Tax Legislation and Real Estate Donations

Since 1996 the bestowing of charitable contributions of capital has been advancing in Canada. Malcolm Burrows from C D Howe Institute conveys in the recent report Unlocking More Wealth: How to Improve Federal Tax Policy for Canadian Charities that there is time to make the next step; broadening capital gains exemptions to donations of real estate.

For the past 13 years there have been many tax incentives offered in Canada relating to capital gifts. Giving to charity surpassed 140% due to these tax incentives.

There is nevertheless room for progression and the following shows why. Despite the volume of gifts are rising, the number of people donating is smaller. What is salient is that donations are coming as a one time only generous donation rather than continuous, but smaller, contributions. This trend makes charitable organizations more vulnerable to economic fluctuations.

Property and private company shares don't qualify for capital gains exemptions. These policies therefore result in a market imbalance. This leaves both owners and charities with a impediment. Charities tend to find that housing is not donated generally.

There are many predicaments to be taken on when real estate is gifted. One of the biggest concerns among policy makers is about determining the fair market price of the real estate property gifted, which may motivate the donors to alter the value of the property in their accounts. Issues can emerge for the charity to whom the gift has been given too. Unlike capital donations, real estate brings more burdens on charities' administration. After donation the property is subject to taxes and upkeep which present their own set of dilemmas for a charity.

These problems are not beyond resolution. Malcolm Burrows introduces two probable ways of making real estate donations.

Gifts of cash from a real estate sale. It solves both the difficulties of valuation (since the property is sold on the market) and the obligation of charities (since they receive cash). The Income Tax Act has permitted the cash from some property sales to be used as profits since 2000. The seller should be able to gift a percentage or the whole amount if the legal issues were broadened.

If someone wants to give a gift of real estate. The main issue lies in the prospect of altering of the property value. This can be resolved by the use of independent real estate appraisers and by the proviso to hold the donated property for a certain period of time (the report suggests a 10 years period), during which the new owner (the charity) cannot sell it.

Real estate represents a huge share of both individuals' and companies' assets and it is useless to hold back the chance of the charitable donation of such assets. A great deal of work has been done in the field of tax exemptions legislation, but it has left the market uneven. To revamp the imbalances there needs to be a way of approaching the tax exemption of this area of real estate donation.