Darren G. Lund Partner, Miller Thomson LLP
Bill C-256: Is it time to incentivize donations relating to private company shares and real estate?


On January 25, 2021, the Office of the Parliamentary Budget Officer (“PBO”) released a Legislative Costing Note (“Costing Note”)1 for Bill C-256, An Act to amend the Income Tax Act (donations involving private corporation shares or real estate) (the “Bill” or “Bill C-256”). As the title of the Bill suggests, if passed it would amend the Income Tax Act (Canada) (“ITA”) to eliminate capital gains tax on certain charitable donations involving private company shares and real property.

Bill C-256 is a private member’s bill; it is not a government bill. It was introduced in the House of Commons by Mr. Marty Morantz, Manitoba Conservative MP for Charleswood—ST. James—Assiniboia—Headingley on November 26, 2020. Mr. Morantz has promoted the Bill as a means of incentivizing charitable donations at a time when charities who provide much-needed services are struggling to maintain donations due to the COVID-19 pandemic.2

The PBO’s Costing Note is the latest development in the discussion around whether tax measures should be introduced to incentivize charitable donations relating to private company shares and real property. This article will review the broader context and history of which the Costing Note and Bill C-256 are a part, and consider its place in that context.

The 2015 Federal Budget

In the 2015 federal budget, tabled on April 21, 2015, the government of then Prime Minister Stephen Harper announced its intention to introduce amendments to the ITA to eliminate the capital gains tax on certain donations relating to private company shares and real property. The budget document confirmed that the measures would incentivize donations of the proceeds of sale from certain dispositions of private company shares and real property if donated to a qualified donee within 30 days, as opposed to in-kind donations of private company shares and real property:

At present, donations of private shares and real estate to registered charities and other qualified donees can give rise to taxable capital gains. To help Canadians provide more gifts, Economic Action Plan 2015 proposes to exempt individual and corporate donors from tax on the sale of private shares or real estate to an arm’s length party if the proceeds are donated within 30 days. If a portion of the proceeds is donated, the exemption from capital gains tax would apply to that portion. This measure will apply to donations in respect of dispositions occurring after 2016.3

The technical amendments to the ITA were released a few months later, on July 31, 2015 (“2015 Measures”).4 The key elements of the 2015 Measures were as follows:

  1. the exemption from capital gains tax would apply if:
    1. private company shares or real property situate in Canada were sold to a purchaser who is arm’s length to both the vendor and the qualified donee to which the proceeds are subsequently donated;
    2. the cash proceeds, or any part of them, were donated to a qualified donee within 30 days of the sale;
    3. the donor was resident in Canada; and
    4. the donor was an individual, graduated rate estate, or corporation;
  2. if only a part of the proceeds of sale were donated, the exempt portion of the capital gain would be proportional to the amount of the proceeds of sale that were donated (e.g. if 50% of the proceeds of sale were donated, then 50% of the taxable capital gain would be exempt); and
  3. the exemption from capital gains tax would be reversed if any of the following occurred in the year of the donation or any of the five following years:
    1. the donor (or anyone not at arm’s length to the donor) reacquired the private company shares or real property that was sold, including an indirect reacquisition; or
    2. in the case of sales of private company shares:
      1. the donor (or anyone not at arm’s length to the donor) acquired shares that are substitute shares for the shares that were sold; or
      2. the shares that were sold were subsequently redeemed, and the donor did not deal at arm’s length with the corporation when the redemption occurred.

Reaction to the 2015 Budget

The reaction to the 2015 Measures was mixed. Some critics of the 2015 Measures argued that they may be difficult to implement in practice, and may not incentivize additional giving in the manner intended. They cited a number of potential issues:5

