Family businesses constitute a high percentage of Canadian business and account for the majority of new jobs. The entrepreneurs who started these businesses are often community-minded. Shares in the family business may constitute most of an entrepreneur’s wealth, however, and cash in the company may be needed for operating capital. Thus, a gift of common or preferred shares of a private operating company or holding company (or of a debt instrument) has made it possible for donors to make significant gifts while retaining needed working capital in the business.

Some giving options available to such donors, who often establish a family foundation, have included gifts of shares in a private company, gifts followed by a loan back, and gifts of debentures or other debt.

Due to concerns about possible abuses, Parliament enacted changes to the Income Tax Act that imposed certain requirements and restrictions on these transactions. See the “Watch” section below.

Benefits to the donor 

Janice Link

• Capital gains up to $500,000 are exempt from tax when qualified small business corporation shares are donated.
• In the case of gifts of shares to a public charity the donor receives an immediate donation receipt for the fair market value of the shares.
• In the case of gifts of shares to private foundation the donor receives a donation receipt for the lesser of the selling price (when sold by the foundation) and the transfer value (appraised fair market value when the donor transfers the shares to the foundation). The receipt is issued when the shares are sold by the private foundation.
• 50% of the gain is taxable to the donor, but the charitable tax credit will exceed the tax on the gain, resulting in net tax savings for the donor.

Benefits to the charity 

• The donated shares may pay dividends.
• The charity may be able to sell the shares in the near term, or may hold some or all of them for an indefinite period.

Who can make this type of gift? 

This type of gift appeals to philanthropic entrepreneurs.

Important note 

David Denning

Gifts of private shares can provide beneficial results for a donor but, in order to ensure that all relevant issues have been considered and addressed and that all Income Tax Act, Canada provisions and regulations are met, prospective donors should seek qualified legal and accounting advice.

Planned gifts can provide beneficial results for a donor but, in order to ensure that all relevant issues have been considered and addressed and that all Income Tax Act, Canada provisions and regulations are met, prospective donors should seek qualified legal and accounting advice.

Give Green Canada acknowledges and thanks Lorna Somers and Frank Minton for pre-approving the use of their book Planned Giving for Canadians as the basis for the information provided about different types of gifts.