Tax Considerations for Gifts
MDJ has featured articles about charitable donation tax credits and using flow through shares to maximize your donations. But what about the tax issues surrounding gifts, which may be triggered when donating stocks, bonds, land or building to a registered charity.
Personal collections such as sculptures, paintings, stamps, coins, or other antiques that would be useful to a gallery or museum involve certain considerations of their own. Please note that this article is only skimming the surface and consulting a tax professional is recommended.
Canada does not impose a gift tax and hence, a Canadian resident is bound to receive the full value from a gift (including an inheritance). However, note that gifts from an employer are considered a taxable benefit and need to be reviewed carefully. If an investment real estate property is gifted (say, parent to child), the gift-giver is deemed to have sold the property at fair market value and the resulting capital gains, if any, will be taxed.
Nonetheless, if the investment property being gifted becomes an adult child’s principal residence, the accrued gains till that time will be taxed but the adult child is not on the hook for further taxation. This related tax article discusses these issues in detail, while attribution rules as applicable to minors can be found here.
One can maximize their tax credit when donating to charities. Eligible charity receivers (donees) include registered charities, registered national arts organizations, registered housing corporations providing low-cost housing to seniors, registered amateur athletic associations, the federal or provincial governments, to name but a few.
Typically, all or part of the gift value can be claimed, up to 75% of one’s net income. Donating capital property can offer a raised limit, which can be calculated by filling in the charts at this link and using the answers in Schedule 9.
Donating shares of a self-controlled corporation or any security not listed on a stock exchange entail special rules. More details can be found under the capital gains section here.
Other Types of Gifts
Donating an ecologically sensitive piece of land (say, in the Mixed Wood Plains Ecozone or the Montane Cordillera Ecozone) to one of the governments (federal or provincial), municipalities, or an approved registered charity can be claimed. Cultural property of national significance can be gifted to Canadian institutions and public organizations under the Cultural Property Export and Import Act. In both cases, the fair market value is used to determine the eligible gift amount. More information is available at this link.
Gifts to US charities can be claimed if the Canadian resident has a US income for the year. Or, up to 75% of the individual’s net world income can be used to file a claim for gifts made to certain eligible US organizations.
An appraisal of a real estate or personal property by an independent professional appraiser or valuator is necessary to determine a fair market value and arrive at an eligible amount to be claimed on the tax return. However, if the fair market value of the gift is less than $1000, a professional evaluation may be dispensable but proper record keeping is essential in all cases.
Maintaining receipts is very important for all donations. The CRA page on Gifts and Income Tax has comprehensive information for interested readers.
If you have experience in giving gifts to charities and claiming them, please include any relevant tips for others to remember in the comments.
About the Author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism. You can read his other articles here.