Turbotax: Capital Gains & Gifts

 

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Relevant Material: In Canada, gifting a capital property (such as stocks, a second home, or real estate) is generally considered a "deemed disposition" at its fair market value (FMV), which can trigger capital gains tax for the giver. The recipient does not pay tax on the gift itself. Special rules apply to gifts to a spouse or qualified charities. 

Capital Gains on Gifts
  • Deemed Disposition: When you gift a capital property, the Canada Revenue Agency (CRA) treats it as if you sold the property at its FMV at the time of the gift.
  • Taxable Gain: You must report any capital gain (the difference between the FMV and the property's adjusted cost base) in your income tax and benefit return for that year. As of 2024 and 2025, the capital gains inclusion rate remains at 50%, meaning one-half of the gain is included as taxable income.
  • Recipient's Tax: The person receiving the gift does not have to report the value of the gift as income.
  • Exceptions for Spouses: Special rules allow you to transfer capital property to a spouse or common-law partner at an amount other than FMV (often the adjusted cost base) to postpone paying tax on the capital gains. When the spouse later disposes of the property, the tax may then be realized.
  • Principal Residence: Gifting your principal residence does not typically result in capital gains tax, provided you qualify for the principal residence exemption.
  • Capital Losses: If the FMV of the gifted property is less than its adjusted cost base, you may realize a capital loss. However, specific rules apply, and these losses cannot always be used in the same way as losses from a normal sale. 
Gifts to Qualified Donees (Charities)
Gifting certain capital properties to a qualified donee (registered charity) has specific benefits: 
  • Zero Inclusion Rate: The taxable capital gain on a gift of a qualifying security (like a share listed on a designated stock exchange or a mutual fund unit) to a qualified donee is effectively reduced to zero.
  • Increased Donation Limit: While general donation claims are limited to 75% of your net income, gifts of capital property allow you to increase this limit up to 100% of your net income.
  • Reporting: You still need to complete Form T1170, Capital Gains on Gifts of Certain Capital Property, to calculate and report the gift and the zero inclusion rate. 
Relevant Statistics
According to Canada Revenue Agency (CRA) statistics, the total value of claimed allowable charitable donations and government gifts reported by individuals has seen fluctuations over the years:
  • In the 2021 tax year, individuals claimed approximately $10.6 billion in total donations.
  • In 2015, gifts of securities (which benefit from the zero inclusion rate) grew to $822 million, representing 6.7% of all claimed donations, demonstrating the growing importance of this type of planned giving. 
For more detailed information, consult the CRA's guidance on gifts and income tax and capital gains. (Google) 
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