When we donate cash to a charity such as the Salvation Army, March of Dimes, or the Red Cross, we receive a tax receipt in exchange for the value to which we have donated. However, how do we account for non-cash donations, such as publicly traded shares, a share of the capital stock of a mutual fund corporation or a unit of a mutual fund trust?
For non-cash gifts, in this case shares, they fall into two categories:
Publicly traded shares: Charities which receive publicly traded shares can issue an official donation receipt for the fair market value of the gift on the date it was donated. To qualify the shares must be listed on a designated stock exchange domiciled in an OECD member nation which has a tax treaty with Canada. Example: John purchased 100 shares of Intel at $56 per share in October 2021. On October 15, 2022, John donated the shares to the Salvation Army. The share price on October 15, 2022, is $25 per share. The Salvation Army will issue John a donation slip in the amount of $2,500.
Non publicly traded shares: If the shares are not listed on a designated stock exchange, the charity shall apply the “deemed fair market value rules”. Under this rule the charity will issue the receipt for the lesser of the gift's fair market value and its cost to the donor immediately before the gift is made. Example: John subscribed to 1,000 shares of XYZ Corporation (non listed corporation) in June 2018 at $100 per share. In June 2021 he donated all his shares to the Salvation Army. The appraised valuation of the company on the same date was $150 per share. In this case the charity will issue John a donation slip in the amount of $100,000 being the lesser of the market value and its cost to the donor.
The date the share is donated is the date that the charity takes ownership of the shares. Since most shares are no longer in physical form (share certificate) and are transmitted electronically, the date of the donation is the date the shares are credited to the charity’s broker account.
From the CRA point of view, the charity has taken ownership of the shares when:
The charity has the right to receive dividends from the share.
The charity has received the right to receive proceeds from the liquidation of the corporation.
The charity has the voting right attached to the share.
It is recommended to contact the charity before a donation of share is made. Some charities may reject certain share donations due to conflict with the charity’s values. For example, the Canadian Lung Association may reject donated Philip Morris International shares. Once the charity has accepted the donation by providing their account coordinates, the donor will advise their broker to complete the transfer through a “Letter of Direction”.
For shares listed on a designated stock exchange, the CRA accepts the closing stock price as the fair market value on the date the stock is donated. On certain circumstances, the CRA may also accept the midpoint between high and low trading prices.
As to the capital gains, the following gift of assets and securities are entitled to an exclusion rate of 0% (source: canada.ca):
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 that is not a linked note (for example, government savings bond)
Ecologically sensitive land including a covenant, an easement, or in the case of land in Quebec, a personal servitude (when certain conditions are met), or a real servitude donated to a qualified done other than a private foundation,a share, debt obligation, or right [for example, security (stock) option] listed on a designated stock exchange.
If the donor did not receive an advantage for their gift (meaning they just gave it away without expecting anything in return), the full amount of the capital gain is eligible for the inclusion rate of 0%. However if the donor received an advantage in respect of the gift, only a portion of the gift is eligible for the inclusion rate of 0% and the remainder is subject to an inclusion rate of 50%.
