Capital gains realized on gifts of certain capital property

If you donated certain types of capital property to a registered charity or other qualified donee, you may not have to include in your income any amount of capital gain realized on such gifts. You may be entitled to an inclusion rate of zero on any capital gain realized on such gifts.

Note

For donations of ecologically sensitive land to a private foundation, the inclusion rate of zero does not apply.

The inclusion rate of zero applies if you donate the following property:
  • a share of the capital stock of a mutual fund corporation;
  • a unit of a mutual fund trust;
  • an interest in a related segregated fund trust;
  • a prescribed debt obligation;
  • ecologically sensitive land (including a covenant, an easement, or in the case of land in Quebec, a real servitude) donated to a qualified donee other than a private foundation (for more information, see "Gifts of ecologically sensitive land" in Pamphlet P113, Gifts and Income Tax); and
  • a share, debt obligation, or right [e.g., security (stock) option] listed on a designated stock exchange.

    For donations of publicly traded securities, the inclusion rate of zero is extended to any capital gain realized on the exchange of shares of the capital stock of a corporation for those publicly listed securities donated when:
    • at the time they were issued and at the time of disposition, the shares of the capital stock of a corporation included a condition allowing the holder to exchange them for the publicly traded securities;
    • the publicly traded securities are the only consideration received on the exchange; and
    • the publicly traded securities are donated within 30 days of the exchange.

    In cases where the exchanged property is a partnership interest (other than prescribed interests in a partnership), the capital gain will generally be the lesser of:
    • the capital gain otherwise determined; and
    • the amount, if any, by which the cost to the donor of the exchanged interests (plus any contributions to partnership capital by the donor) exceeds the ACB of those interests (determined without reference to distributions of partnership profits or capital).

If you donate property to a qualified donee that is, at the time of the donation included in a flow-through share (FTS) class of property, in addition to any capital gain that would otherwise be subject to the zero inclusion rate discussed earlier, you are deemed to have a capital gain from the disposition of another capital property equal to the lesser of:

  • the amount of your exemption threshold, at that time, in respect of the FTS class of property; and
  • the total capital gains from the actual disposition.

For more information, you can contact the Charities Directorate at 1-800-267-2384.

If you did not receive an advantage in respect of the gift, the full amount of the capital gain is eligible for the inclusion rate of zero. However, if you received or are entitled to an advantage, only a portion of the capital gain is eligible for the inclusion rate of zero. The non eligible portion is subject to an inclusion rate of 50%.

The amount eligible for the inclusion rate of zero is calculated using the following formula:

A x (B ÷ C)

where

A = the capital gain
B = the eligible amount of the gift
C = the proceeds of disposition

Gifts of securities acquired under a security option plan

You can claim an additional deduction on line 249 of your return for donating publicly listed shares of corporations or mutual fund units you acquired through your employer's security option plan. However, you must meet all of the following conditions:

  • You acquired a security under an option that was granted to you as an employee of a corporation or a mutual fund trust.
  • You disposed of the security in the year it was acquired, and not more than 30 days after its acquisition, by donating it to a qualified donee.
  • You are entitled to claim a security option deduction on line 249 for the acquisition of the security.

The additional deduction is equal to 50% of the amount of the taxable benefit, which may effectively exempt from tax the employment benefit associated with the exercising of the stock option. When calculating the amount of the additional deduction that can be claimed on line 249, you determine the employment benefit by using the lesser of:

  • the FMV of the security at the time of acquisition; and
  • the FMV of the security at the time of disposition (through donation).

You may have a capital gain on the disposition of the security. For more information, see "Capital gains and losses" in Pamphlet P113, Gifts and Income Tax.

Granting of options to a qualified donee

You may not claim a gift in respect of an option to acquire a property that is granted to a qualified donee after March 21, 2011, until such time as the qualified donee either exercises or sells the option. At that time, the amount of the gift that you may claim is generally equal to:

  • where the option is exercised by the qualified donee, the FMV of the underlying property minus any consideration that you receive from the qualified donee for the property and the option; or
  • where the option is sold by the qualified donee, the lesser of:
    • the FMV of the underlying property; and
    • the FMV of any consideration, other than a non-qualifying security of any person, received by the qualified donee for the option,
    minus any consideration that you receive from the qualified donee for the option.

Completing your Form T1170 and Schedule 3

On Form T1170, Capital Gains on Gifts of Certain Capital Property, report the total of all amounts (see Note below for exception) subject to the 50% or zero inclusion rate on line 6823 and/or on line 6825, depending on the type of property.

On line 132 and/or line 153 of Schedule 3, Capital Gains (or Losses), report the applicable amounts calculated on Form T1170.

Note

The capital gain realized on an exchange of partnership interests for publicly listed securities that are then donated should not be reported on Form T1170. Instead, it should be reported directly on line 174 of Schedule 3.

 

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