Many high-net-worth Canadians want to give more, but don’t want to trigger a big tax bill by selling investments first.
The TL;DR:
If you do in-kind donation of publicly traded shares (or certain other eligible securities) directly to a registered charity or other qualified donee, the capital gain on that gift may be eligible for a zero inclusion rate – meaning no taxable capital gain gets included in your income.
At the same time, you generally receive an official donation receipt based on the fair market value (FMV) at the time the charity receives the shares (subject to normal receipting rules).
This can be a powerful “do good + pay less tax” planning move, especially when you’re sitting on shares with a large unrealized gain.
What counts as “publicly traded shares” for this strategy?
The CRA’s zero inclusion treatment can apply to gifts of certain capital property – most commonly securities listed on a designated stock exchange – when donated to a registered charity or other qualified donee.
This post focuses on the most common use case: publicly listed shares donated in kind.
Why in-kind donation of shares is often better than selling shares and donating cash
When you sell shares that have gone up, you usually trigger a capital gain. Then, if you donate the cash, you get the donation tax credit, but you still paid tax on the gain.
When you donate the shares directly, you can often get both benefits:
- Donation receipt (typically FMV), and
- Zero inclusion rate on the capital gain (so $0 taxable capital gain).
A simple comparison
Scenario (illustrative):
- You bought shares for $100,000 (adjusted cost base)
- They’re now worth $400,000 (FMV)
- Unrealized gain: $300,000
If you sell, you realize a gain. If you donate the shares in kind, the CRA rules may allow a zero inclusion rate on that gain (no taxable capital gain).
Table: Sell then donate vs in-kind donation of shares
| Approach | What happens | Capital gain tax result | Donation receipt |
|---|---|---|---|
| Sell shares, then donate cash | You sell investments, realize a capital gain, then donate the proceeds. | Taxable gain likely (normal capital gain rules apply on the sale). | Yes (cash donation receipt). |
| Donate shares “in kind” | You transfer the shares directly to the charity (no prior sale by you). | Often $0 taxable gain (gain may be eligible for a zero inclusion rate if conditions are met). | Yes (generally based on FMV at time of gift). |
Key point: the “zero inclusion rate” treatment is available on certain gifts of capital property (including publicly traded securities) when donated to a registered charity or other qualified donee, subject to conditions (including “advantage” rules).
Step-by-step: how to donate publicly listed shares
Here’s the process that usually keeps the tax result intact:
- Pick the charity (a qualified donee).
Confirm it is a registered charity or other qualified donee that can issue an official donation receipt. - Ask the charity how they accept securities.
Many have brokerage instructions and a standard “securities transfer” form. - Transfer the shares from your brokerage to the charity’s brokerage account (in kind).
This is important. Don’t sell first. The favourable treatment is tied to donating the security itself. - Get your donation receipt and keep your support.
You’ll need the receipt and the transaction details for your tax file. - Report properly on your return.
Your donation gets claimed on the donation lines, and the capital gain reporting depends on the specifics (your advisor/software will handle the schedules). CRA’s guidance notes the capital gain may be eligible for a zero inclusion rate where conditions are met.
Common pitfalls (these are where people accidentally lose the benefit)
1) You sell the shares first
If you sell first, you likely triggered a normal capital gain. Donating cash afterward doesn’t “undo” that gain.
2) You receive an “advantage”
If you get something back (an “advantage”) because of the donation, CRA notes that only a portion of the gain may qualify for the zero inclusion rate.
Examples can include certain tickets, perks, or benefits tied to the gift.
3) You donate non-qualifying property (or to a non-qualifying recipient)
The zero inclusion treatment is specific to certain gifts and recipients (registered charities/qualified donees) described by CRA.
4) Timing and settlement issues
Brokerage transfers can take time. If you’re planning around year-end tax deadlines, build in a buffer so the charity actually receives the shares when you think it will.
How the donation tax credit works (and the key limits)
The annual claim limit (most years)
CRA’s general rule: you can usually claim donations up to 75% of your net income for the year.
You can also choose when to claim. CRA allows carrying donation amounts forward to claim in any of the next 5 years (helpful when you donate a large amount in one year).
Practical tip: high-income years are often the best years to claim donation credits, even if the donation happened earlier (within the carryforward window).
Estate planning: using gifts of shares as part of your legacy plan
This is where the strategy can become even more valuable.