  1. the 2015 Measures refer to donations of the proceeds of sale, as opposed to profits, such that donors may need to donate not only the appreciated value of the property that is sold but also the original cost of the property, if the intention is to ensure that the entire capital gain is exempt from tax;
  2. in many sales of private company shares or commercial real property, the purchase price may be paid over a number of years, and so not available for donation within 30 days of the date of the sale as required by the 2015 Measures;
  3. the 2015 Measures may only incentivize donations by individuals who have large shareholdings, given the availability of the lifetime capital gains exemption ($892,218 in 2021 and adjusted annually for inflation) for certain dispositions of shares of qualified small business corporations, and the opportunity to multiply access to that exemption through the use of a family trust. Similarly, the principal residence exemption already provides a tax shelter for capital gains arising on the sale of a principal residence, such that the 2015 Measures may not incentivize additional charitable giving for the majority of Canadians who have only one residence;
  4. if a corporation holds real property as capital property and donates the proceeds, the donation receipt will only benefit the corporation if it has other income against which it can be used as a deduction; it cannot be used to offset the tax owing if only a portion of the proceeds of sale are donated; and
  5. the 2015 Measures do not address the income inclusion for capital cost allowance if a private company sells real property and the proceeds of sale are greater than the book value, which may be a disincentive.

At the same time, other commentators noted that in-kind donations of private company shares and real property can be problematic for charities, since they require independent valuations and may create ongoing liabilities for the charity. From this perspective, donations of cash proceeds are preferred. In addition, bearing in mind that there is a cost to the tax base of charitable donation incentives, other commentators argued that it is reasonable for the government to include measures that are intended to balance incentives for charitable giving with the cost to the tax base as it has done in the 2015 Measures; for example, by restricting the measures to sales to arm’s length parties, not including the capital cost allowance income inclusion, and including anti-avoidance measures.6

Ultimately, then Prime Minister Stephen Harper called an election on August 4, 2015 and the Parliamentary session ended before the 2015 Measures were passed. The succeeding Liberal government has never re-introduced the 2015 Measures.

The Senate Report

On January 30, 2018, the Senate of Canada adopted a motion to strike a Special Senate Committee to examine the impact of federal and provincial laws on the charitable and not-for-profit sector. In June, 2019 the Special Senate Committee table its report, Catalyst for Change: A Roadmap to a Stronger Charitable Sector (“Senate Report”).7

As part of its mandate, the Special Senate Committee held hearings on the matter of donations relating to private company shares and real property, and also devoted a separate section of its report to that issue. The Senate Report outlines the evidence and arguments it heard in favour of measures to incentivize donations relating to private company shares and real property, as well as concerns about such measures. The proponents of donation incentives made several arguments:8

  1. strategic measures to incentivize donations may add up to $200 million per year in additional donations to the charitable sector, citing the success of the existing measures that eliminate the capital gains tax on donations of publicly-traded securities;
  2. such measures would address the differential treatment in the ITA for entrepreneurs who take their company public, versus those who do not;
  3. even if the measures would disproportionately benefit wealthy donors (which view was not unanimous), that in itself is not a reason to reject measures that would increase voluntary wealth redistribution; and
  4. the benefit in increased charitable donations (approximately $200 million per year) outweighed the annual cost to the tax base (estimated by proponents to be $125-130 million per year), and concerns around costing can be mitigated through a partial exemption from capital gains rather than a complete exemption.

Several witnesses before the Special Senate Committee raised concerns with such measures. Not all witnesses were as optimistic that measures such as the 2015 Measures would generate $200 million in additional giving each year, and some expressed concern that the majority of these donations would primarily benefit large organizations like hospitals and universities, as opposed to smaller organizations. In 2012 the PBO estimated the annual cost of such measures to be $103-270 million, which is higher than the annual cost submitted by private witnesses.9

One of the concerns that receives particular attention in the Senate Report is the potential impact on the ecological gifts program (“EGP”). Some witnesses argued that the EGP is not so much a policy that is designed to promote philanthropy through the tax system, but one that is intended to encourage the conservation and protection of ecologically-sensitive land. There is a concern that if donations of all types of land are treated equally, then some ecologically-sensitive land may be donated to charities other than conservation charities and ultimately sold to raise revenue and potentially developed, thereby undermining the intent of the EGP.10

The importance the Senate Committee gave to concerns about the impact on the EGP is reflected in its recommendations. The Senate Committee made two recommendations. The first recommendation is a pilot project to evaluate the impact on the charitable sector of exempting capital gains on donations relating to private company shares, but not real property. The second recommendation is for the government, through the Canada Revenue Agency, to study the extent to which the donation of land that is not ecologically-sensitive land could be incentivized without undermining the EGP.

