Worth the Effort: Donating Private Company Shares
Writing a cheque may be the most obvious way to give to charity, but if you own shares in a Canadian Controlled Private Corporation (CCPC), donating those shares to charity in-kind has the potential to provide significant additional tax benefits. Complex rules apply to this gift planning strategy, but with proper planning and professional advice it can be a tax efficient way for you to support the charities you care about.
Why Donate Private Company Shares?
Edward and Keith wanted to donate the excess cash in their corporation to charity. They didn’t need the money for business development and were excited to make a big donation to their favourite charities. However, they wanted to donate the money in the most tax-efficient way possible. They soon realized this meant donating private company shares in-kind.
Edward and Keith each owned preferred shares in their corporation. If they donated shares to charity and then had the company repurchase the shares, not only would their favourite charities receive a significant gift, as shareholders they would realize the benefits of donating private company shares in-kind instead of cash.
How to Donate Private Company Shares
Edward and Keith contacted Abundance Canada to help manage the process. Creating their own Generosity Plans™ gave Edward and Keith added flexibility to distribute their donation to a variety of registered Canadian charities over time.
Edward and Keith each donated in-kind 50 non-voting preferred shares to Abundance Canada, who subsequently sold the shares back to Edward and Keith’s corporation. Abundance Canada used the proceeds from the sale of the shares to start two Gifting Funds™, one for Keith and one for Edward, and issued them each donation receipts for the market value sale of the donated private company shares.
Benefits of Donating Private Company Shares
Although it took a little more effort to donate private company shares instead of cash, Keith and Edward felt it was well worth the benefits.
They each claimed a $50,000 Lifetime Capital Gains Exemption (LCGE) against the capital gain on their donated private company shares. With no taxable capital gain to report, they were able to use their $50,000 charitable receipt as a tax credit against other personal income tax owing.
When their corporation redeemed the shares from Abundance Canada, it realized a refund from its Refundable Dividend Tax On Hand (RDTOH) pool. This provided an additional benefit to existing shareholders.
The brothers are enjoying making distribution recommendations to Abundance Canada, and a variety of Canadian charities are delighted to benefit from Keith and Edward’s generosity.
Do you own shares in a qualified CCPC? Is there excess cash inside the corporation? Talk to your professional advisor today and see if donating private company shares is a gift planning strategy that works for you.
Contributed by Sherri Grosz
Gift Planning Consultant