Donating Appreciated Publicly Traded Securities To Charity

Overview: Why Donating Appreciated Shares Beats Donating Cash

When the holiday season approaches and the calendar year nears its end, many Canadians look to support the causes they care about while also managing their tax position. The government encourages this giving: an individual taxpayer who donates to a qualified donee receives a tax credit against tax payable for the year of the donation, while a corporation may claim a deduction against its taxable income. Cash donations are the most common form of giving, but donating appreciated publicly traded securities, such as shares, bonds, or mutual fund units, directly to a registered charity is a significantly more tax-efficient way to give.

The reason is straightforward. If a taxpayer sells appreciated shares and donates the cash proceeds, the sale triggers a capital gain, and tax is owed on that gain. If the same taxpayer instead donates the shares themselves, directly and in kind, to a registered charity or other qualified donee, the Income Tax Act eliminates the capital gain entirely, while the donor still receives a donation receipt equal to the full fair market value of the shares. The donor keeps the tax credit or deduction and avoids the tax on the appreciation, a combination that a cash donation cannot match.

As with any donation, timing matters. To claim a donation tax credit or deduction for a given calendar year, the gift must be completed, and for securities, the transfer must actually clear, by December 31 of that year. Because settlement of a share transfer between brokerages typically takes at least a few business days, taxpayers who want to donate securities before year-end should start the transfer well before the December 31 deadline.

Illustrative Example: Donating Shares Versus Selling and Donating Cash

Consider a taxpayer who holds shares purchased for $40,000 that are now worth $100,000, and who wants to give the full $100,000 value to a registered charity. To keep the numbers simple, this example assumes a flat 50% marginal tax rate, applied both to the tax owed on the capital gain and to the value of the charitable donation tax credit. Actual results will vary by province, income level, and the specific credit and inclusion rates that apply.

The donation tax credit is the same in both columns because the receipt is for the same fair market value either way. The entire $15,000 difference in net cost comes from the capital gains tax the taxpayer avoids by donating the shares in kind rather than selling first, which is why the direct-donation route consistently costs the donor less to deliver the same $100,000 to the charity. This is a simplified illustration using a flat 50% rate for both calculations; actual tax savings depend on the donor’s province, marginal tax rate, and other amounts reported in the year.

Background: The Charitable Donation Credit and the Split-Receipting Rules

Ordinarily, when a taxpayer gives away capital property such as shares, the Income Tax Act allows the taxpayer to elect an amount, between the property’s adjusted cost base and its fair market value, as the deemed proceeds of disposition. A taxpayer can elect proceeds equal to the adjusted cost base, avoiding any capital gain, while still receiving a donation receipt for the full fair market value of the gift.

This general election is subject to the split-receipting rules. If the donor receives an advantage in connection with the gift, such as a benefit, a raffle prize, or preferential seating at an event, the charity must reduce the receipted amount by the value of that advantage. The eligible amount of the gift, meaning the amount that can appear on the donation receipt, is the fair market value of the donated property minus the fair market value of any such advantage. Where an advantage exists, the donor cannot obtain a receipt for the full fair market value of the property, which in turn reduces the credit available to an individual or the deduction available to a corporation.

Everything in this article assumes the transfer already qualifies as a gift in the first place, meaning a voluntary transfer made with donative intent and without a disqualifying benefit flowing back to the donor.

• That threshold question, and how the CRA and the courts distinguish a genuine gift from an arrangement that only looks like one, is addressed in What Does a “Gift” Mean for Canadian Income Tax Purposes?.
• See also Tax Court Rules That Gift Of Shares Of A Private Corporation To A Foundation Was Ineligible For A Charitable Tax Credit, which illustrates how a donation structured to confer an offsetting benefit on the donor can cost the taxpayer the credit altogether.

Key Issues and Findings: The Rules That Apply Specifically to Donated Securities

Subparagraph 38(a.1)(i) of the Income Tax Act provides a further benefit specific to publicly traded securities: a taxpayer incurs no taxable capital gain at all when the taxpayer donates shares, debt obligations, or rights listed on a designated stock exchange to a qualified donee. Two conditions must both be satisfied.

First, the security must be listed on a designated stock exchange, meaning an exchange, or part of an exchange, that has been designated by the Minister of Finance. Designated stock exchanges include the Toronto Stock Exchange along with most major exchanges outside Canada, including the New York Stock Exchange, the London Stock Exchange, and the Hong Kong Stock Exchange. The Department of Finance publishes the current, complete list, which runs to 48 exchanges across more than 20 countries.

