Building Contract

Property Gifting and Guidance on Tax

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The situation for charitable gifts of capital in Canada has been constantly improving since 1996. A paper by Malcolm Burrows from C D Howe Institute called Unlocking More Wealth, discusses extending capital gains exemption for donations of real estate donations and the relation to Canadian Federal Tax rules for Charities.

For the last 13 years there have been lots of tax inducements offered in Canada relating to capital gifts. The general effect on the charity environment calculated in the volume of gifts was positive; charitable giving grew by 140%.

There is nonetheless room for improvement and the following demonstrates why. Although the number of gifts are rising, the amount of people donating is smaller. Charitable gifts have become one-time big donations, instead of (more desirable) constant contributions of smaller sums. This flow makes charitable organizations more exposed to economic fluctuations.

An obvious imbalance in the real estate market is observed as capital gains discharges do not apply to property and private company shares. This leaves both owners and charities with a impediment. Real Estate is not often bequeathed as it is passed down in families.

There are many predicaments to be taken on when real estate is bequeathed. Policy makers need to work out a reasonable market cost of an bequeathed property. This problem can be increased if the person gifting do not give an accurate value. Issues can emerge for the charity to whom the gift has been given too. Unlike capital donations, real estate brings larger burdens on charities’ administration. After gifting the property is subject to taxes and upkeep which present their own set of difficulties for a charity.

Even though there are issues, there are options possible. A couple of ways to make real estate bequeaths simpler are explained by Malcolm Burrows.

Bequeaths of cash from a real estate sale. It settles both the problem of valuation (since the property is sold on the market) and the responsibility of charities (since they receive cash). The Income Tax Act has allowed the cash from some property sales to be used as revenue since 2000. The seller should be able to gift a percentage or the whole amount if the legal difficulties were expanded.

If someone wants to contribute a gift of real estate. Property value manipulation is one of the main difficulties with real estate gifts. This can be resolved by the use of independent real estate appraisers and by the necessity to hold the gifted property for a assured period of time (the report suggests a 10 years period), during which the new owner (the charity) cannot sell it.

It would be at great handicap to charities if these type of bequeaths were held back as real estate is a large proportion of companies’ and individuals’ assets. The market is still unstable even though there has been a load of work completed with tax exemption legislation. To reform the shortcomings there needs to be a way of dealing with the tax exemption of this area of real estate gifting.