Donations involving private corporation shares or real estate
Notice to the Reader
Budget 2016 announced the Government’s intention not to proceed with this measure originally announced in Budget 2015.
For dispositions after 2016, Budget 2015 proposes that capital gains arising from the disposition of private corporation shares or real estate will be exempt from tax where the cash proceeds are donated to a qualified donee within 30 days after the disposition.
1. What is the current tax treatment of donations of private corporation shares or real estate?
You are considered to have disposed of private corporation shares or real estate at its fair market value when it is donated to a registered Canadian charity or other qualified donee. Generally, 50% of the capital gain that arises from the disposition of private corporation shares or real estate is subject to tax and must be reported on the donor’s income tax return.
2. How will the treatment of these donations change?
For dispositions after 2016, Budget 2015 proposes that the capital gain on the disposition of private corporation shares or real estate will be exempt from tax where the donor:
disposes of the shares to a purchaser who deals at arm’s length with both the donor and the qualified donee; and
donates the cash proceeds of the sale to a qualified donee within 30 days of the disposition.
An individual donor continues to be eligible for a charitable donation tax credit and a corporate donor is eligible for a deduction with respect to the donation of the cash proceeds. As well, the rules have not changed concerning a donation of private corporation shares or real estate (a donation in kind) to a qualified donee.
3. What portion of the capital gain will be taxable if only part of the proceeds is donated?
Where only a part of the proceeds is donated, the portion of the capital gain that will be exempt from tax will be determined using the same proportion as the cash donation is of the total proceeds from the disposition.
4. Can I later reacquire the shares or property after making a donation of the cash proceeds?
Anti-avoidance rules will apply if within five years after the date of disposition:
the donor (or a person not dealing at arm’s length with the donor) directly or indirectly reacquires any property that had been sold;
the donor (or a person not dealing at arm’s length with the donor) acquires shares substituted for the shares that had been disposed; or
the shares of a corporation that had been disposed are redeemed and the donor does not deal at arm’s length with the corporation at the time of the redemption
In these cases, the entire amount previously exempted will be included in the income of the donor in the year of the reacquisition of the property or the redemption of shares.
5. Where can I get more information about this change?
The Canada Revenue Agency (CRA) is committed to providing taxpayers with up-to-date information. The CRA encourages taxpayers to check its web pages often. All new forms, policies, and guidelines will be posted as they become available.
In the meantime, please consult the Department of Finance Canada's Budget 2015 documents for details.
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