Donate Securities Directly to Charity — Eliminate Capital Gains Tax and Get the Full Donation Credit

Do I Qualify?

• You own publicly traded securities (stocks, ETFs, mutual funds, or listed bonds) with an unrealized capital gain
• The securities are held in a non-registered (taxable) account — not inside an RRSP or TFSA
• You intend to donate to a registered Canadian charity or qualifying organization
• The charity accepts in-kind securities transfers, or you are willing to use a donor-advised fund

Overview

When you sell appreciated securities and donate the cash proceeds to charity, you pay capital gains tax on the growth before giving. But under section 38(a.1) of the Income Tax Act, when you donate eligible publicly traded securities directly in-kind to a registered Canadian charity, the capital gains inclusion rate drops to zero — you pay no capital gains tax on the donated shares.

You still receive a donation receipt for the full fair market value of the securities on the transfer date. Combined with the donation tax credit, this can result in a dramatically better financial outcome for both the donor and the charity.

The Tax Difference: Sell-Then-Donate vs. Donate Directly

Scenario: You hold 500 shares of a Canadian bank stock.

• Adjusted cost base (ACB): $10,000
• Current fair market value: $50,000
• Capital gain: $40,000
• Your marginal tax rate: 48% (approximate top federal + provincial combined)

Difference: ~$9,600 in capital gains tax saved by transferring the shares directly instead of selling first. The charity receives the same $50,000 either way.

What Securities Are Eligible

The zero-inclusion-rate capital gains treatment applies to donations of:

• Publicly listed shares on a designated stock exchange (TSX, NYSE, NASDAQ, and most major global exchanges)
• Bonds listed on a designated stock exchange
• Mutual fund units (open-end and closed-end)
• ETFs (exchange-traded funds) listed on a designated exchange
• Shares of small business corporations — under a specific program involving an intermediary fund (more complex, consult an advisor)

Not eligible for the zero-inclusion rate:

• Shares of private (unlisted) companies
• Stock options (exercising options and then donating shares may trigger employment income on exercise)
• Real estate or other non-securities property (different rules apply)

The Donation Tax Credit

The donation tax credit in Canada has two tiers:

• 15% federal credit on the first $200 of total charitable donations in a year
• 29% federal credit (or 33% for high earners above ~$246,000) on donations above $200

Provincial credits add another 5–25% depending on the province. Combined federal + provincial donation credit at the top bracket is typically 45–50% of the donated amount.

The donation receipt amount is the fair market value on the day the securities are transferred to the charity — confirmed by the brokerage transfer records.

How to Transfer Securities In-Kind

1. Confirm the charity accepts in-kind securities donations. Most larger charities do; smaller organizations may need to set up a brokerage account first. Ask the charity’s development or finance office.

2. Get the transfer details from the charity. They will provide their brokerage account number and the receiving broker’s DTC/CDS details for the transfer.

3. Initiate the transfer through your broker. Contact your brokerage (online or by phone) and request an in-kind transfer to the charity’s account. Provide:

   • The security name and number of shares
   • The charity’s brokerage and account details
   • A statement that this is a charitable donation

4. Do not sell the shares first. The zero capital gains treatment only applies if shares are transferred in-kind. If you sell and donate cash, the capital gain is fully taxable.

5. Receive your donation receipt. The charity will issue a receipt for the fair market value on the transfer date (typically the closing price on the day the shares land in the charity’s account).

6. Report on your tax return. Claim the donation receipt on Schedule 9 (Donations and Gifts). The capital gain from the donated securities does not appear on Schedule 3 — it is excluded from income entirely.

Typical transfer time: 3–7 business days for in-kind transfers between Canadian brokerages.

Donor-Advised Funds — An Alternative Approach

If the charity doesn’t accept securities directly, or if you want to take the tax deduction now but direct the gift later, a donor-advised fund (DAF) is an effective alternative.

You donate securities to the DAF (a public foundation), receive the full donation receipt immediately, and recommend grants from the fund to eligible charities over time. The securities are sold inside the tax-exempt foundation, so capital gains are not triggered. Major DAF providers in Canada include Charitable Impact, the Vancouver Foundation, and brokerage-based programs at TD and RBC.

What Most People Miss

• The zero-inclusion rate applies regardless of how long you held the shares. There is no minimum holding period requirement — even shares bought last year with a large gain qualify.
• You can donate securities to your own private foundation and get the same zero-inclusion treatment, as long as the foundation is a registered charity under the Income Tax Act.
• RRSP and TFSA holdings cannot be donated in-kind. Securities inside registered accounts cannot be transferred directly to a charity. You must withdraw from the registered account first (triggering income), and then either donate cash or purchase the same securities outside the registered account to donate. The tax benefit of in-kind donation works best for securities held in taxable (non-registered) accounts.
• The donation receipt is the value on transfer date, not your cost. If the stock price drops between when you initiate the transfer and when the shares arrive, your receipt is for the lower value. Initiate transfers quickly when markets are favourable.

Frequently Asked Questions

Sources

• CRA — Gifting and Receipting: Gifts of Securities
• CRA — Income Tax Act s.38(a.1) — Eligible Amount of Gifts
• CRA — Charitable Donation Tax Credit
• CRA — Interpretation Bulletin IT-244 (Gifts of Non-Cash Property)