On death, there can be large income inclusions and capital gains (often from deemed dispositions). Donation credits can help offset tax that would otherwise be payable.
1) The year of death (terminal T1) and the prior-year T1: up to 100% of net income
CRA states that, for the year a person dies and the year before, the usual 75% limit is extended to 100% of the person’s net income.
CRA also explains that gifts made in the year of death (including certain gifts made by a GRE or former GRE in appropriate circumstances) can be claimed up to 100% of net income, and any excess may be claimed on the return for the previous year (also up to 100% of that year’s net income).
2) Gifts made by the estate after death
CRA’s guidance for returns after death notes that an estate can generally claim a charitable donation tax credit for a gift made by the estate in the year of the gift or in any of the 5 following years.
This means your estate plan can include charitable gifts that are completed by the executor, with flexibility on when the estate claims the credit (subject to the rules that apply to the estate’s situation).
Table: Where donation credits can be used (individual vs estate)
| Return / taxpayer | How the limit works (general rule) | What CRA highlights for death/estate situations |
|---|---|---|
| Individual (most years) | Usually up to 75% of net income. | Carryforward is generally available for up to 5 years. |
| Individual – year of death Terminal T1 | Limit can be up to 100% of net income. | CRA notes the year-of-death claim may include certain gifts made by a GRE or former GRE, depending on circumstances. |
| Individual – year before death | Limit can be up to 100% of net income for that prior year. | Excess from year-of-death claiming can potentially be used on the preceding year return (subject to the 100% net income limit). |
| Estate | Estate can generally claim a donation credit in the year of the gift or in any of the 5 following years. | Useful when the executor completes charitable gifts after death as part of administering the estate. |
3) How this fits into an estate plan
Common ways this shows up in planning:
- A planned gift in your will (the executor donates securities during administration).
- A donor-advised fund or foundation strategy (where appropriate).
- A “final tax bill offset” plan, where charitable gifts are sized to reduce tax payable in the year of death and/or the year before death (subject to the net income limits CRA describes).
Important: estate donation rules can get technical (especially around who can claim the credit and in which year). The CRA’s “prepare returns for someone who died” guidance is a good starting point, and your executor’s accountant should model the options before filing. Reach out to our team if you need tax advice around estate tax planning.
Frequently asked questions
1) Do I have to donate the shares directly, or can I sell and donate cash?
To access the special treatment for gifts of certain capital property (like publicly traded securities), the donation needs to be of the security itself (an in-kind gift), not cash after a sale.
2) Do I really pay no tax on the capital gain?
CRA describes that certain gifts (including eligible listed securities) can be eligible for an inclusion rate of zero on the capital gain, provided conditions are met (including rules around receiving an “advantage”).
3) Do I still get a donation receipt for the full market value?
You generally receive an official donation receipt reflecting the eligible amount of the gift under CRA receipting rules, commonly based on FMV at the time of the gift (and adjusted if any “advantage” exists).
4) How much of my income can I offset with donation credits?
CRA’s general limit is up to 75% of net income in most years, with special rules around death years (see below).
5) Can I carry donation credits forward?
CRA allows carrying eligible donation amounts forward to claim in any of the next 5 years (and different rules can apply for certain gifts like ecological gifts).
6) What changes in the year of death?
CRA states the 75% limit is extended to 100% of net income for the year of death and the year before.
7) Can the estate claim donation credits after death?
CRA explains an estate can generally claim a charitable donation tax credit for a gift made by the estate in the year of the gift or in any of the 5 following years.
8) Is this only for high-net-worth individuals?
The biggest dollar benefit shows up when you have a large unrealized gain. But the rules themselves aren’t “HNW-only” – they’re based on the type of property donated and how you donate it.
Final Takeaway
In-kind donation of shares can be one of the cleanest tax wins in Canadian charitable giving: you may eliminate tax on the unrealized capital gain through a zero inclusion rate, while still receiving a donation receipt generally tied to fair market value.
Where this gets even more powerful is planning – choosing the right year to claim credits, avoiding “advantage” traps, and coordinating charitable gifts with your estate plan so credits can help reduce the final tax bill on the terminal T1 and, where appropriate, be managed through the estate’s filing strategy.
If you want our tax team here at Think Accounting to model the numbers, coordinate with your investment advisor, and build a giving plan that fits your tax picture and legacy goals, reach out via the link below.
