2019-0825501E5 Donation of shares

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether there is an eligible amount of a gift in a particular situation.

Position: It depends. General comments provided.

Reasons: Question of fact.

Author: Danis, Sylvie

Section: 118.1(1), 118.1(13),248(31)

XXXXXXXXXX                                                                              2019-082550
                                                                                                      Sylvie Danis
                                                                                                      (613) 670-9047
February 13, 2020


Re:  Donation of shares

This is in response to your correspondence dated September 25, 2019 wherein you requested comments regarding the donation of shares of a corporation by an individual to a qualified donee. More specifically, you asked us whether the transfer of all of the issued shares of the capital stock of a corporation to a qualified donee for $1 per share would be a gift that would qualify for a donation tax credit under the Income Tax Act (Act). We also acknowledge our telephone conversation (XXXXXXXXXX/Danis/Naufal) on XXXXXXXXXX where you indicated that a gift of the corporation’s assets is also being contemplated as an alternative to the gift of shares by the shareholder.

Our comments

This technical interpretation provides general comments about the provisions of the Act and related legislation. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC70-6R9, Advance Income Tax Rulings and Technical Interpretations.

Gift of property

Section 118.1 of the Act provides that an individual may claim a non-refundable tax credit for the eligible amount of a gift made to a qualified donee. Section 110.1 of the Act allows a corporation to claim a deduction, in computing its taxable income, for the eligible amount of a gift made to a qualified donee. The tax credit or deduction can be claimed, within certain limits, if the gift is supported by an official donation receipt issued by the qualified donee. A qualified donee is defined in subsection 149.1(1) of the Act and includes municipalities in Canada registered by the Minister of National Revenue as well as registered charities.

The term gift is not defined in the Act and therefore one must look to its common law meaning. Under common law, a gift is a voluntary transfer of property from a donor, who must freely dispose of the donor’s property, to a donee who receives the property given with no right, privilege, material benefit or advantage conferred on the donor or any person designated by the donor in exchange for the donor making the gift. The determination of whether a transfer of property constitutes a gift is a question of fact that can only be made upon a complete examination of the circumstances, including the legal relationship between the parties and the agreements governing the transfer of the property.

Subsection 248(30) of the Act is a relieving provision that generally states that the receipt of a benefit or consideration (advantage) will not, in and of itself, disqualify a transfer of property from being a gift to a qualified donee for income tax purposes. In general terms, an advantage is the total value of any property, service, compensation, use or any other benefit that a donor (or a person or partnership not dealing at arm’s length with the donor) is entitled to as partial consideration for, in gratitude for, or in any other way related to the gift. The advantage may be contingent or receivable in the future.

The amount of an individual’s donation tax credit or a corporation’s donation deduction is determined using the eligible amount of the gift which is defined by the Act as the excess of the fair market value (FMV) of the property transferred to a qualified donee over the amount of the advantage provided in respect of the gift. Further information in this regard is available in Income Tax Folio S7-F1-C1, Split-receipting and Deemed Fair Market Value and Pamphlet P113, Gifts and Income Tax which also contains additional information on gifts in kind and donation appraisals. Each of these publications is available on our website.

Disposition of capital property by way of gift

In general terms, where a taxpayer disposes of a property that is capital property by way of a gift, the taxpayer is deemed by subparagraph 69(1)(b)(ii) of the Act to have received proceeds of disposition equal to the property’s FMV and may realize a capital gain (or capital loss) on the disposition of the property. In certain circumstances, subsection 248(35) of the Act sets out special rules to limit the FMV of a gifted property. Such circumstances are described in paragraphs 1.26 to 1.28 of Income Tax Folio S7-F1-C1, Split-receipting and Deemed Fair Market Value.

Subsection 118.1(6) of the Act may be beneficial to an individual who makes a gift of a capital property to a qualified donee. When a gift of capital property is made and, at that time, the FMV of the capital property exceeds its adjusted cost base (ACB) (or, where the property is depreciable property, the FMV exceeds the lesser of its ACB and the undepreciated capital cost (UCC) of the class of property), the individual may designate an amount under subsection 118.1(6) of the Act. The designated amount may not exceed the FMV of the property otherwise determined, and may not be less than the greater of:

(a)   the amount of the advantage, if any, in respect of the gift, and

(b)   the ACB of the property or, if the property is depreciable property, the UCC of the class of the property at the end of the individual's taxation year.

The designated amount will be treated as both the proceeds of disposition for the purpose of calculating the individual's capital gain and the FMV of the gifted property for the purpose of determining the eligible amount of the gift in calculating the donation tax credit.

Similar provisions are available to a corporation under subsections 110.1(2.1) and 110.1(3) of the Act.

Non-qualifying securities

Where an individual gifts a property that is a non-qualifying security (NQS) to a qualified donee, subsection 118.1(13) of the Act generally applies to deem such a gift not to have been made. As a result, the individual would not be permitted to claim a donation tax credit until such time as:

(a)   the security ceases to be an NQS within 60 months of the transfer, or

(b)   the qualified donee disposes of the NQS within 60 months of the transfer.

An NQS of an individual at any particular time is defined in subsection 118.1(18) of the Act and includes, among other things, a share of the capital stock of a corporation if the individual or the individual's estate does not deal at arm's length with the corporation immediately after that time. The NQS definition specifically excludes shares of a corporation that are listed on a designated stock exchange.

Generally, where the donor of a share of the capital stock of a corporation (other than a share listed on a designated stock exchange) is dealing at arm's length with the corporation immediately after the time such share was gifted to the qualified donee, the share would not be considered an NQS at the time the share was gifted to the qualified donee.

The NQS rules also apply to a corporation pursuant to subsection 110.1(6) of the Act.

Other comments

The situation described in your correspondence as well as in our phone discussion does not appear to involve or otherwise identify a particular interpretive concern with respect to a specific provision of the Act and, in our view, appears to be in the nature of a request for general tax planning or tax advice, which is beyond the mandate of the CRA. In each of the scenarios that we discussed, a gift of shares by the shareholder or a gift of a corporation’s assets can result in complex income tax implications that should be considered. Depending on the transactions undertaken and the legal relationships created among the parties under any relevant agreements, there may also be income tax implications to the corporation in each scenario.

Accordingly, given all the complexities concerning the potential income tax implications in your particular situation, you may wish to seek independent professional tax advice.

We trust our comments will be of assistance.

Yours truly,


Bob Naufal
Financial Institutions Section
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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