Donating Stock to Charity in Canada: Don’t Sell It First
There is one place in the Income Tax Act where a capital gain is taxed at nothing at all. Not deferred, not sheltered, not halved. Zero. It applies when you give a publicly listed share to a registered charity instead of selling it and giving the cash.
The order of those two steps is the whole thing. Sell the shares in December and write a cheque, and you have handed the CRA tax on half the gain on the way through. Move the same shares straight into the charity’s brokerage account and the gain never enters your income, while the receipt you get back is identical. On a $10,000 gift of a position that cost $4,000, an Ontario investor at $130,000 of taxable income is $1,302.29 better off for doing it in the right order.
This is a December decision that has to be started in November, for reasons that come down to how a share transfer is dated. Below: what the rule says, the arithmetic on both paths, the Ontario surtax wrinkle that makes the credit worth more than the published rate, and the two situations where none of this works. Rates and thresholds are 2026 figures, data as of September 21, 2026.
The rule: an inclusion rate of zero
Section 38 of the Income Tax Act is the provision that makes a capital gain half taxable. Paragraph (a) is the one everybody knows: a taxable capital gain is “½ of the taxpayer’s capital gain for the year.”
The very next paragraph turns that off. Section 38(a.1)(i) of the Income Tax Act says the taxable capital gain “is equal to zero if the disposition is the making of a gift to a qualified donee of a share, debt obligation or right listed on a designated stock exchange, a share of the capital stock of a mutual fund corporation, a unit of a mutual fund trust, an interest in a related segregated fund trust… or a prescribed debt obligation.”
So the list is wider than individual stocks. Mutual fund units and ETF units held outside a registered account qualify on the same terms. The CRA’s own page on capital gains realized on gifts of certain capital property adds the condition that matters: “If there is no advantage received in respect of the gift, the full amount of the capital gain is eligible for the inclusion rate of zero.” Take a gala ticket or a naming benefit in return and only part of the gain qualifies, prorated by the eligible amount over the proceeds.
Two pieces of paperwork follow. The CRA requires Form T1170, Capital Gains on Gifts of Certain Capital Property, “for all donations of these properties,” with the amounts flowing to Schedule 3. The donation receipt itself goes on Schedule 9.
The two paths, side by side
Take an Ontario resident with $130,000 of taxable income. They hold shares with a fair market value of $10,000 and an adjusted cost base of $4,000, so there is a $6,000 unrealized capital gain sitting in the position. The charity is registered. The intended gift is $10,000.
Path A, sell first. The sale realizes the $6,000 gain, half of which is a $3,000 taxable capital gain added to income. The $10,000 of cash produces a donation receipt for $10,000.
Path B, gift the shares. No gain enters income. The charity receives shares worth $10,000 and issues a receipt for $10,000.
The receipt is the same. The difference is entirely on the income side.
| Same $10,000 gift | Path A: sell, then donate cash | Path B: donate the shares |
|---|---|---|
| Taxable capital gain added to income | $3,000.00 | $0.00 |
| Donation receipt | $10,000 | $10,000 |
| Total federal and Ontario tax | $28,904.11 | $27,601.82 |
| Change in tax vs doing nothing | −$3,289.61 | −$4,591.90 |
| After-tax cost of the $10,000 gift | $6,710.39 | $5,408.10 |
Ontario resident, 2026 rates, Ontario health premium and CPP/EI excluded. Federal and Ontario brackets from the CRA’s current year tax rates and income brackets; Ontario surtax and the $12,989 Ontario basic personal credit from CRA T4032ON, January 2026 edition.
The gap is $1,302.29, and it reconciles exactly: $3,000 of taxable capital gain at the 43.41% combined marginal rate that applies at this income. That is the entire mechanism. The in-kind gift is worth the tax on half the gain, no more and no less, which means the bigger the embedded gain relative to the value, the more the ordering matters. A position that has doubled carries half its value as gain. A position bought last month carries almost none, and for that one the two paths are nearly identical.
Your own number depends on what the position actually cost you, and that figure is not the price you remember paying. Reinvested distributions, return of capital and past partial sales all move it, which is why our guide to adjusted cost base is the place to start before you pick which shares to give. If you want to see what the tax on your own embedded gain would be, the capital gains tax calculator will price it at your income.
What the receipt is worth, and why Ontario pays more than it looks
The donation credit is built by a formula in section 118.1(3) of the Income Tax Act: A × B + C × D + E × F. In plain terms, the first $200 of gifts gets credited at the lowest federal rate, anything above $200 gets 29%, and a top slice gets 33% to the extent the donor has taxable income above the 33% bracket threshold, which is $258,482 for 2026.
The lowest federal rate is the moving part. Section 248(1) defines “appropriate percentage” as “the lowest percentage referred to in subsection 117(2) for the taxation year,” and for 2026 that is 14%. The CRA’s own donation page still shows the 2025 set of 14.5%, 29% and 33%. On the first $200 the change is worth a dollar. It is only worth knowing because a lot of published guidance still quotes 15% for that first tier, while the CRA’s own figures put the 2025 rate at 14.5% and the lowest 2026 federal bracket at 14%.
Above $200 is where the money is, and that is where Ontario does something unusual. Form ON428, Ontario Tax credits donations at 5.05% on the first $200 and 11.16% on the rest. But those credits are subtracted at line 52 of the form, and Ontario’s surtax is calculated further down, at line 63, on what is left after they come off. The credit does not just cut your Ontario tax. It cuts the base the surtax is charged on.
