Yesterday's 2015 Federal Budget, tabled by Finance Minister Joe Oliver, contained a few measures aimed at helping charities and their donors. A summary of those measures is set out below for our readers.
Donations Involving Private Corporation Shares or Real Estate
Currently, dispositions of listed securities and ecological gifts, and exchanges of partnership units for listed securities, are exempt from capital gains tax where certain conditions are met. Budget 2015 proposes to expand this exemption in respect of certain dispositions of private corporation shares and real estate 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 at arm's length with both the donor and the qualified donee to which cash proceeds are donated.
The exemption will be available to the extent that the cash proceeds from the disposition of the shares or real estate is donated.
Proposed anti-avoidance rules will provide that the exemption will not be available in the following circumstances:
- the donor (or a person at non-arm's length with the donor) directly or indirectly reacquires the shares or real estate disposed of within 5 years;
- in the case of shares, the donor (or a person at non-arm's length with the donor) acquires shares substituted for the shares disposed of within 5 years; or
- in the case of shares, the shares that have been disposed of are redeemed within 5 years and the donor is not dealing at arm's length with the issuing corporation at the time of the redemption.
Where the anti-avoidance rules apply, the exemption will be reversed by including the previously exempted amount in the income of the donor in the year of the reacquisition by the donor (or the non-arm's length person), or the redemption.
This measure will apply to donations made in respect of dispositions occurring after 2016.
Investments by Registered Charities in Limited Partnerships
Budget 2015 proposes that 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. Registered charities designated as charitable organizations or public foundations are prohibited from carrying on a business unless that business qualifies as a "related business". Typically, investments in limited partnerships do not meet the "related business" test. Registered charities designated as private foundations are prohibited from carrying on any business at all. The sanctions for violating these restrictions can include suspension of receipting privileges and revocation of registered charity status.
To ensure that a registered charity's investment in a limited partnership remains a passive investment (as opposed to the carrying on of a business) this measure will apply only if:
- the charity – together with all non-arm's length entities – holds 20% or less of the interests in the limited partnership; and
- the charity deals at arm's length with each general partner of the limited partnership.
This measure, which will apply in respect of investments in limited partnerships that are made or acquired on or after Budget Day, will be of particular interest to investment fund managers who have structured certain investment products as trusts, instead of limited partnerships, to facilitate investments by registered charities.
Gifts to Foreign Charitable Foundations
Budget 2015 proposes to allow foreign charitable foundations to be registered as qualified donees if they receive a gift from the Canadian government and are pursuing activities related to disaster relief or urgent humanitarian aid or are carrying on activities in the national interest of Canada. This measure will apply on Royal Assent to the enacting legislation.