In my previous post I talked about how the tax credit works when you make a cash donation. That was the easy one. As we work through this series, I’ll be discussing other donation options and the associated tax credits. Today, we’ll take a look at the tax advantages of donating shares from your portfolio or land for conservation purposes.
The basics of donating securities
Most of my clients benefit from giving shares from their portfolios, instead of cash. In some cases, I’ve facilitated land donations as well, for conservation purposes. Land donations are a bit more complicated, so let’s start with securities.
Securities include shares listed on a stock exchange and bonds, as well as mutual fund units. Under normal circumstances, any gain from the disposition of securities, is considered capital gains and capital gains tax will need to be paid on them. That’s pretty standard. But you can avoid paying capital gains tax by donating the securities directly to a registered charity.
For such donations, the taxable portion of the gain is reduced to zero so that the disposition of the security to the charity is fully exempt from capital gains tax. When you donate the securities, they are assumed to be donated at Fair Market Value or FMV. This benefits everyone because the charity gets the full value of the security, you get the charitable receipt for the full amount, and you don’t have to pay capital gains tax.
In terms of the tax credit, it’s still the same breakdown federally and provincially for donations under or over $200, depending on your net income. I covered that in my previous post, if you need a refresher.
The basics of donating land
So that’s securities but what if you want to donate land? You can donate land in Québec with recognized ecological value, or servitudes encumbering such land for preservation, to qualified donees. The CRA and Revenu Quebec love these sorts of donations because it helps preserve biodiversity and leaves a legacy for future generations. But that doesn’t necessarily mean that they’ll make it easy!
To donate the land and qualify for the tax credit, you’ll need a few things, one being a
Certificate of Ecologically Sensitive Land and a few other documents that describe the fair market value of the land to be donated, the charity’s acceptance of the donated land as ecologically sensitive, and obviously, an official donation receipt from the charity.
Ecologically sensitive status for your land gets you an exemption from the capital gains tax. You can still donate land without that status, you’ll just have to pay the tax on the gain. In terms of the tax credit when you donate land, the same formula still applies.
There are good tax benefits when you donate securities and land, just be sure to do it right!