Federal Budget Change: The 3 Things Charities Need To Know

Finance Minister Joe Oliver introduced the 2015-16 Federal Budget this past Tuesday. Among the changes, there are three proposed tax amendments that will affect and significantly boost the charitable sector in Canada.

1. Exempting Donations Involving Private Shares and Real Estate from Capital Gains Tax

The new tax amendment will now allow people to donate proceeds from the sale of private companies and real estate without having to pay capital gains tax on the sales, which should result in a significant increase in donations. You will also receive a tax benefit from the donation. To quality, you have to sell your company or real estate to an “arm’s length party” – meaning someone not related to you – and then donate the proceeds within 30 days. This tax benefit may be reversed if people buy back the assets – even indirectly – within 5 years.

2. Investments by Registered Charities in Limited Partnerships

Currently, charitable organizations are permitted to engage in ‘related’ business activities in order to raise revenues. This includes a business linked to a charity’s purpose and subordinate to that purpose or a business run substantially by volunteers.

However, until the 2015 Budget, charities could not hold an interest in a partnership. The proposed amendments to the Income Tax Act so 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. However, the registered charity will be required to only have a ‘passive investment’ in a limited partnership. Its considered passive if:

• The charity holds 20 percent or less of the interests in the limited partnerships; and,
• The charity deals at arm’s length with each general partner of the limited partnership

3. Gifts to Foreign Charitable Foundations

The 2015 Federal Budget has also expanded the kinds of foreign charitable organizations deemed ‘qualified donees’ under the Income Tax Act. Donations to foreign charitable entities are no longer limited to just foreign charitable organizations, but can now be made to foreign charitable foundations as well, so long as they meet the following criteria:

• Pursuing activities related to disaster relief; or,
• Pursuing activities related to urgent humanitarian aid; or,
• Carrying on activities in the national interest of Canada.

If a foreign charitable foundation meets these conditions, the Minister of National Revenue can grant them qualified donee status for a 24-month period.

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