Donating the Proceeds from the Sale of Private Company Shares

Donating the proceeds from the sale of private company shares to charity may become more tax efficient for donors

On April 21, 2015 the Federal government tabled their budget (the “Budget”) which included several measures that could impact donations made to charitable organizations.

One of the most notable proposals in the Budget for those who are considering making a charitable donation is the exemption of gains realized on the sale of private company shares or real estate to an unrelated third party if the proceeds are donated to a registered charity within thirty (30) days of the sale.  In a previous post, we explained that the accrued gain on public company shares donated to a registered charity is not taxable.  These  new measures in the Budget make a donation of proceeds from the sale of a private company equally as tax efficient.  Based on the Budget, these new measures would take effect for dispositions of private company shares and real estate beginning after 2016.

For donors, this means the cost of making a donation after 2016 can be reduced by gifting the proceeds from a sale of private company shares or real estate.  The donor will not have to pay tax on the capital gain (to the extent that the proceeds are donated), and will get a tax credit on the amount of the donation.  For charities, this means that they could potentially receive a larger donation since the donor is required to pay less tax (and therefore has more after tax proceeds to donate).

As with all budgets, we will have to wait until the legislation is introduced and passed into law to fully understand the extent of any of the above changes, and when these new rules will and will not apply.  It is important to note that since this is an election year, any newly elected government may alter or eliminate measures like this one that were announced in the Budget but not passed into law before the end of the current session of Parliament.

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If you have further questions about tax planning, please contact us.

The information above is correct as of the date posted. Please note that some information may become outdated.