Bill C-256 and the Costing Note

The foregoing is the history and context into which Bill C-256 was introduced on November 26, 2020, 17 months and one global pandemic after the Senate Committee tabled its report, and just over 5 years after the 2015 Measures died on the order table. Bill C-256 is identical to the 2015 Measures, except that if passed it would apply to dispositions that occur in 2021 and future years. As such, Bill C-256 does not respond to any of the concerns raised by commentators or the Senate Report.

In its Costing Note, the PBO estimates the cost of Bill C-256 to be $777.5 million over the first 5 years, for an average annual cost of $155.5 million. This average annual cost is within the range of $103-$270 million included in the Senate Report, citing a costing note issued by the PBO on May 18, 2012. The Costing Note outlines a number of “sources of uncertainty” which would impact the actual cost of Bill C-256, including uncertainty surrounding the impact of COVID-19 on markets for real estate and private company shares.

What is the Future for Bill C-256?

Bill C-256 has not progressed in the House of Commons beyond First Reading. Private member’s bills are notoriously difficult to pass, particularly those introduced by an Opposition MP. Is there reason to think that Bill C-256 will be different? It appears unlikely.

In the current fiscal climate, with intense focus on the budget deficit arising from programs introduced to support individuals and businesses during COVID-19, it seems unlikely that a government would introduce tax measures that reduce revenue unless those measures support a key policy objective. One would expect that if the measures in Bill C-256 were a policy priority for the federal government, the measures, or a version of them, would have been included in the 2021 federal budget tabled on April 19, 2021. That the government chose not to do so likely indicates that this issue is not a key policy priority. The government may also be wary of introducing measures that could negatively impact the EGP without further study, as recommended in the Senate Report, particularly if the government wants to position itself favourably on climate change and environmental issues more broadly.

Even if Bill C-256 suffers the same fate as most private member’s bills, it continues the discussion around appropriate tax measures to incentivize donations relating to private company shares and real property. If these measures have the potential to unlock significant additional funding for the charitable sector, it is an important discussion to continue.

About the Author

Darren Lund is partner in the Private Client Services group at Miller Thomson LLP in Toronto. Darren’s practice is focused on a range of estate planning, estate administration, and private client service matters. Darren regularly assists clients with complex multiple will planning and powers of attorney, family trusts, alter ego and joint partner trusts, marriage contracts/cohabitation agreements, estate freezes and business succession, charitable gift and tax planning, planning for disabilities, cross-border planning, and estate planning aspects of assisted reproduction and posthumous conception.

Darren’s expertise has been recognized by Best Lawyers in Canada and the Canadian Legal Lexpert Directory.

1 https://www.pbo-dpb.gc.ca/en/blog/legislative-costing-notes--notes-evaluation-cout-mesure-legislative/LEG-2021-059-M--cost-estimate-bill-c-256--estimation-cout-projet-loi-c-256

2 “MP Morantz Tables Bill to Support Canadian Charities”, https://wawa-news.com/index.php/2020/11/26/mp-morantz-tables-bill-to-support-canadian-charities/

3 The Honourable Joe Oliver, Minister of Finance, Strong Leadership: A Balanced-Budget, Low-Tax Plan for Jobs, Growth and Security, April 21, 2015, at p. 270.

4 Archived Legislative Proposals Relating to the Income Tax Act and Regulations, https://fin.canada.ca/drleg-apl/2015/ita-lir-0715-l-eng.html

5 Adam Apowitzer, “Paving the Road to Hell – Donating the Proceeds of Private Company Shares and Real Estate”, September 10, 2015, drache.ca/articles/paving-the-road-to-hell-donating-the-proceeds-of-private-compnay-shares-and-real-estate/

6 Malcolm Burrows, “Donations involving Private Company Shares & Real Estate”, September 25, 2015, https://www.allaboutestates.ca/donations-involving-private-company-shares-real-estate/

7 The Honourable Terry M. Mercer, Chair, Catalyst for Change: A Roadmap to a Stronger Charitable Sector, Report of the Special Senate Committee on the Charitable Sector, June 2019.

8 Senate Report, pp. 102-105.

9 Senate Report, at pp. 103-105.

10 Senate Report, at pp. 106-107.