The 2015 Federal Budget contains measures that will extend the
exemption of capital gains to proceeds of sales of real estate and
private companies. In a welcome move, the Budget also announces the
ability of charitable organizations and foundations to diversify
Extension of Exemption of Capital Gains
Capital gains realized on the donation of publicly-traded
securities directly to registered charities are exempt from tax.
The exemption applies also to donations of ecologically-sensitive
land and certain cultural property.
Starting in 2017 the Budget proposes to extend this favourable
tax treatment to donations of cash to a charity following the sale
of real estate or private company shares. The portion of the
capital gain that will be exempt will be based on the proportion of
the cash donated to the total proceeds from the disposition. In
order to qualify for this exemption, the cash must be donated
within 30 days after the disposition. There are a number of
conditions that must be met including the relationship of the donor
and the registered charity to the purchaser of the property. There
will be additional anti-avoidance measures, which, if they apply,
will reverse the exemption.
Eligible Investments now Diversified
Under provincial law, a partnership is generally considered to
be a relationship among persons carrying on business with a view to
profit. Charitable organizations and foundations generally do not
invest in a partnership because their ability to carry on a
business is either restricted or precluded. Effective immediately,
they will be able to diversify their investments by holding
investments in limited partnerships.
Under the new rules, a registered charity will not be considered
to be carrying on a business solely because it acquires or holds an
interest in a limited partnership. To ensure that the investment is
a passive investment, there are a number of conditions. The
investment must represent less than 20% of the interests in the
limited partnership. The 20% threshold will include limited
partnership interests held by parties not dealing at arm's
length with the charity. As well, the charity must deal at
arm's length with each general partner of the limited
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