Ordinarily, an employee who includes an obligation of the donor or a
Although CRA did not rule on the
exercises a stock option is taxed on a non-arm’s length person, a share issued fair market value of the flow-through
benefit equal to the difference between by a corporation with which the donor shares at the time of the donation, it
the fair market value of the shares at the does not deal at arm’s length or any other seems that it is approving these types of
time of exercise and the sum of the security issued by the individual or a arrangements. The fact that listed shares
exercise price plus the amount paid for non-arm’s length person. Specifically are subject to a holding period for
the option. In certain circumstances, the excepted are obligations, shares or securities law purposes should not result
employee can claim a deduction against securities listed on prescribed stock in a substantial discount of what would
the stock option benefit so the taxable exchanges and deposits with financial otherwise be the fair market value. Flow-
portion of the benefit is equal to the institutions. If the gift is disposed of through shares provide the shareholder
taxable portion of a capital gain (50% within five years of receipt of the gift, or with an immediate tax benefit in the form
currently). Where an employee stock the property ceases to be a “non-
of write-offs that are renounced by the
option is exercised for marketable qualifying security” within the five-year corporation on account of Canadian
securities which are given to a qualified period, the individual will be treated as exploration expenses but the adjusted
donee within 30 days of the option being having made a gift at that time.
cost base of the share is reduced
exercised and certain other conditions
This rule does not apply to an
correspondingly. If the shareholder
are met, the taxable benefit is reduced to donates the shares, there is not only no
“excepted gift”, which is generally a gift of
one-quarter of the benefit. Individuals tax on the resulting capital gain but also
a share made to an arm’s length qualified
who make qualifying donations after May a tax credit available based on the fair
donee that is not a private foundation,
1, 2006 to public qualified donees of market value of the shares. This is
and where the donee is a charitable
marketable securities acquired through assumed to be the price at which the
organization or a public foundation, the
such stock options are not required to charity is able to sell the shares to the
donor deals at arm’s length with all of the
include any amount of the benefit. The third party. The deduction, the
donee’s directors and officers. CRA
March 19, 2007 budget extended this to elimination of tax on the capital gain and
considers the relevant time when the
gifts of such securities to private the charitable tax credit all reduce the
donor must deal at arm’s length with the
foundation on or after that day.
donee is immediately after the gift. The
overall tax cost of the initial investment
Taxpayers who own eligible unlisted objective of these rules is to deny a tax
and the subsequent donation. The
exchangeable securities can exchange credit for certain types of gifts, including
charity (or other qualified donee) is not
them without causing tax to be payable shares of privately held companies,
concerned about lack of liquidity or
on a gain. There is no tax on a gain on subject to some relief if the donee disposes
valuation issues and in effect has a
the exchange, and the donor can receive of the security within five years. The
guarantee that it will be able to sell the
a receipt for the donation of the listed March 19, 2007 budget extended these
shares immediately, receiving the agreed-
securities received on the exchange, again rules where the non-qualifying security is
upon amount from a third party. Although
without recognizing a gain. The beneficial donated to a trust of which the registered significant transaction costs are involved,
treatment for capital gains on gifts of charity is a beneficiary.
in many cases these arrangements seem
marketable securities applies to capital
to provide a means for donors and
There are provisions dealing with
gains on the exchange (with some
qualified donees to achieve mutually
certain “loan-back” arrangements under
exceptions) of unlisted securities for
beneficial results. Before proceeding,
which a person donates property to a
listed securities where:
charity which is not dealing at arm’s
donors and qualified donees should
a) at the time they were issued, the
length with the person and receives back
carefully review the terms of the advance
unlisted securities included a
a loan, or is allowed to use the property
ruling and obtain professional advice.
donated to the charity. In these cases, the
condition allowing the holder to
As discussed more fully below, the
exchange them for the listed
fair market value of the gift will be proposed amendments (last introduced
securities;
reduced for purposes of calculating the in former Bill C- 10) will significantly
tax credit. The March 19, 2007 budget
b) the listed securities are the only
change the rules for determining the
extended these rules to certain arm’s
consideration received on the
value of gifts of property in many
exchange; and
length arrangements. CRA’s administrative
situations.
position on gifts of capital property is set
c) the listed securities are donated out in IT-288R2 entitled “Gifts of Capital within 30 days after the exchange. 6. Gifts of Art, Cultural and Properties to a Charity and Others” and Ecological Property There are special rules for IT-297R2 entitled “Gifts in Kind to 6
(i) Art
exchangeable partnership interests.
Charity and Others.”
These are intended to ensure that gains
CRA has confirmed in an advance
Certain gifts of inventory by an artist
attributable to a reduction in the adjusted receive special treatment. In those
ruling that in appropriate situations
cost base of the partnership interest are circumstances, where an appropriate
donors can donate listed “flow-through”
not exempt.
designation is made, an artist is entitled
shares that are subject to a “monetization”
to a credit based on the fair market value
A gift of a “non-qualifying security” arrangement enabling a charity to sell
of the property but no income is triggered
to a charity will be ignored in determining them immediately, despite securities law
on the disposition.
the tax deduction or credit in most cases. restrictions, to a third party that agrees to
A non-qualifying security generally provideliquidity.
Artwork is generally considered to be
