We received questions about donating shares to a charity many times. When someone is looking to make an impact on a charity and they want to do so by donating financial assets then there are some questions that come into play.
The first questions is usually "Do I have to pay capital gains if I gift or donate my shares to a charity?"
The short answer is no in general however there are some caveats that you need to be aware of.
Here is the excerpt from the Canada Revenue Agency:
If you donated certain types of capital property to a registered charity or other qualified donee, you may not have to include in your income any amount of capital gain realized on such gifts. You may be entitled to an inclusion rate of zero on any capital gain realized on such gifts.
The inclusion rate of zero applies if you donate any of the following property:
- a share of the capital stock of a mutual fund corporation
- a unit of a mutual fund trust
- an interest in a related segregated fund trust
- a prescribed debt obligation
- certified ecologically sensitive land including a covenant or an easement to which land is subject or, in the case of land in the Province of Quebec, a personal servitude where certain conditions are met or real servitude gifted to a qualified donee other than a private foundation (for more details see Gifts of ecologically sensitive land)
- a share, debt obligation, or right listed on a designated stock exchange
There are some other types of securities that can donated however those have more specific conditions. You can read more from the CRA on donations with respect to capital gains and losses here:
The accounting firm BDO put out a great article here:
Where they outline the difference between selling shares and donating cash versus donating the shares "in-kind" which means to donate the shares directly rather than selling them and donating the proceeds.
They state that it only makes sense to do this when you have a capital gain on the securities as a charity will likely work with their brokerage to convert the shares to cash at some point in the future anyways.
They examine two scenarios where there is a $5,000 value of shares with a $1,000 cost basis which leaves a $4,000 capital gain. They assume the top tax bracket at 53.53% for an Ontario resident in 2021 and that you've already donated $200 to a charity in the same tax year:
Option 1. You sell the shares and donate $5,000 in cash.
Option 2. You donate the shares directly to the charity.
| Option 1 | Option 2 |
Donation | $5,000 | $5,000 |
Add: Tax on Capital Gain | $1,071 | 0 |
| Less: Value of Donation Tax Credit | -$2,767 | -$2,767 |
Cost of Donation to You | $3,394 | $2,324 |
You can find out how to calculate your charitable tax credit here:
Disclaimer:
Please note that everyone's financial circumstances are different and decisions should be made based on your personal finances. This is not to be construed as financial, tax or legal advice and is for educational purposes only. You are advised to seek consult of a qualified professional prior to making any decisions.