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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 advantage received.
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. This increase relates to taxable capital gains actually included in taxable income. See the Canada Revenue Agency (CRA) topic "calculating your increased donations limit" in the publication P113 Gifts and Income Tax. Our Detailed Canadian Tax and RRSP Savings Calculator checks to ensure that donations do not exceed 75% of net income, but at this time does not increase this limit for donations of capital property.
If neither you nor your spouse had claimed the donation tax credit in the past 5 years prior to 2017, you were eligible to claim the First Time Donor Super Credit for a 2017 donation. This credit is not available after 2017.
See our article on the Donations Tax Credit.
Shares which are donated are reported on Schedule 3 of the personal income tax return, in the same section as shares which are sold. If they are shares on which the capital gain is deemed to be zero, instead of being entered directly on Schedule 3, they are entered on form T1170, with the total carried over to Schedule 3. Other shares not eligible for the capital gain elimination, such as shares of a private corporation, are not entered on the T1170, but directly on Schedule 3. The gain or loss on shares is totalled on line 13200 of Schedule 3.
Donations of non-qualifying securities, such as a share of a corporation with which the individual does not deal at arm's length, have special rules. See the CRA information on non-qualifying securities.
Capital gains are deemed to be zero when certain types of capital property (qualified investments, prescribed debt obligations, or ecologically sensitive land) are donated 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%. The types of capital property include:
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.
Optimizing the Donation Tax Credit Between Spouses - this still applies for donated shares or other capital property.
Alternative Minimum Tax allows fewer deductions, tax credits and exemptions than the regular tax calculation.
The federal 2023 Budget includes proposals to significantly change the calculation of AMT. One of the changes is to include 30% of capital gains on donations of publicly listed securities in the AMT base. These proposals will apply beginning with the 2024 taxation year.
For more information on these changes see the article Budget 2023 And Changes To The Alternative Minimum Tax: Be Careful When Donating Publicly Listed Securities by Amanda J. Stacey and Troy McEachren of Miller Thomson LLP.
See New Alternative Minimum Tax rules might mean donating more to charity this year by Jamie Golombek re: AMT could be an issue for higher-income taxpayers if a charitable gift is made in 2024, as opposed to 2023.
The Federal 2015 Budget proposed 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 would not happen.
See Donations of Private Corporation Shares and Real Estate on the Budget 2015 website and on the Budget 2016 website.
T4037 Capital gains guide - Calculating your capital gain or loss
Revised: October 26, 2023
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