Proposed tax changes to impact real estate investors donating to charity

Last week, the federal government introduced a proposed budget that includes potential tax changes. Among those changes is a provision that would eliminate capital gains tax on the sale of appreciated real estate if the seller donates the proceeds to charity within 30 days. The change will likely go into effect in 2017 and will not impact gains on properties already sold. This move could potentially benefit real estate investors, since Canada already exempts primary residences from capital gains tax (Moneysense explains more about capital gains tax and real estate on its website).

However, there are rules that would prevent people from gaming the system, as Financial Post reports. For instance, the purchaser of the investment property and the charity must be at “arm’s length,” meaning you can’t sell the property to a family member and donate the proceeds to charity you’re involved with to avoid capital gains taxes. The capital gains exemption will also be denied (and capital gains added to the donor’s tax return) if the donor reacquires the property within five years.

The federal budget estimates that this move will cost the federal government $256 million between 2017 and 2020, but experts predict this move will give charities a major boost in donations, according to the Globe and Mail.

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