Donating Shares or Other Capital Property
Income Tax Act s. 38(a.1), 38(a.2), 118.1(1)
When capital property is donated, there is a disposition
for tax purposes, which may result in a capital gain. The fair market
value (FMV) of the property donated is used as the proceeds of disposition,
and as the amount of the donation. In some circumstances it may be
helpful to designate the proceeds amount to be an amount less than FMV.
See our article on the election for
designating the proceeds of donated property.
If any "advantage" was received (compensation or other
benefits) in return for the donation (e.g., tickets, meals), the eligible gift
for purposes of the donation claim is the proceeds of disposition less the
Another benefit of donating capital property is that your
total donations limit will be increased by 25% of the taxable
capital gain on gifts donated, up to a maximum total limit of 100% of net income. See the Canada Revenue Agency (CRA)
your increased donations limit" in the publication P113
Gifts and Income Tax.
Capital gains can be eliminated by donating certain
types of capital property (qualified investments, prescribed
debt obligations, or ecologically sensitive land) to
qualified donees (see the CRA
definition for a qualified donee). The taxable capital gain is eliminated for this type of donation
made after May 1, 2006. For donations of this type of property made before May 2, 2006, the taxable
capital gain was 25% instead of 50%.
It can be very difficult, if not impossible, for securities
to be transferred in the last week of December. Trying to do so risks
the possibility that the donation receipt will be dated in the following
year. A donation of mutual funds can take several months, because the
recipient of the donated securities must set up an account with the particular
mutual fund involved. The recipient may require approval from their
board of directors to set up an account, so timing will depend on how often
the board meets.
of Private Corporation Shares and Real Estate - Proposal Will Not Happen
The Federal 2015 Budget proposes to provide an exemption
from capital gains tax for certain dispositions of private corporation shares
and real estate which occur after 2016. This measure was not
included in Bill C-59, which received Royal Assent on June 23,
2015. The 2016 Federal
Budget announced that this proposal will not happen. The exemption
would have been available where: