Donating shares through your corporation or personally
If you plan to give to charity and you own appreciated shares both personally and in a holding company, you can give from either side. Both avoid tax on the gain when listed shares are given in kind, but the rest of the tax works very differently.
Giving shares personally
- No tax on the gain. When you give publicly listed shares or funds directly to a registered charity (not sold first), none of the capital gain is taxable.
- A donation tax credit. Federally, 15% on the first $200 of gifts in a year and 29% above that (33% on the part that matches income taxed in the top federal bracket), plus a provincial credit.
- Limit: gifts can be claimed up to 75% of your net income in a year (100% in the year of death and the year before). Unused gifts carry forward 5 years.
- The credit only reduces tax you actually owe, so it is worth most in years when you have taxable income.
Giving shares from the corporation
- No tax on the gain for listed shares given in kind, the same as personally.
- The whole gain goes into the capital dividend account (CDA). The corporation can then pay that amount to you as a tax-free capital dividend. Selling the shares first would tax half the gain and add only the other half to the CDA.
- A deduction, not a credit. The corporation deducts the gift from its taxable income, up to 75% of its net income each year, carrying any excess forward 5 years.
- The deduction is worth less than it looks in a passive holdco. Investment income is taxed at about 47% to 55% in the corporation, but 30.67 points of that is refundable when dividends are paid. The lasting saving is roughly the non-refundable part: about 16% to 24% of the deduction, depending on the province.
- Money given from the corporation has not yet been taxed in your hands, so you avoid the personal dividend tax you would have paid to take it out first.
Which costs you less?
It depends on your numbers. A corporate gift tends to come out ahead when:
- the shares in the corporation have large unrealized gains (the CDA credit is the whole gain),
- you pay a real personal tax rate on the dividends you take out of the company, and
- the corporation has enough net income to use the deduction within the 5-year carryforward.
A personal gift can be better when your own shares carry the larger gains, when you have high personal income to use the 29% to 33% federal credit, or when the corporation has little taxable income.
Example. Your holdco owns ETF units worth $50,000 that cost $10,000. Given in kind to a charity, the $40,000 gain is not taxed, $40,000 is added to the CDA, and the corporation gets a $50,000 deduction (within its 75% limit). You can then take $40,000 out of the corporation as a tax-free capital dividend, money that would otherwise have come out as a taxable dividend.
Compare the two with your whole plan. The Holding Company Planner's What-If tab runs your plan three ways (no gift, shares from your non-registered account, shares from the corporation) and shows the cost to you and your heirs per $1 given. The Personal / Couple Planner models the personal gift with the donation credit at CRA federal and provincial rates.
Open the Holding Company PlannerOpen the Personal / Couple PlannerGeneral information for planning and education, not financial, tax or legal advice. Very large gifts or capital gains in one year can trigger the alternative minimum tax, which the planners do not calculate; check large gifts with an accountant.