Donating Capital Property

Donating Capital Property

Income Tax Act s. 38(a.1), 38(a.2), 118.1(1)

When capital property is donated, there is a disposition for tax purposes, which may result in a capital gain.  The fairmarket value (FMV) of the property donated is used as the proceeds of disposition, and as the amount of the donation.  In some circumstances it may be helpful to designate the proceeds amount to be an amount less than FMV.  See our article on the election for designating the proceeds of donated property.

If any "advantage" was received (compensation or other benefits) in return for the donation (e.g., tickets, meals), the eligible gift for purposes of the donation claim is the proceeds of disposition less the advantage received.

Another benefit of donating capital property is that your total donations limit will be increased by 25% of the taxable capital gain on gifts donated, up to a maximum total limit of 100% of net income.  See the CRA topic "calculating your increased donations limit" in the publication P113 Gifts and Income Tax.

Capital gains can be eliminated by donating certain types of capital property (qualified investments, prescribed debt obligations, or ecologically sensitive land) to qualified donees (see the CRA definition for a qualified donee).  The taxable capital gain is eliminated for this type of donation made after May 1, 2006.  For donations of this type of property made before May 2, 2006, the taxable capital gain is 25% instead of 50%.

CRA has the following information on their site regarding donating capital property:

	P113 Gifts and Income Tax
	T4037 Capital gains guide - Calculating your capital gain or loss
	Form T1170 Capital gains on gifts of certain taxable property

Tax Tips:

Instead of cash, donate property, including securities or shares on which you have capital gains.  Philanthropy and tax planning go hand in hand.

Do your donation before the 2nd week in December, to ensure that everything gets processed before year end.

Capital tax rebate for Ontario manufacturers and resource companies

News Update

The final round of the McGuinty government's capital tax rebate cheques for Ontario manufacturers and resource companies is being delivered this month.

Eliminating capital taxes helps Ontario manufacturers and resource companies get through the current economic challenges caused by high oil prices, a high dollar and a slumping American economy.  The money saved can be used to buy high-tech equipment, retrain workers or invest in research and development.

The Premier made the announcement while touring Honeywell's Mississauga aerospace manufacturing facility.  Honeywell will save approximately $764,000 this year because of the elimination of the capital tax.  They plan to reinvest the money in research and development.

In Budget 2008, the capital tax for manufacturers and resource companies was eliminated retroactive to January 1, 2007.  For all other companies, capital tax rates have been cut by 21 per cent retroactive to January 1, 2007, on the way to full elimination in 2010.

Strategic tax cuts that help business are part of the McGuinty government's five-point plan to strengthen the economy.  When fully phased in, Ontario will provide almost $3 billion annually in corporate tax cuts to encourage investment, attract jobs and make sure businesses are able to compete and thrive.

 “We have the right plan for the times, one that builds a stronger Ontario by supporting families and business. By eliminating the capital tax retroactively, we can help forward-thinking manufacturers become more productive so they can create and retain jobs,” said Premier Dalton McGuinty.

“Eliminating the capital tax was a priority for CME.  The Premier's action to eliminate this tax will help manufactures to make the investments necessary to move ahead in these very challenging times,” said Ian Howcroft, Vice President of the Ontario Division for Canadian Manufacturers & Exporters.