11 does not apply to currency held for col- lection purposes). Depending on the province and the donor’s tax bracket,the tax credits generated from the donation would offset the tax owing on the income earned, so no tax would be pay- able on the money earned and then donated. At lower income brackets, and in Alberta, the credits would actually be more than offset by the tax owing and the donor would be able to shelter other income from tax with the credits earned from this donation. If the donor is donating cash that is not income to them in the year donating, the credit could be used to offset taxes owing from other sources. But, in those provinces where the tax rate is higher than the credit rate on donations, the donor could still be paying tax on a dollar given to charity! PUBLIC SECURITIES Canada levies tax on the appreciation in value of a capital good. The tax is levied when the item is disposed of (i.e. sold, given away, or donated). However, the ITA does contain an exemption for publicly listed securities (on certain exchanges) donated to chari- ty. Moreover, the donor continues to receive a donation tax receipt equal to the fair market value of the shares donated. Thus, there is no tax on the donation, but the donor still receives a tax credit equal to the fair market value of the donation. While shares of publicly traded corpora- tions are the most popular form of secu- rity to be donated to charity, there are a variety of other sophisticated financial securities that may also be donated. Examples include exchange-traded funds, index funds, hedge funds, war- rants, rights, and put and call options. If these products qualify as publicly traded securities, they will qualify for the spe- cial tax treatment accorded donations of this type. Example: Assume that Kirk lives in Ontario and buys one share of a high-tech company for one dollar ($1). Over time, the share rises in value and may even split once or more than once. After ten years, with all splits factored in, Kirk owns shares worth a total of $100. If Kirk were to sell the share, he would have a capital gain of $99 (i.e. the fair market value of $100, less the cost of $1). Applying a capital gains inclusion rate of 50% (as opposed to 66% if the gain were greater than $250,000), only $47.50 would be taxable. Further applying a tax rate of 46%, the amount of tax payable would be $21.85. Thus, if Kirk sells the shares, he is left with after-tax income of $78.15 (i.e. $100 - $21.85). Conversely, let’s say Kirk decides he wants to donate his shares instead of selling them. In this case, Kirk has no tax to pay and, of course, receives no income from the sale of the share. He does however receive a tax receipt for $100, which (ignoring the lower credit rate for the first $200) will offset $46 of taxes due from other sources. So, assuming Kirk is paying tax on income from other sources, the actual after-tax cost of this donation is $54. FLOW-THROUGH SHARES For income tax purposes, the cost of a flow-through share is deemed to be zero. So, even if the buyer buys the share at $10.00 and sells it at $8.00, the share is still assumed to have gained $8.00 in value and is therefore taxed on an $8.00 capital gain even though it actually lost $2.00. (Don’t worry about the share- holder though; ownership of the share gave them access to a deduc- tion making it worthwhile). Flow- through shares are like any other asset and can be donated to charity. When these shares are publicly traded, there is no tax on the capital gain. However, for purposes of donation, the law considers the amount of the purchase price to be a capital gain and only the amount in excess of that (if there is any) to be eligi- ble for the capital gains exemption. STOCK OPTIONS An employee who exercises a stock option (i.e. buys it at less than fair mar- ket value) receives a benefit equal to the difference between the purchase price (and any amounts they may have paid for the option) and the fair market value at the time of purchase. Tax is calculated based on the amount of this benefit which is added into income. Depending on overall income and capital gains, the Province Combined Federal / Provincial Tax Credit Rate on first $200 donation Tax Credit Combined Federal / Provincial Tax Credit Rate on amounts over $2002 Tax Credit on amount over $200 Total combined Federal and Provincial Tax Credit Alberta3 75.00% $150.00 50.00% $500.00 $650.00 British Columbia 20.06% $40.12 45.80% $458.00 $498.12 Manitoba 25.80% $51.60 46.40% $464.00 $515.60 New Brunswick 24.40% $48.80 46.95% $469.50 $518.30 Newfoundland 23.70% $47.40 50.80% $508.00 $555.40 Northwest Territories 20.90% $41.80 43.05% $430.50 $472.30 Nova Scotia 23.79% $47.58 50.00% $500.00 $547.58 Nunavut 19.00% $38.00 40.50% $405.00 $443.00 Ontario4 20.05% $40.10 40.16% $401.60 $441.70 Prince Edward Island5 24.80% $49.60 45.70% $457.00 $506.60 Saskatchewan 25.50% $51.00 43.50% $435.00 $486.00 Yukon 21.40% $42.80 41.80% $418.00 $460.80 Table A - Tax Credit on $1,200 in donations for 2024
