Canada: Budget 2015: Incentivizing Charitable Giving And Easing Investment Restrictions On Charities And RCAAAs

Last Updated: April 29 2015
Article by Andrew Stirling

Budget 2015 announced three proposals to amend the Income Tax Act (Canada) (the "Tax Act") that are designed to further incentivize charitable giving to registered charities ("Registered Charities") and other "qualified donees" ("Qualified Donees") and to ease investment restrictions on the activities of certain Registered Charities and registered Canadian amateur athletic associations ("RCAAAs"). It is anticipated that these welcome proposals will benefit both Qualified Donees and donors.

Donations Involving Private Corporation Shares or Real Estate

Taxpayers that donate to Qualified Donees are generally eligible for a tax credit, in the case of individuals, or a tax deduction, in the case of corporations, in respect of the donation. In addition, taxpayers that make donations of shares, debt obligations or rights listed on a designated stock exchange to Qualified Donees, as well as certain other specified types of property, including units of mutual fund trusts and shares of mutual fund corporations, (collectively, "Publicly Traded Securities") are generally exempt from capital gains tax that would otherwise arise on the donation. Notwithstanding the absence of capital gains taxation in such circumstances, a taxpayer will generally receive a donation receipt for the fair market value of the Publicly Traded Securities at the time of the donation.

By contrast, a donor is generally not relieved from capital gains tax that arises on the donation of private corporation shares or non-ecologically sensitive real estate. Accordingly, a donor of private corporation shares or real estate to a Qualified Donee would generally be subject to capital gains taxation on any gain realized on the disposition. The donor would continue to be entitled to a donation receipt for the fair market value of the donated property at the time of the donation (in such circumstances, a donor may, subject to certain limits, elect to designate on the donor's annual tax return an amount that is lower than the fair market value of the property as both the proceeds of disposition and amount of the donation, thereby lowering both the capital gain recognized on the donation, as well as the amount of the donation credit or deduction, as applicable, that would otherwise have been available in respect of the gift).

The charitable sector has made several representations to the Department of Finance in recent years requesting that the exemption from capital gains taxation available in respect of donations of Publicly Traded Securities be extended to include donations of shares of private corporations and real estate.

Budget 2015 proposes to provide an exemption from capital gains tax in respect of certain dispositions of private corporation shares and real estate. Such an exemption will be available where:

  • cash proceeds from the disposition of the private corporation shares or real estate are donated to a Qualified Donee within 30 days after the disposition; and
  • the private corporation shares or real estate are sold to a purchaser that is dealing at arm's length with both the donor and the Qualified Donee to which cash proceeds are donated.

It is proposed that the exempt portion of the capital gain will be determined with reference to the proportion that the cash proceeds that are donated is of the total proceeds from the disposition of the private corporation shares or real estate.

A series of anti-avoidance measures have also been proposed to limit the scope and availability of the above exemption to targeted dispositions of private corporation shares and real estate. In particular, the anti-avoidance measures appear to be designed to ensure that a deduction is not claimed when the donor, or a person not dealing at arm's length with the donor, has not effectively divested itself of the donated property or has subsequently reacquired such donated property.

The anti-avoidance rules will apply where, within five years after the disposition:

  • the donor (or a person not dealing at arm's length with the donor) directly or indirectly reacquires any property that had been sold;
  • in the case of shares, the donor (or a person not dealing at arm's length with the donor) acquires shares substituted for the shares that had been sold; or
  • in the case of shares, the shares of a corporation that had been sold are redeemed and the donor does not deal at arm's length with the corporation at the time of the redemption.

Where the anti-avoidance rules apply, a taxpayer will be required to include the previously exempt taxable capital gain in the taxpayer's income in the year of the reacquisition or redemption.

The above proposal to exempt donations of private corporation shares and real estate from capital gains tax is structured differently than the exemption that applies in the case of Publicly Traded Securities. For a donor to avail himself or herself of the existing exemption from capital gains tax, the Publicly Traded Securities must be donated in-kind to the Qualified Donee. Generally, a Qualified Donee wishing to provide this option to its donors must open a brokerage account or otherwise ensure that it is equipped to receive donations of Publicly Traded Securities. This can be administratively burdensome, particularly to smaller Qualified Donees or in circumstances where the value of the donated Publicly Traded Securities is relatively modest. In contrast, the Budget 2015 proposal to exempt donations of private corporation shares and real estate from capital gains tax does not require the transfer of ownership of the shares or real estate to the Qualified Donee. Budget 2015 proposes that the proceeds from a sale to a third party may be donated to a Qualified Donee within 30 days after the disposition of the subject property. It is hoped that the Government considers streamlining the rules in respect of donations of Publicly Traded Securities such that donors may similarly be exempt from capital gains taxation without having to transfer the Publicly Traded Securities to Qualified Donees.

Budget 2015 did not release draft legislation in respect of the above proposal . However, the Budget documentation suggests that the proposed rules would apply to donations made in respect of dispositions occurring after 2016.

