Capital Gains Break for Quick Donations

Summary#

This bill changes the federal Income Tax Act to waive capital gains tax on part of the gain when someone sells private company shares or Canadian real estate to an arm’s length buyer and donates cash from the sale to a registered charity within 30 days. Similar relief applies when an estate sells these assets after death and makes a quick charitable gift. Strong anti‑avoidance rules restrict related‑party transactions and can claw back the tax break if certain events happen within 60 months (5 years) (38(a.4); 38.3; 38.4(1)-(5)). The changes apply to 2022 and later tax years.

• Capital gains inclusion rate becomes 0% on the portion of the gain tied to cash donated within 30 days, using a set formula (38(a.4); 38.3(a)).
• Sale must be to an arm’s length purchaser; no related or affiliated parties to the seller or the charity (38.4(1)(b)(iii)(A)).
• Donor must be a Canadian resident at year‑end; estates can also qualify under set conditions (38(a.4)(i)(C); 38(a.4)(ii)).
• If the seller, a non‑arm’s‑length person, or the charity later reacquires the asset (or related property), or if certain share redemptions occur, the exemption is reversed and tax becomes payable (38.4(2)-(4)).
• Flow‑through share anti‑avoidance rules are updated to interact with the new exemption (40(12); 53(1)(e)(i)(A)).
• Effective for 2022 and subsequent taxation years (Application clause).

What it means for you#

• Households and individual investors

  • If you sell private corporation shares or Canadian real estate to an arm’s length buyer and donate some of the cash within 30 days to a qualified donee (e.g., a registered charity), the taxable part of your capital gain tied to the donated cash becomes zero under a proportional formula you must designate in your return (38(a.4); 38.3(a)).
  • The exemption only covers the portion of the gain linked to the amount of cash you both received before the gift and actually donated, net of any advantage (benefit) you got for the gift (38.3(a)).
  • You must be a Canadian resident at the end of the tax year to use the exemption (38(a.4)(i)(C)).
  • You still claim the normal charitable donation tax credit for the cash you give; this bill does not change credit rates or limits (no amendments to 118.1 credits in the bill text).

• Estates and executors

  • When someone dies, there is a deemed disposition at death. If the estate then sells the asset to an arm’s length buyer and donates cash within 30 days, the deceased’s taxable capital gain can be reduced to zero proportionally, if designated by the legal representative (38(a.4)(ii); 38.3(b)).
  • Timing and designation rules are strict: the estate must make the gift within 30 days of the estate’s sale and meet conditions in 118.1(5.1) (38(a.4)(ii)(D); 38.3(b)).

• Business owners and private corporations

  • Sales must be to arm’s length purchasers; transactions involving related or affiliated parties to you or to the charity do not qualify (38.4(1)(b)(iii)(A)).
  • If shares are redeemed, acquired, or cancelled in the same year by a corporation that is non‑arm’s‑length to you, the exemption does not apply, and similar events within 60 months can claw it back (38.4(1)(c)(ii); 38.4(3)(b)).
  • Any reacquisition by you, your non‑arm’s‑length persons, or the charity (or property that is substituted for, or derives value from, the original asset) within 60 months will reverse the exemption and create a deemed capital gain in that later year, with interest‑like consequences (38.4(2)-(5)).

• Charities and qualified donees

  • You receive cash donations shortly after a donor’s sale. You must remain at arm’s length from the buyer and avoid acquiring the sold property (or substituted/derivative property) during the year or within 60 months, or the donor’s exemption is reversed (38.4(1)(b)(iii)(A); 38.4(1)(c)(i); 38.4(3)(a)).
  • Split‑receipting rules still apply; if there is an “advantage” to the donor, that reduces the eligible amount for the exemption formula (38.3(a) “C”; 118.1(16)).

• All taxpayers

  • The new relief interacts with existing flow‑through share rules; if you donate flow‑through shares, special deemed gains can still apply even if the new 0% inclusion applies, as under current law, now extended to 38(a.4) (40(12); 53(1)(e)(i)(A)).
  • Effective for transactions after 2021 and for 2022 onward filings (Application clause).

Expenses#

Estimated net cost: Data unavailable.

• No direct spending is authorized. The fiscal impact is foregone federal income tax revenue from reduced taxable capital gains on qualifying transactions; amount depends on uptake and transaction size (38(a.4); 38.3; 38.4).
• No official fiscal note was provided in the bill text. Data unavailable.

Proponents' View#

• Encourages more charitable giving by owners of private businesses and real estate, by removing capital gains tax on the donated portion of proceeds, similar to existing treatment for gifts of publicly traded securities (38(a.4); 38.3(a)).
• Reduces administrative burdens for charities by steering donors to give cash, not illiquid assets; the bill requires a sale and a cash gift within 30 days (38.4(1)(b)(ii); 38(a.4)(i)(B)).
• Minimizes avoidance with clear guardrails: arm’s length sale, prohibition on related‑party series, and 60‑month clawback if the donor or charity reacquires the property or if certain redemptions occur (38.4(1)(b)-(c); 38.4(2)-(4)).
• Targets the tax relief only to the portion actually donated, using a proportional formula and reducing for any donor “advantage” (38.3(a)).
• Extends similar relief to estates, enabling planned giving at death with strict timelines and designations (38(a.4)(ii); 38.3(b)).

Opponents' View#

• Revenue loss risk: reduces capital gains tax collections on qualifying sales, while donors still claim charitable tax credits, creating a stacked incentive. Magnitude is uncertain without an official fiscal estimate. Data unavailable.
• Distributional concern: benefits mainly individuals with appreciated private shares or real estate, who tend to have higher incomes and wealth; everyday filers may see little direct benefit. Data unavailable.
• Complexity and enforcement: CRA must monitor arm’s length status, series of transactions, substituted property, derivative value, and 60‑month events, which are fact‑intensive and can be hard to audit (38.4(1)(b)-(c); 38.4(2)-(4)).
• Risk of unintended planning: structures could time cash receipts and gifts to maximize the exempt portion under the formula, and share redemptions or reorganizations could inadvertently trigger clawbacks (38.3(a); 38.4(3)(b)).
• Compliance burden on charities: they must ensure arm’s length status and avoid acquiring the property (or related property) for 60 months, or donors face retroactive tax, which may strain donor‑charity relations (38.4(1)(b)(iii)(A); 38.4(3)(a)).