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Simplifying complex donations while maximizing tax efficiency

If your client owns preferred shares in a Canadian-controlled private corporation, donating those shares in-kind has the potential to provide significant additional tax benefits

It wasn’t long into her meeting with Claire and Mark that Kristin* had an idea. The couple had come to her for advice on what to do with their private company preferred shares in the family farm. They had significantly increased in value since Claire had inherited them years earlier.  

Kristin had been their accountant for many years. It was clear to both Kristin and her clients that they did not need these additional funds. Beyond being financially secure, Kristin knew her clients were financially secure and had a propensity for generosity, as they had supported various causes over the years. 

The idea 

Kristin proposed that Claire and Mark donate the private company preferred shares in-kind to charity, which provided a tax-efficient vehicle for the donation, while still generously supporting the causes of their choice. Claire and Mark loved the idea but knew that some of the charities they gave to would not be able to facilitate a donation of that kind, and the thought of deciding who received what support and when was overwhelming. 

The plan 

While creating a plan for her clients, Kristin drew on her knowledge of their unique situation. Details she considered were the ownership structure of the farm, the existence of previous buy-sell agreements, the potential for AMT, and other considerations of the private shares (valuation process, etc.). After gaining Claire and Mark’s approval, Kristin connected them with a gift-planning consultant at Abundance Canada to help handle the complexities of the donation. Adept at managing such donation scenarios, the foundation handled all the administrative details, including how to invest the donation. 

As a public foundation, Abundance Canada was able to accept the preferred shares from the farm as an in-kind donation. The family farm corporation then redeemed the shares from Abundance Canada for $700,000 (there could be additional tax benefits available to the farm corporation when redeeming the shares). At the time of purchase, Claire and Mark received a donation receipt for their donation of the shares, and $700,000 was added to their Gifting Fund™, a donor-advised fund, with Abundance Canada. 

The result 

Claire and Mark were thrilled that they were able to make such a large donation. And by using the value of their charitable tax credit against their personal income tax owing, they were able to eliminate the tax on the capital gain from the sale of the private shares without using their lifetime capital gains exemption.  

For the past few years, the couple has consistently disbursed the annual earnings from their Gifting Fund to support several of their favourite charities. Recently, they have begun discussions with their children regarding future donations to continue their family’s legacy of generosity. 

What began as a complex situation with various outcomes and possible tax implications grew into a beautiful expression of generosity for the whole family. 

* Names have been changed to protect anonymity 

Abundance Canada is a public foundation with 50 years of experience helping clients with significant and complex charitable gift-planning scenarios. Our donor-advised fund model has been described by donors and advisors as simple and flexible. To learn more about all types of asset donations, call us at 1 800 772 3257 or explore the resources available at abundance.ca.