If your client owns shares of a Canadian Controlled Private Corporation (CCPC), there might be some benefits to donating those shares “in-kind” to Abundance Canada vs selling the shares and donating the cash proceeds.
While in-kind donations of publicly traded securities (stock, bonds and mutual funds) result in the capital gains inclusion rate dropping from 50% to 0%, the same tax efficiency does not apply for in-kind donations of private company shares.
However, there are still some benefits that might result from the in-kind donation of private company shares.
- There are complex rules that apply to the donation of private company shares.
- Private company shares are considered a non-qualifying security by CRA.
- The ability to issue a charitable receipt for the donation of private company shares will depend on whether the non-qualifying security is considered an excepted gift.
- A non-qualifying security is considered an excepted gift if it meets all the following criteria:
- It is in the form of a share
- The charity receiving the gift is not a private foundation
- The donor deals at arm’s length with each of the charity’s directors, officers, and like officials
- If the private company shares are considered an excepted gift the following tax planning benefits could be realized:
- Your client (the donor) could realize a taxable capital gain vs a taxable deemed dividend on the donation of the shares vs selling the shares and donating cash
- When the corporation redeems the shares from Abundance Canada it could result in the corporation realizing a refund from its refundable dividend tax on hand (RDTOH) pool
- There could be other potential implications on the redemption of the shares. Proper planning and professional tax advice should be sought out prior to initiating a donation of private company shares.
Download a copy of the information sheet about donating private company shares to discuss further with your client.
Contact Abundance Canada if you have clients who might benefit from donations of private company shares.