Donations of Exchangeable Securities

Currently, a taxpayer donating publicly traded securities to a registered charity or other eligible donee is entitled to a significant tax benefit. Notwithstanding the fact that the excess of the fair market value (FMV) over the tax value of the donated security is not taxed, the taxpayer is credited with a donation equal to that FMV.

The Budget proposes to extend this benefit to donations, made on or after February 26, 2008, of publicly traded securities acquired in exchange for unlisted securities, if the following conditions are met:

• The securities can be shares or partnership interests.
• At the time of issue, the securities must have been subject to a condition allowing them to be exchanged for publicly traded securities.
• The publicly traded securities must be the only consideration received on the exchange.
• The publicly listed securities so acquired must be donated to a registered charity or other qualified donee within 30 days after the exchange.
• Where the unlisted security is a partnership interest, the portion of the gain arising from a cost base reduction due to losses will be taxed.

Private Charitable Foundations

Private foundations are restricted regarding the percentage of the shares of any class of a corporation that they can own.

• The foundation can own up to 2% without restriction.
• If the foundation, along with non-arm's-length persons, owns more than 20% (the “20% limitation”), the foundation must divest itself of shares so that either its own shareholdings fall to 2% or less or the 20% limitation is met. (For shares held on March 18, 2008, the 20% limitation is subject to an exemption for shares that the donor required the foundation to retain and are subject to grandfathering rules.)

Donation of Medicines

The 2008 Budget introduced an incentive for corporations to donate medicines for international use by providing for an additional special deduction. In order for the corporation to qualify for this deduction currently, the donee must be a registered charity that has received a disbursement under the Canadian International Development Agency (CIDA) and the gift is made for activities outside Canada. The Budget proposes to change the definition of an eligible charity to one that, in the opinion of the Minister of International Cooperation, meets the conditions prescribed by regulation. This change is being proposed in order to ensure that the eligible charities act in a manner consistent with the World Health Organization Guidelines, have expertise in delivering medicine to the developing world, and implement policies and practices with respect to the delivery of international development assistance. Eligible gifts must be donated at least six months prior to the expiry date of the medicines. These proposed changes apply to medicines donated on or after July 1, 2008.