The sorry state of stock markets is stoking concerns among Canada’s largest charities that big-ticket, shares-based philanthropy will plummet with the indexes.
Over the last decade, capital gains tax incentives for donated stocks have laid a philanthropist pipeline that has funnelled billions of dollars worth of shares to Canadian charities.
In 2007, Canadian donors gave about $1 billion of common stock to large institutions such as universities and hospitals, said the head of philanthropic advisory services at the Scotia Trust asset management company.
But the tumbling world economy could soon turn the stock contribution surge into a trickle, experts say.
“This year, it’s almost non-existent,” said Scotia Trust’s Malcolm Burrows, who advises philanthropists and charities. “There’s been a significant drop off, I’d say probably about 80 per cent.”
Since 1997, Canada’s wealthy have been taking advantage of tax cuts for donated shares.
In 2006, the Conservative government removed the capital gains tax on stocks donated to public foundations and registered charities. Last year, the government eliminated the capital gains tax on gifts to private foundations.
Donors not only save in taxes, they also collect tax credits.
Burrows said due to the incentives, stock contributions went up 160 per cent between 1996 and 2007. But as well-to-do Canadians shift their focus to more immediate needs, he predicts large institutional charities and endowment funds will sustain heavy blows.
“It’s a basic fact that people give when they feel like they have excess, when they feel secure, and in this environment there’s not much of that,” Burrows said.
“For the most part, Canadians tend to dig deep in down times – they look to community needs. It may be slightly different this year, just because of the depth of the economic situation.”
An umbrella group that represents 1,200 Canadian charities says many charitable organizations across the country have reported a drop in large stock gifts.
In some cases, funding for existing foundations has been put on hold, said Jocelyne Daw, vice-president of marketing and community engagement for Imagine Canada.
“Obviously, people aren’t going to give gifts of shares if their shares are worth half what they once were,” Daw said from her Calgary office. “I don’t think too many people are going to be worrying about capital gains this year.”
Montreal’s Concordia University received about $3 million last year in donated stocks alone.
“There’s no question the legislation helped,” said Kathy Assayag, Concordia’s vice-president of advancement and alumni relations. “Whether that’s going to continue or not I think depends on how bad the economy is hit.”
Assayag said while large donations of shares are still coming in, there are fewer than before.
“I don’t think we’ve begun to really see the ramifications (of the economic downturn),” said Assayag, who still predicts the university’s 2008 campaign will finish above last year’s total – thanks to a consistent flow of cash donations.
“I think the next 12 to 18 months are really going to be good indicators.”
Marvi Ricker, managing director of philanthropic services at the BMO Harris private bank, said she’s concerned for charities that have built these donations into their budgets.
“It’s easy to get used to having more,” she said.
Rickler said that people don’t have as many appreciated shares as they used to.
“I know, in general, giving is down and it’s very worrisome to the charities,” said Ricker, whose clients usually shell out between $1 million and $20 million to leave “legacies,” such as university medical programs and museum wings.
“There certainly is some hesitation. People have been hit by the markets more than anyone had anticipated, so some people are a bit slow to fulfil the commitments that they’ve made.”
Despite the gloomy outlook, Daw said the average Canadian has still been reaching into their pockets.
“The cash donations of $25 to $50 are fairly steady,” she said.
As they gird for the uncertain future, Canadian charities are also looking at strategies to encourage more individual donors to give, Daw added.
“We know there are a lot of charities that are right now kind of bracing a bit, they haven’t felt it directly, but they’re bracing for what could be a really challenging year,” she said.
“And (in) 2010, they really feel up in the air about how that’s going to go.”
– The Canadian Press