Earlier this week, the federal government released its 2015
budget. The budget contains a number of proposals to amend the
Income Tax Act, and also provides updates regarding
previously announced tax measures. One of the proposed changes
announced in the budget will be especially relevant to donors and
Currently, when capital property is donated to a registered
charity, the donor is generally entitled to a donation tax credit
(if the donor is an individual) or deduction (if the donor is a
corporation). However, unless the donor is eligible for an
exemption, the donor also realizes a capital gain on the
disposition of the property, which is subject to tax. The
Income Tax Act includes exemptions from capital gains tax
where the capital property donated is a gift of ecologically
sensitive land, certified cultural property or publicly listed
securities, but there is no capital gains exemption for gifts of
real estate or private company shares.
The budget proposes to extend the exemption from capital gains
tax where the proceeds from the sale of private company shares or
real estate are donated to charity. This exemption will apply
where: (1) private company shares or real estate are sold to a
purchaser that is dealing at arm's length with the donor and
registered charity; and (2) cash proceeds from the sale of the
shares or real estate are donated to a registered charity within 30
days of the sale. If only a portion of the sale proceeds are
donated to charity, only that portion of the capital gain will be
exempt from tax. This change will apply to dispositions that occur
Although the scope of the exemption will become more clear once
draft legislation is released, at this point it does not appear
that the exemption will apply where private company shares or real
estate are donated directly to a charity. As a result, the property
will need to be sold to a third party in order to benefit from the
The budget also proposes new anti-avoidance rules that can apply
if certain related party transactions occur within five years of
the disposition of the private company shares or real estate.
According to a recent article in the Globe and Mail, the charitable
sector expects to get a major boost in donations as a result of
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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