Second, the gift must be made to a qualified donee. Qualified donees are the organizations authorized to issue official donation receipts, and the category extends beyond registered charities to include registered Canadian amateur athletic associations, registered municipalities, and certain international organizations such as the United Nations and its agencies. The Canada Revenue Agency maintains a public list of qualified donees.

Where both conditions are met, the taxable capital gain on the donated shares is reduced to zero, and the donor receives a receipt for the fair market value of the shares on the date of the gift.

Shares of a public corporation that are not listed on a designated stock exchange fall outside subparagraph 38(a.1)(i) and are instead governed by the deemed fair market value rule in subsection 248(35). If the donor acquired the property less than three years, or in some cases less than ten years, before the gift and one of the reasons for acquiring the property was to gift it to a qualified donee, the donation receipt is limited to the lesser of the property’s fair market value and the donor’s cost. This is why gifting shares listed on a designated stock exchange is generally more tax-efficient than gifting shares that are not.

Donations of privately held company shares raise a separate set of considerations entirely, since private company shares do not benefit from the capital gains elimination in subparagraph 38(a.1)(i) and are subject to their own valuation, non-qualifying security, and anti-avoidance rules. The Canada Revenue Agency has continued to refine its administrative position in this area, including a 2025 technical interpretation addressing the interaction between an estate’s donation of preferred shares to a charity and the corporation’s dividend refund under subsection 129(1.2), which underscores that private company share donations require careful, fact-specific planning distinct from the public-securities analysis in this article.

Practical Implications for Canadian Taxpayers

For individual taxpayers, the practical takeaway is to look at which securities in a portfolio have appreciated the most since purchase and to donate those directly, rather than selling first. Donating shares that have not appreciated still generates a receipt for fair market value but produces no capital gains tax savings, so there is little advantage to donating them over cash unless portfolio-management reasons favour it.

For corporations, the same mechanics apply: a corporate donation of designated-stock-exchange securities eliminates the capital gain that a sale would otherwise trigger, and the corporation may deduct the eligible amount of the gift against its taxable income, subject to the corporation’s income-based donation limit and any unused amounts it carries forward. Where the donor is a private corporation, there is an additional benefit worth flagging to owner-managers: because the capital gain on the donated shares is reduced to zero rather than merely deferred, the full, non-taxable portion of that gain can still be credited to the corporation’s capital dividend account, allowing the corporation to later distribute that amount to its shareholders as a tax-free capital dividend. A sale-then-donate approach only credits the non-taxable half of the realized gain to the capital dividend account, so structuring the gift as a direct donation of the shares roughly doubles the tax-free capital dividend account credit compared to selling the shares and donating the proceeds.

Taxpayers should also confirm, before initiating a transfer, that the recipient organization is in fact a qualified donee and that the security is genuinely listed on a designated stock exchange, since a mistaken assumption on either point can result in an unexpected capital gain or a receipt that does not withstand a CRA tax audit file review.

Takeaway

Donating appreciated publicly traded securities directly to a qualified donee, rather than selling them and donating the cash, allows a Canadian taxpayer to eliminate the capital gain on the appreciation while still receiving a donation receipt for the full fair market value of the gift. The benefit depends on the security being listed on a designated stock exchange and the recipient being a qualified donee, and, for year-end giving, on completing the transfer with enough time for it to clear before December 31.

Pro Tax Tips

Before donating securities near year-end, confirm with your brokerage how many business days a transfer to the charity’s account will take to settle, since a transfer initiated too close to December 31 may not clear in time to be claimed for that tax year. Identify the specific lots or holdings with the largest unrealized gain, since the capital gains elimination under subparagraph 38(a.1)(i) delivers its full benefit only on securities that have actually appreciated, while a security trading below its cost is usually better sold to crystallize a capital loss rather than donated. Where a donation is connected to any benefit flowing back to the donor, however modest, work through the split-receipting calculation in advance so the receipted amount, and the resulting credit or deduction, is not smaller than expected. If you are considering donating shares of a private corporation rather than a publicly traded security, treat that as a distinct and more complex planning exercise, since the capital gains elimination available for designated-stock-exchange securities does not extend to private company shares, and speak with an experienced Toronto tax lawyer and CPA before proceeding.

“Clients are often surprised to learn that the tax result depends entirely on whether they donate the shares themselves or sell first and donate the cash. Sending the shares directly is usually the more tax-efficient route, but only if the security is listed on a designated exchange and the recipient is a qualified donee, so it is worth confirming both before the transfer is initiated.”

