity of a Residual Interest in Real Property or an Equitable Interest in a Trust. 8

9 6. GIFTS OF ART, CULTURAL AND ECOLOGICAL PROPERTY Gifts of art Artwork is generally considered to be personal-use property unless it is inventory. Personal-use property is property that is used primarily for the personal use or enjoyment and includes jewellery, clothing, furniture, and certain works of art. For purposes of calculating the capital gain or loss, the adjusted cost base and proceeds of disposition of personal-use property are deemed to be at least $1,000. This rule eases the compliance and administrative burden associated with the reporting of dispositions of personal-use property. The $1,000 deemed adjusted cost base and deemed proceeds of disposition for personal-use property will not apply if the property is acquired after February 27, 2000, as part of an arrangement in which the property is given to a charity. Where this type of property with a value under $1,000 is donated to a charity in those circumstances, it will no longer be treated as personal-use property, and any resulting capital gain will be taxable. Certain gifts of inventory by an artist receive special treatment and, where an appropriate designation is made, an artist is entitled to a credit based on the fair market value of the property but no income is triggered on the disposition. Gifts of cultural property 13 A gift of certified cultural property 14 to a designated institution 15 does not trigger a capital gain. Individual donors are allowed a credit for the fair market value of the property and will not be limited to 75% of income. There are special rules for determining the fair market value of cultural property. The determination is made by the Canadian Cultural Property Export Review Board, with an appeal process if the amount determined is not acceptable to the donor. The Board must certify the property and designate the institution. Any unused credits can be carried forward for five years, or back one year in the event of death. Charities receiving gifts of cultural property are subject to a penalty tax in certain circumstances if they dispose of the gifted property within ten years of its receipt. 13 CRA s administrative position on gifts by artists is set out in IT-504R2 Visual Artists and Writers and its position on gifts of cultural property is set out in IT-407R4 Dispositions of Cultural Property to Designated Canadian Institutions. 14 A certified cultural property is a property of outstanding significance and national importance to Canada, for which a certificate has been issued by the Canadian Cultural Property Export Review Board. 15 Institutions and public authorities designated by the Minister of Canadian Heritage. 9

10 Gifts of ecological property The Income Tax Act also provides favourable income-tax treatment for gifts of ecologically sensitive land, and partial interests in land (easements), to the crown, a municipality, or a charity that is approved for the conservation and protection of the environment. This includes the provision of a non-refundable tax credit to individual donors and a reduction in the taxable capital gain realized on the disposition of the property. As with gifts of cultural property, there is no limit to the total value of eco-gift donations eligible for the deduction or credit in a given year and any unused portion of a donor's gift may be carried forward up to five years. Under the Ecological Gifts Program, Environment Canada certifies that land is ecologically sensitive and an expert panel then certifies the value according to established rules and procedures, with an appeal process if the amount determined is not acceptable to the donor. Capital gains realized on eligible gifts made after May 1, 2006 are exempt from taxation. Where gifts were made prior to that date, 50% of the capital gain is taxable. A charity accepting a gift of ecological property is subject to a penalty if it disposes of the property within ten years or changes its use without the consent of the Minister of the Environment. 7. GIFTS TO THE CROWN Crown gifts gifts to Her Majesty in right of Canada or Her Majesty in right of a Province provide the same tax relief as gifts to other charities and are subject to the same limitations: 75% of the donor s income for the year 25% of any taxable capital gain An amount equal to 25% of recapture of previously claimed capital cost allowance. There are separate rules for gifts made prior to 1997 to the federal or provincial crown. For tax purposes, the crown includes an agent of the crown. Whether a particular entity is an agent of the Crown in right of Canada or of a province depends on whether the law creating the entity expressly makes is an agent of the Crown or whether the entity is an agent of the Crown at common law. Gifts to the new Canadian Museum for Human Rights and the other museums listed in the Museums Act (e.g. the National Gallery of Canada, the Canadian Museum of Civilization and the Canadian Museum of Nature) are all treated as gifts to the crown. 10

11 8. BEQUESTS INVOLVING GIFTS OF RRSPS, RRIFS, AND TFSAS TO CHARITIES Donations made as a consequence of a direct designation of proceeds of RRSPs, RRIFs or TFSAs to a charity on the death of an individual qualify as gifts eligible for the individual donation tax credit, if the transfer of funds from RRSPs or RRIFs to the charity occurs within 36 months of death. The transfer is deemed to be a gift made immediately before death by the individual to the charity. The fair market value of the gift is deemed to be the fair market value, at the time of the individual s death, of the right to the transfer. As the balance in an RRSP or RRSP is treated as income in the year of death, in the absence of a rollover to a spouse, the credit for a gift to charity in the year of death will effectively eliminate the tax otherwise payable on the balance, if there is a direct designation. This is the same result as if there were a bequest by will of the amount included in income under the RRSP or RRIF, without having to determine the amount in advance. The same valuation rules that apply to a direct designation under a life insurance policy apply (see section on gifts of life insurance above) to direct designations of proceeds of RRSPs, RRIFs and TFSAs. RECENT AND PROPOSED CHANGES A number of changes are proposed for charities and charitable donations. These were last introduced in former Bill C-10 in November 2007, but are expected to be retroactive when reintroduced and eventually enacted. Split-receipting One significant change deals with split receipting, under which the value of a gift will be the excess of the value of the property given over the value of any benefit or advantage received by the donor or a person not dealing at arm s length with the donor. This is the basis for the new administrative position dealing with charitable annuities. CRA has indicated that this policy will also apply to situations in which a payment is made, for which some consideration is received from the charity, such as recognition, a small gift, membership, a meal, etc. Under the proposals, a charity will be required to place a value on any benefit received by the donor in exchange for the payment, and issue a receipt only for the net amount. There will be some limits on the scope of this change, which will apply to gifts made after December 20, Definition of a tax shelter The definition of tax shelter includes certain arrangements under which property is given by an individual to a charity if the tax credit claimed by an individual donor will exceed the cost of the 11

