A capital idea?

Imagine Canada, an organization that advocates for the nonprofit sector, has come up with a surprising proposal in the midst of this election campaign--to eliminate the capital gains tax on publicly traded securities donated to registered charities. This important idea comes up as the secondary part of the third and final point of an open letter to all political party leaders.

With due respect to Imagine Canada as an important and influential voice, we feel that this proposal should have been presented in a more prominent way, so that a number of troublesome questions could be examined.

The proposed tax change is attractive to charitable organizations because it could provide a lucrative source of funds for those organizations that have the resources to pursue it and have the right connections among the wealthy and the corporate elite. But it will not provide much benefit for the smaller and community-based organizations, especially in the less affluent regions of Canada.

The idea of eliminating capital gains tax on stock donations has been ,on the table for many years and is enthusiastically endorsed by fund raisers and financial planning consultants. But it has been rejected or deferred by both Conservative and Liberal finance ministers and their expert advisors over the past 30 years or more. The ministers and their advisors have had many of the same reservations that we raise here.

Among the major concerns that have prevented the implementation of this proposal are: stock market manipulations may create situations in which the tax savings for the donors outweigh the benefits to the charities; enforcement programs may not be able protect the interests of the recipient charities from market manipulations; the gifts will be used for stock market manipulations; and/or charities will become inadvertent partners to such maneuvers.

The cost to the federal treasury is also an important,consideration. Conservative leader Stephen Harper, who immediately endorsed the plan, believes it will cost $50 million a year. In the context of the hundreds of billions the government receives each year, this is not much. However, no one is certain what it will really cost. If it does cost more than Harper predicts, it will provide a reason for reducing federal grants to programs operated by charitable organizations. (Some politicians will claim the revenue loss as a contribution to the community services programs.)

Our comments on Imagine Canada's proposal at this point can only be speculative since so little is known about the idea. Therefore, we offer our comments in the spirit of skepticism and wait for answers to emerge. Imagine Canada should put forward a much more detailed explanation and argument for the elimination of capital gains tax on securities donated to charities. Certainly, its not good enough to toss up so important a proposal in the middle of an election campaign. It deserves more discussion.