Investments by Registered Charities and RCAAAs in Limited Parnerships

Subject to various restrictions, Registered Charities and RCAAAs are generally permitted to make passive investments of surplus funds in order to increase the assets at their disposal to carry out their charitable activities. Private foundations are generally not permitted to engage in business activities to earn additional revenue, while charitable organizations, public foundations and RCAAAs are generally only permitted to engage in business activities in circumstances where the business is a "related business". Broadly speaking, a related business is one that is run substantially by volunteers or one that is linked to an organization's purpose and is subordinate to that purpose.

A partnership is a legal relationship governed by provincial law typically pursuant to which persons may carry on business in common with a view to profit. Since a partnership is not recognized as a legal person, the partnership's activities are generally considered to be the activities of the individual partners. Accordingly, a Registered Charity or RCAAA that invests in a partnership will generally be considered to be carrying on the business of the partnership. As noted above, private foundations are prohibited from carrying on a business and, therefore, from owning a partnership interest, while charitable organizations, public foundations and RCAAAs may generally only own an interest in a partnership if the partnership carries on a related business to the Registered Charity or RCAAA, as applicable.

Budget 2015 recognizes that partnerships are used extensively as investment vehicles to pool funding by institutional and other large investors in order to invest in private market opportunities. Budget 2015 also recognizes that limited partnerships can be used to structure social impact investments, which can address social and economic needs. Accordingly, Budget 2015 proposes to amend the Tax Act to provide that Registered Charities and RCAAAs will not be carrying on a business solely because they acquire or hold an interest in a limited partnership.

Budget 2015 proposes to include certain restrictions on the holding of limited partnership interests by Registered Charities and RCAAAs to ensure such holdings are merely passive investments. Accordingly, the relieving measure is only proposed to apply where:

  • the Registered Charity or RCAAA – together with all non-arm's length entities – holds 20% or less of the interests in the limited partnership; and
  • the Registered Charity or RCAAA deals at arm's length with each "general partner" of the limited partnership.

These restrictions would not apply to situations where a charitable organization, public foundation or RCAAA carries on a related business through a limited partnership.

Budget 2015 proposes to make certain corresponding changes to the excess corporate holdings regime, which generally places limits on the shareholdings of private foundations. Budget 2015 proposes to disregard, or "look through", limited partnerships in assessing a private foundation's holdings. Similarly, Budget 2015 proposes to amend certain anti-avoidance provisions in the Tax Act related to non-qualifying securities and the loanback rules that apply to donations of shares. Following such amendments, it is understood that the non-qualifying security rules and the loanback rules will also apply to donations of interests in limited partnerships.

While the proposed legislative amendments relating to investments in limited partnerships are welcome, care will need to be taken by Registered Charities and RCAAAs to ensure that, among other things, they do not take part in the control of the business of the partnership, run afoul of the naming restrictions in the operative limited partnership statute, or otherwise take actions that may compromise their limited liability as a member of the partnership.

Budget 2015 proposes to apply these measures in respect of investments in limited partnerships that are made or acquired after April 20, 2015.

Gifts to Foreign Charitable Foundations

As summarized above, Taxpayers that donate to Qualified Donees are generally eligible for a tax credit, in the case of individuals, or a tax deduction, in the case of corporations, in respect of the donation. Budget 2015 proposes to expand the list of entities that are characterized as Qualified Donees to include certain foreign charitable foundations.

Currently, the definition of Qualified Donee in the Tax Act includes several categories of domestic and foreign entities including, among others, Registered Charities, municipalities, the federal and provincial governments, and certain international bodies such as the United Nations.

Also included in the list of organizations that are Qualified Donees are certain foreign organizations that have applied to the Minister of National Revenue (the "Minister") to be recognized as Qualified Donees for a two-year term. It is open to the Minister to register, in consultation with the Minister of Finance, such an organization if:

  • the federal government has made a gift to the organization within the previous two years;
  • the foreign organization is a charitable organization that is not resident in Canada; and
  • the foreign organization is:
    • carrying on relief activities in response to a disaster;
    • providing urgent humanitarian aid; or
    • carrying on activities in the national interest of Canada.

Budget 2015 proposes to amend the Tax Act to expand the category of foreign charities that are eligible to apply to the Minister to be a Qualified Donee to include charitable foundations in addition to charitable organizations.

Whereas charitable organizations are generally required to carry out their own charitable activities, charitable foundations have greater latitude to fulfill their charitable mandate by disbursing funds to other permitted persons.

Such a change should be welcomed by Canadian donors wishing to donate to certain international charitable foundations. It appears that the prior restrictions on the Minister from designating a foreign charitable foundation as a Qualified Donee (for a limited 24-month period) was unnecessarily restrictive, particularly since the Crown effectively controls the designation process because only foundations that have received a gift from the federal government may apply to be a Qualified Donee for this purpose.

This proposed measure will apply once the enacting legislation receives Royal Assent.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2015

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.