Getting a leg up on a legacy

After the spectacular deposit has been found, after the big money has been made, and after the kids have found their way in the world, most rich mining executives take a step back from the hubbub and rightfully start thinking about their legacy.

One of the easiest and best ways to secure a legacy is to make a large, public, charitable donation to a university, a hospital, an arts institution or a social services agency.

In the past decade or so, members of the Canadian mining community have done themselves and the industry proud with their generous contributions. These include: Seymour Schulich’s bequeath to York University’s M.B.A. program, to the University of Western Ontario’s school of medicine, to cardiac care at Sunnybrook Hospital in Toronto, and to the library at McGill University; Peter Munk’s support of a cardiac centre at Toronto General Hospital, and academic research at the University of Toronto and Israel’s Technion University; Inco’s support of the Royal Ontario Museum; Pierre Lassonde’s rejuvenation of mining engineering at the University of Toronto and his support for the expansion of Montreal’s cole Polytechnique; Robert McEwen’s funding of regenerative medicine at Toronto’s University Health Network and a hospital in Red Lake; the Canadian Auto Workers’ many donations to universities across Canada; Ross and Trisha Beaty’s funding of bio-diversity studies at the University of British Columbia; and the good work of British Columbia’s mining community in raising funds for the B.C. Children’s Hospital.

The mining community’s latest big fundraising drive was launched at a gala event in late April at the University of Toronto’s mining building: fundraisers are seeking $20 million to improve the mineral engineering program and spruce up the venerable building, which is a hundred years old and in dire need of a facelift.

To get things started, Pierre Lassonde has kicked in the first million. Introduced at the event as a “visionary,” Lassonde quipped “a visionary is just another way of saying ‘the sucker with the money.'”

This trend in philanthropy is wonderful and heart-warming, but it could get even better with a little fix in Canada’s tax code.

By comparison, right now in the U.S. and Britain, if a donor gives a listed security to charity, he or she gets a tax receipt for the market value of the security and is completely exempt from any capital gains tax on the value of the gift.

In our fair Dominion, however, the donor gets a receipt for the gift, but he or she is deemed to have sold the security when it was transferred to the charitable organization, triggering a capital gains tax on the gift.

On the positive side, the Canadian government introduced a significant half-measure in its 1997 budget: then finance minister Paul Martin cut the capital gains tax in half for gifts of securities.

Martin was responding to lobbying from many people in the charitable sector, especially the tireless Donald K. Johnson, vice-chairman of BMO Nesbitt Burns. (Johnson, now retired and recently appointed a member of the Order of Canada for his philanthropy, continues to lobby for the completion of these tax-code changes, and he himself has given a large donation to the University of Western Ontario’s M.B.A. program.)

The effect of the 1997 tax changes on charitable giving was dramatic: prior to 1997, there were virtually no stocks given to charities in Canada; since 1997, more than $1.5 billion in stock has been donated.

We agree with Johnson that if Canada took the final step and eliminated capital gains taxes on stock gifts, it would enable our country’s charities to receive greater gifts from a larger number of individuals and corporations.

A quick look at the numbers shows that this move will not be too painful for the government in terms of lost revenues, which would total well under $100 million annually. The government calculates its share of a stock donation with a zero cost base as the sum of the charitable donation tax credit plus the foregone capital gains tax.

Under pre-1997 tax rates, the federal government’s share of the value of a stock gift with a zero cost base was 73%, with the balance being the donor’s share. Since 1997, the marginal income tax rate has been reduced to 46% from 53%, and the inclusion rate for capital gains has dropped to 50% from 75%.

Therefore, a complete exemption from capital gains taxes under today’s tax rates would still result in the government’s share being only 69% of the value of the gift.

As Johnson has pointed out: “If having the government contributing 73% of the value was acceptable prior to 1997, surely a 69% share under a complete exemption is also acceptable!”

Since the 1997 budget, the three federal opposition parties — the right-of-centre Conservatives, the socialist and separatist Bloc Qubcois, and the socialist New Democratic Party — have all come on-side and supported the complete elimination of capital gains taxes on charitable donations.

The NDP was the last of the three to be won over, finally realizing that the proposal to eliminate the tax is not only designed to benefit the rich. What really hit home for the NDP was the effect of the 1997 tax-code change on the United Way of Greater Toronto, which funds 200 agencies that provide support to one in three Torontonians: over forty years, from 1956 to 1996, the total gifts of stock to this organization equaled $40,000; from 1997 to 2004, total gifts of stock was $22 million.

As a result, some well-known Canadian socialists such as Roy Romanow, Bob Rae and Frances Lankin have openly supported the elimination of capital gains taxes on gifted securities.

Other, more mainstream supporters of the idea include the Canadian Centre for Philanthropy (which represents more than 1,200 charities across the country), as well as various House of Commons finance and banking committees.

The only party holding out on the idea is the governing Liberal Party of Canada — the same group that callously balanced the federal budget in the 1990s by slashing transfer payments to the provinces, thereby creating a crisis in provincial funding of health care, education and social services. It is this crisis that private donations are now trying to remedy.

Unfortunately, the elimination of the capital gains tax on gifted securities did not make it into the last federal budget, as bureaucrats in the Finance Department, who oppose anything that will cost the government tax revenues, torpedoed it.

Perhaps most objectionable for the ruling Liberals is the fact that when private citizens and corporations are allowed to contribute directly to charities without the federal government acting as the “middle man,” it makes it that much harder for the Liberal party to skim off funds and redirect them to its coffers and various “friends.”

With a federal election looming, the overdue elimination of capital gains taxes on stock donations is just one more of many reasons to vote for any party but the Liberals.