Gifting Publicly Traded Shares in 2026: Why the Capital Gain Is Exempt

Many Canadians donate cash.

Sophisticated families donate shares.

The difference can be significant.

If structured properly, donating publicly traded securities can:

• Eliminate capital gains tax
• Generate a charitable donation tax credit
• Increase after-tax giving power
• Preserve family wealth

This is not a loophole.

It is deliberate tax policy under Income Tax Act (ITA) s.38(a.1) and explained by CRA in Guide P113 – Gifts and Income Tax.

For families with family-owned enterprises and investment portfolios, this is one of the most powerful charitable planning tools available.

Let’s examine how it works.

 

The General Rule: Capital Gains Are Taxable

Ordinarily, when you dispose of shares:

• Proceeds minus Adjusted Cost Base (ACB) = Capital gain
• Under ITA s.39, that is a capital gain
• Under ITA s.38(a), 50% is included in income

If you donate cash, you must first sell the shares.

That triggers capital gains tax.

But there is a better way.

 

The Special Rule: ITA s.38(a.1)

Under ITA s.38(a.1):

The taxable capital gain on certain gifts of publicly traded securities is zero.

That means:

• The capital gain inclusion rate is effectively 0%
• No capital gains tax is payable
• The donation credit still applies

This applies to gifts of:

• Shares listed on a designated stock exchange
• Mutual fund units
• Certain bonds and securities
• Certain publicly traded partnership interests

This is intentional policy to encourage charitable giving.

 

Why This Is So Powerful

Let’s compare two scenarios.

Scenario 1: Sell Then Donate Cash

You own shares worth $200,000.
Your ACB is $80,000.

Capital gain = $120,000
Taxable capital gain (50%) = $60,000

At a 50% marginal rate:

You pay approximately $30,000 in tax.

You donate the remaining $170,000.

You receive a donation tax credit.

But $30,000 has already been lost to tax.

 

Scenario 2: Donate Shares Directly

You transfer the shares directly to a registered charity.

Under ITA s.38(a.1):

The capital gain inclusion rate is zero.

No capital gains tax.

You receive a charitable donation receipt for the full $200,000.

Result:

• No capital gains tax
• Larger donation credit
• Greater overall tax efficiency

The difference can be substantial.

 

How the Donation Tax Credit Works

Under ITA charitable donation rules:

• First $200 → lower federal credit rate
• Amount above $200 → higher federal credit rate

Provincial credits also apply.

Combined, high-income individuals may receive a tax credit exceeding 45–50% of the donation amount (depending on province).

CRA explains this in Guide P113 – Gifts and Income Tax.

The key is:

You eliminate capital gains tax AND receive the credit.

 

Timing and Valuation

The donation value is generally:

The fair market value of the shares on the date of transfer.

Not the cost.

Not the original purchase price.

Market value.

This makes appreciated securities ideal charitable assets.

 

What Qualifies?

To benefit from ITA s.38(a.1):

• The shares must be publicly traded on a designated exchange
• The transfer must be made directly to a registered charity
• You must receive an official donation receipt

If you sell the shares first, the exemption does not apply.

The transfer must be in-kind.

 

Interaction With the Alternative Minimum Tax (AMT)

Even though the capital gain inclusion rate is zero for regular tax purposes:

AMT calculations may still apply in certain high-income situations.

The AMT system can limit certain credits and preference items.

In 2026, with expanded AMT rules, modeling is essential.

Large charitable gifts combined with:

• LCGE claims
• Flow-through investments
• Major capital events

Can produce unexpected AMT exposure.

 

Planning for Family Enterprises

For families with:

• Large personal investment portfolios
• Corporate investment accounts
• Private company shares (pre-IPO)
• Succession planning goals

Donating appreciated securities can:

• Reduce personal tax
• Reduce estate tax exposure
• Support philanthropic objectives
• Align family values with wealth strategy

This is often integrated into:

• Estate freezes
• Corporate reorganizations
• Intergenerational wealth transfer

Philanthropy and tax planning are not separate disciplines.

They intersect.

 

Common Misunderstandings

“I can donate and still claim the loss.”
No. Only gains receive special treatment.

“It works for private company shares.”
Only publicly traded securities qualify automatically. Private shares require more complex structuring.

“I can sell today and donate next week.”
No. The transfer must be in-kind.

“It only benefits ultra-wealthy donors.”
Even modest portfolios can benefit significantly.

 

Corporate Donations vs Personal Donations

Corporations may also donate publicly traded securities.

Corporate charitable deductions operate differently than personal tax credits.

Planning must consider:

• Refundable dividend tax on hand (RDTOH)
• Capital dividend account (CDA) implications
• Corporate capital gains

Sophisticated families often coordinate both personal and corporate giving.

 

The Bigger Strategy

For high-net-worth families:

Instead of donating cash:

• Review appreciated securities annually
• Donate gains rather than income
• Preserve liquid cash
• Rebalance portfolios strategically

This increases after-tax giving power.

It is disciplined generosity.

 

Final Thoughts

Under ITA s.38(a.1), the capital gain on donated publicly traded securities is exempt.

Under CRA Guide P113, you still receive a donation tax credit for fair market value.

Few provisions in Canadian tax law are this elegant:

• No capital gains tax
• Full donation credit
• Enhanced philanthropic impact

For families building generational wealth, charitable giving should be strategic — not reactive.

At Shajani CPA, we integrate philanthropy, tax law, and legacy planning with precision.

Tell us your ambitions, and we will guide you there.

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2026 Shajani CPA.

Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning service.