12 property to the donor, or if limited recourse debt is involved. This permits CRA to identify various tax planning techniques that have not been treated as tax shelters because the definition has not included situations in which there is a reduction in taxes payable through a tax credit, rather than a reduction in income or a reduction in taxable income. Valuation of gifts in-kind As a result of perceived abuses arising out of arrangements under which property was acquired at a low cost and valued at a much higher cost when donated, a rule is proposed under which the value of the property will not exceed its cost, if the gift occurs within three years of acquisition of the property. This rule will apply regardless of the actual value of the property. In addition, if property is acquired with any expectation that it may be given during the lifetime of the owner, its value cannot exceed its cost. All gifts of capital property will be subject to these new valuation rules, except gifts of: Inventory Marketable securities Canadian real estate Certified cultural property Approved ecological property Or gifts on death. In determining the fair market value of the donated property, the intention of the donor at the time of acquisition will now be relevant. If one of the main reasons for acquiring the property was to make a gift (other than by will), in most cases the donor will have to use the acquisition cost as the fair market value at the time of the gift. For both gifts that are subject to the three year rule and gifts that are subject to the ten year rule, there will be extensive tracing rules to deal with transfers of property prior to the time of the gift. These new rules will also apply to property that was acquired under what is called a gifting arrangement for tax shelter reporting purposes, or involving debt that the donor may not have to pay. An anti-avoidance rule will address situations in which a cash gift is made and the charity uses the cash to buy property from the donor at more than its cost. These new rules are far reaching and unless they are changed before implementation, will have a significant effect on a number of situations in which donors expect to receive credit for the value of the gift rather than its cost. The proposals will reduce the value of the gift by any advantage that is in any way related to the gift. The scope of the wording is uncertain and it will be difficult to apply in many cases. CRA has indicated that it expects charities to undertake due diligence in establishing the fair market value based on the cost approach, and in determining the value of any advantage that would reduce the eligible amount of a gift. 12

13 If a donor fails to inform the registered charity of circumstances that reduce the eligible amount, despite the amount shown on the official receipts, under the proposals the eligible amount will be nil. This is a serious penalty for a donor who is prepared to gamble that an advantage will not reduce the eligible amount of the gift. Registered charities are advised to review carefully the circumstances in which gifts of property are received, when determining the eligible amount of the gift. In many cases, this will require consultations with the donor Federal Budget Proposals In its March 22, 2011 budget, the federal government announced significant changes in many rules dealing with the non-profit sector. These include: Changes to the rules for qualified donees (which includes, but is not limited to registered charities) Changes dealing with registered Canadian amateur athletic associations (RCAAAs) More stringent rules dealing with non-qualifying securities New rules dealing with governance of registered charities and RCAAAs Rules dealing with gifts returned by a qualified donee to a donor Elimination of the double-dip tax advantage for donations of flow-through shares Changes in the rules for donations of options. Those proposals that are directly relevant to individual donors are summarized below. 1. For flow-through shares acquired after March 22, 2011, the non-recognition of capital gains on donations to qualified donees will no longer be available. As a result, capital gains will be realized and no double-dip will be available. This is the result of a complicated set of proposed rules designed to track pools of flow-through shares. 2. The donation credit will not be available to a taxpayer for granting an option to a qualified donee to acquire property from the taxpayer until the donee acquires property of the taxpayer covered by the option. 3. Consistent with the proposals dealing with split receipting, a tax credit or donation will generally not be available to the taxpayer if the total amount paid by the qualified donee for property and for the option is greater than 80% of the fair market value of the property at the time the qualified donee acquires it. 4. New rules dealing with qualified donees will require CRA to identify in a publicly available list all qualified donees, including registered charities, RCAAAs, Canadian municipalities, certain municipal and public bodies performing a function of government in Canada, certain housing corporations, prescribed foreign universities and certain foreign organizations to which the federal crown has made a gift in the recent past. In addition, qualified donees will be subject to some of the compliance rules that now apply to registered charities. 13

14 APPENDIX Donation Tax Credit Rates First $200 Amount over $200 Tax Credit for donation of $1,000 Combined Fed/Prov Tax Credit for $1,000 donation Federal 15.00% 29.00% $ AB 10.00% 21.00% $ BC 5.06% 14.70% MB 10.80% 17.40% NB 9.10% 14.30% NL 7.70% 13.30% NS 8.79% 21.00% NT 5.90% 14.05% NU 4.00% 11.50% ON 5.05% 11.16% PE 9.80% 16.70% QC 20.00% 24.00% SK 11.00% 15.00% YT 7.04% 12.76% Source: 14

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