— David J. Rotfleisch, Certified Specialist in Taxation Law (Law Society of Ontario)

Frequently Asked Questions

Do I pay capital gains tax when I donate shares to a registered charity?

Not if the shares are listed on a designated stock exchange and the gift is made to a qualified donee. Subparagraph 38(a.1)(i) of the Income Tax Act reduces the taxable capital gain on the donated shares to zero in those circumstances.

Is it better to donate shares directly or sell them and donate the cash?

Donating the shares directly is generally more tax-efficient. Selling first triggers a capital gain that is taxed in the ordinary way, while donating the shares directly eliminates that gain, and the donor still receives a receipt for the fair market value of the shares in either case.

What counts as a designated stock exchange?

An exchange, or part of an exchange, designated by the Minister of Finance. The list includes the Toronto Stock Exchange and most major international exchanges, such as the New York Stock Exchange, the London Stock Exchange, and the Hong Kong Stock Exchange. The Department of Finance publishes the current list.

What is a qualified donee?

An organization authorized to issue official donation receipts. Registered charities are the most common example, but the category also includes registered Canadian amateur athletic associations, registered municipalities, and certain international organizations such as the United Nations and its agencies.

How much is my donation receipt worth if I donate appreciated shares?

The receipt is for the fair market value of the shares on the date the gift is made, provided the shares are donated to a qualified donee and no offsetting advantage is received in connection with the gift.

Does the capital gains elimination apply to shares of a private corporation?

No. The elimination under subparagraph 38(a.1)(i) applies only to securities listed on a designated stock exchange. Donations of private corporation shares are governed by a separate and more complex set of rules, and are best approached with professional advice.

What happens if I receive something in exchange for my donation?

If the donor receives an advantage in connection with the gift, the split-receipting rules require the charity to reduce the receipted amount by the value of that advantage. The eligible amount of the gift is the fair market value of the property minus the fair market value of the advantage.

Is there a deadline to donate securities and claim the credit for this tax year?

Yes. The transfer of the securities to the charity must actually clear by December 31 of the tax year for which the credit or deduction is claimed. Because settlement between brokerages can take several business days, the transfer should be initiated well ahead of the deadline.

Can a corporation get the same benefit from donating appreciated shares?

Yes. A corporation that donates designated-stock-exchange securities directly to a qualified donee avoids the capital gain it would otherwise realize on a sale, and may deduct the eligible amount of the gift against its taxable income, subject to its income-based donation limit.

What if the shares have gone down in value since I bought them?

A donation receipt is still issued for the fair market value of depreciated shares, but there is no capital gains tax benefit to donating them, since no gain exists to eliminate. It is often more tax-efficient to sell depreciated shares to realize the capital loss and donate the cash proceeds instead.

Does donating mutual fund units or bonds get the same treatment as donating stocks?

Yes, provided the mutual fund units, bonds, or other rights are listed on a designated stock exchange and the donation is made to a qualified donee, the same capital gains elimination under subparagraph 38(a.1)(i) applies.

What documentation should I keep after donating securities?

Keep the donation receipt showing the fair market value and date of the gift, along with brokerage records confirming the transfer date and settlement date, in case the CRA reviews the donation as part of a tax audit.

Is there a limit on how much I can claim in charitable donations in a year?

An individual can generally claim eligible donations up to 75% of net income for the year. In the year of death and the year immediately before it, the limit rises to 100% of net income. Donations claimed above the annual limit, or simply not claimed in the year they were made, can be carried forward and claimed in any of the following five years.

Can a large donation of appreciated securities trigger the Alternative Minimum Tax?

It can. A taxpayer who donates a large amount of appreciated securities in the same year as other significant capital gains, dividend income, or deductions may become subject to the Alternative Minimum Tax, a parallel calculation that can reduce the benefit of donation and other credits for that year. Taxpayers contemplating a large in-kind donation should model the Alternative Minimum Tax impact before committing to the timing and size of the gift, ideally with an experienced Canadian tax lawyer or accountant.

Can I donate appreciated securities from a private corporation?

Yes, and doing so directly can be more advantageous than selling first, since the full non-taxable portion of the eliminated gain can be credited to the corporation’s capital dividend account, allowing that amount to later be paid out to shareholders tax-free. This works alongside, not instead of, the general rules for private company share donations discussed above.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.