Per CRA T4032ON, January 2026: “where the basic provincial tax payable is greater than $7,446, the surtax is 20% of the basic provincial tax payable over $5,818, plus 36% of the basic provincial tax payable over $7,446.” A donor clear of that second threshold is therefore getting 11.16% multiplied by 1.56, or 17.41%, on every dollar of gift above $200.
| Taxable income | Federal credit above $200 | Ontario credit, surtax included | Total |
|---|---|---|---|
| $50,000 | 29.00% | 11.16% | 40.16% |
| $80,000 | 29.00% | 11.16% | 40.16% |
| $130,000 | 29.00% | 17.41% | 46.41% |
| $200,000 | 29.00% | 17.41% | 46.41% |
| $300,000 | 33.00% | 17.41% | 50.41% |
Ontario resident, 2026. The 20% surtax band begins at roughly $94,901 of taxable income and the additional 36% band at roughly $111,810, computed from the T4032ON thresholds against the 2026 Ontario brackets.
On the $10,000 gift in the example, that is $2,870.00 federal, $1,103.78 in Ontario credits, and a further $618.12 of surtax that never gets charged. A total of $4,591.90, or 45.92% of the gift. Combine that with a zero-rated gain and the $10,000 the charity receives costs the donor $5,408.10.
The timing trap, and why November is the deadline
The CRA is precise about when a gift of shares happens: “The date a share is donated is the date the transfer of ownership takes place.” For an electronic transfer, that is “the date the shares were received in the charity’s account or its broker’s account.” Not the day you signed the transfer form. Not the day your broker acknowledged it.
Value follows the same date. The CRA accepts “the closing bid price of the share on the date it is received as the fair market value,” or the midpoint of the day’s high and low where that is a better indicator on active trading.
Two consequences. First, a transfer instruction submitted in the last week of December has a real chance of landing in January, in which case the receipt is a 2027 receipt. Brokerage transfers between institutions are measured in business days, and the final week of December contains only a few of those. Anyone intending this for the 2026 tax year should be starting the paperwork in November, not on December 30.
Second, you do not control the receipted amount. A volatile position can move several percent between the day you instruct the transfer and the day it settles into the charity’s account, and the receipt follows the arrival date. Larger gifts of thinly traded names are worth timing deliberately rather than sending in a rush.
The charity also has to be able to receive shares at all, which means it needs its own brokerage account. Large national charities and community foundations do. A small local one may not, and may need a few weeks to arrange it. That conversation belongs in November too. The donee also has to be a qualified donee, which you can confirm in the CRA’s List of charities and other qualified donees.
Two cases where this does nothing
Shares held in a TFSA or RRSP. There is no capital gain inside a registered account to begin with, so there is nothing for the zero inclusion rate to switch off. Worse, you would have to withdraw the shares first, and out of an RRSP that withdrawal is fully taxable income. If you hold the same stock in both a taxable account and a registered one, the taxable copy is the one to give. Which account a holding sits in changes its tax treatment completely, and our guide to how a TFSA works covers why the gain inside one is invisible to the CRA in the first place.
Positions sitting at a loss. Gifting a loser in kind throws away the loss, because you never realize it. The right move there is the reverse of everything above: sell the position, claim the capital loss, and donate cash. You get the same receipt plus a deductible loss. The zero inclusion rate is a rule about gains, and it has nothing to offer a position that does not have one.
The ceiling, and the part that goes unused
Guide P113 sets the annual limit: “Generally, you can claim part or all of the eligible amount of your gifts, up to the limit of 75% of your net income for the year. You may be able to increase this limit if you give capital property, including depreciable property.”
That second sentence is worth reading carefully when the gift is listed shares. The top-up is written into the definition of “total gifts” in section 118.1(1) as 0.75A + 0.25(B + C + D − E), where B is the taxable capital gain on the gifted property. The 25% add-on exists to compensate for the income the gift pushed into your return. A gift of listed shares pushes in nothing, because the taxable capital gain is zero, so B is zero and the ceiling stays at a flat 75% of net income. The feature and the relief are mutually exclusive by construction, which is not a problem for most donors but matters for a very large gift relative to income.
Anything you cannot use is not lost. P113 again: “It may be more beneficial for you to carry them forward and claim them on your return for any of the next 5 years.” Section 118.1(1) also lets either spouse claim the other’s gifts, which is the standard way to get past the $200 step only once per household rather than twice.
One note on province
Every provincial figure above is Ontario. The federal treatment of the gain and the federal credit rates apply across the country, but provincial donation credit rates differ, and Ontario’s surtax mechanism is not universal. Quebec runs its own return and its own rules entirely. If you are outside Ontario, the federal half of this arithmetic holds and the provincial half does not.
What to actually do
If you give to charity every year and you hold appreciated shares in a non-registered account, there is no version of this where writing a cheque is better. The receipt is identical and the gain is taxed either way or not at all, depending only on which asset leaves your hands.
The steps are ordinary. Confirm the charity is registered and can accept securities. Ask them for transfer instructions, which will name their broker and account. Pick the holding with the largest embedded gain relative to its value, because that is where the zero inclusion rate is worth the most. Send the instruction to your broker with enough runway that the shares arrive before year end. Then file Form T1170 with Schedule 3, and put the receipt on Schedule 9.
The gift costs the charity nothing extra and costs you less than cash. That is a rare combination, and it is written into the Act.
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