Tax Policy and Real Estate Gifting
Since 1996 the bequeathing of charitable contributions of capital has been improving in Canada. Augmenting Federal Tax Policies for Canadian Charities and relating this to capital gains liability for donation of real estate is conveyed by Malcolm Burrows of C D Howe Institute.
For the last 13 years there have been lots of tax inducements offered in Canada relating to capital gifts. Charities have observed a large increase, nearly 150%, due to these incentives.
Nonetheless, a few factors force us to think about more improvements to these policies. The amount of people donating is shrinking even though the gross amount of gifts rose. What is salient is that donations are coming as a one time only big donation rather than regular, but smaller, contributions. This movement makes charitable institutions more susceptible to economic fluctuations.
The implications of these policies also resulted in apparent market imbalance, as real estate and private company shares are not eligible for capital gains exemption. Charities and owners are left at a disadvantage. Property is not often donated as it is passed down in families.
Bequeathing real estate includes some headaches. One of the biggest concerns among policy makers is about finding the fair market value of the real estate property donated, which may motivate the donors to alter the value of the property in their accounts. Problems can arise for the charity to whom the donation has been bequeathed too. Real Estate gifting bring more burden than capital gifting to a charity. Charities will find these predicaments include tax and maintenance difficulties once the property is under their jurisdiction.
These difficulties shouldn’t present unbeatable obstructions. Malcolm Burrows tells of ways to make gifts of real estate.
One of these is by selling the real estate first, then bequeathing the capital. It settles both the issues of valuation (since the property is sold on the market) and the responsibility of charities (since they receive cash). The Income Tax Act has permitted the cash from some property sales to be used as revenue since 2000. This legal base should be enlarged to include real estate properties, enabling the seller to donate the whole sum or just part of it to the charities.
Real estate gifting. Property value altering is one of the main challenges with real estate donations. This can be resolved by the use of independent real estate appraisers and by the necessity to hold the gifted property for a satisfactory period of time (the report suggests a 10 years period), during which the new owner (the charity) cannot sell it.
Real estate symbolizes a huge share of both individuals’ and companies’ assets and it is useless to dissuade the possibility of the charitable donation of such assets. Tax exemption legislation has had a lot of work done on it over the last few years but there is still a way to go to even up the market. The next rational step of addressing this shortcoming should be by means of spreading tax exemptions to the portion of real estate donations.
