The end of the year is a natural time to reflect on generosity. Many Canadians choose to support causes they care about, and the Canada Revenue Agency (CRA) provides an incentive by offering donation tax credits.
Most people are familiar with the traditional approach: write a cheque or donate cash to a registered charity, receive a tax receipt, and claim the credit on your return. Straightforward enough.
But what if you could make the exact same donation, benefit your chosen charity just as much, and dramatically reduce your own after-tax cost of giving?
That’s where donating securities in-kind comes in.
Why In-Kind Donations Are So Powerful
Suppose you want to donate $10,000 to a charity. If you don’t have cash on hand, you might sell an appreciated investment in your account to raise the funds. The problem: selling triggers capital gains tax. For someone in Alberta in the top tax bracket, that could mean paying 24% tax on the gain (since only half of capital gains are taxable).
Here’s the better option: most Canadian charities have brokerage accounts and can accept direct transfers of securities (stocks, ETFs, or mutual funds). If you donate the investments directly, the capital gain is fully eliminated. You receive a charitable tax receipt for the fair market value on the date of transfer, and the charity receives the same $10,000—but you avoid ever having to pay tax on the accrued capital gains.
The larger the gain on your investment, the more powerful the effective tax savings become.
Example: Cash vs. Securities Donation
Assumptions
- Donation: $10,000
- Adjusted Cost Base (ACB): $2,000
- Fair Market Value (FMV): $10,000
- Capital Gain: $8,000
- Marginal Tax Rate (ordinary income): 48%
- Marginal Tax Rate (capital gains): 24%
- Province of residence: Alberta
Option 1 – Cash Donation
- Donation: $10,000
- Alberta Tax Credit (21%): –$2,100
- Federal Tax Credit (33%): –$3,300
- After-tax cost: $4,600
Option 2 – Securities Donation
- FMV of shares donated: $10,000
- Alberta Tax Credit (21%): –$2,100
- Federal Tax Credit (33%): –$3,300
- Tax savings from eliminating capital gain ($8,000 × 24%): –$1,920
- After-tax cost: $2,680
Result: The charity still receives $10,000, but your personal cost is nearly $2,000 lower when donating shares instead of cash.
Note: Figures assume that the taxpayer is in the top marginal tax brackets. Calculations are based on the amount donated being in excess of the first $200 of annual donations, which attract different credit amounts.
Donor Advised Funds: Flexibility for Larger Gifts
Another valuable strategy is using a Donor Advised Fund (DAF). A DAF allows you to make a significant donation in a given year, receive the full tax receipt immediately, and then take your time deciding which charities will ultimately benefit. This can be especially useful if you know you want to support causes but haven’t yet finalized where you want the funds to go.
The mechanics are simple: you contribute cash or securities to the DAF, which is itself a registered charity. You get the donation tax credit right away, and the assets inside the DAF can even be invested and potentially grow tax-free. Over time, you (or your family) recommend grants from the fund to your chosen charities—whether that’s this year, next year, or many years down the road.
For families who want to build a legacy of giving, a DAF can act like a “personal charitable foundation” without the administrative burden or legal complexity of setting one up on your own.
Practical Considerations
- Timing matters: In-Kind charitable donations are not a last-minute strategy. Transfers can take 1–2 weeks (or longer in December when institutions are backlogged). Plan early if you want the donation receipted in the current tax year.
- Minimum donation size: Given the admin involved, this strategy is best for larger donations rather than smaller, ad hoc gifts.
- Tax reporting: Your accountant will note the donation of securities on CRA Form T1170, Schedule 3, and your summary of donations. For a qualified professional, this is a straightforward filing—so long as you let them know.
- Provincial differences: Both the federal and provincial donation tax credit rates are tiered (higher credits typically apply after the first $200 donated). Each province sets its own rates, which can impact your benefit.
Final Thought
If philanthropy is part of your financial legacy, donating appreciated securities—or using a Donor Advised Fund—are among the most tax-efficient ways to give. The charity wins, you win, and your portfolio may even benefit from a thoughtful rebalancing opportunity.
Before writing that next cheque, consider opening your investment portfolio instead.
How We Help at TIER Wealth
At TIER Wealth, we go beyond simply talking about charitable giving. We talk about how donations can be incorporated into both your current and long-term financial plans. We actively help our clients identify which investments are best suited for donation, facilitate the transfer directly to the charity or donor advised fund on their behalf, and then take care of the tax filings. By integrating giving strategies into the broader wealth plan, we ensure that generosity not only makes the greatest possible impact on the causes you care about, but also delivers maximum tax efficiency for you and your family.
