Naming a Canadian Charity as Beneficiary of a $500,000 Non-Registered Portfolio in Ontario: Deemed Disposition, Donation Credits, and the 2026 Net-Zero Tax Outcome
Key Takeaways
- 1Understanding naming a canadian charity as beneficiary of a $500,000 non-registered portfolio in ontario: deemed disposition, donation credits, and the 2026 net-zero tax outcome is crucial for financial success
- 2Professional guidance can save thousands in taxes and fees
- 3Early planning leads to better outcomes
- 4GTA residents have unique considerations for inheritance planning
- 5Taking action now prevents costly mistakes later
Quick Summary
This article covers 5 key points about key takeaways, providing essential insights for informed decision-making.
Quick Answer
A $500,000 non-registered portfolio with a $180,000 adjusted cost base triggers a $320,000 deemed capital gain on the owner’s death in Ontario. Under the 2026 tiered inclusion rules — 50% on the first $250,000 of gains, 66.67% above that — the taxable capital gain is approximately $171,700. Combined with $60,000 of other terminal-year income, the tax bill on the terminal T1 return is roughly $85,000. But if the full $500,000 portfolio is left to a registered Canadian charity, the donation tax credit generated is approximately $230,000 — nearly three times the tax owing. The terminal return goes to zero. The excess credit carries back to the prior year’s return for an additional refund. And if the securities are donated in kind (not sold first), the capital gains inclusion rate drops to zero under ITA s.38(a.1), eliminating the $320,000 gain entirely — while the estate still receives the full $500,000 donation receipt.
Key Takeaways
- 1A $500,000 non-registered portfolio with a $180,000 ACB produces a $320,000 deemed capital gain at death. Under 2026 tiered inclusion (50% on first $250K, 66.67% above), the taxable capital gain is approximately $171,700 — generating roughly $85,000 in combined federal and Ontario tax when stacked with $60,000 of other terminal-year income.
- 2Naming a registered Canadian charity as beneficiary of the portfolio generates a donation tax credit of approximately $230,000 (33% federal + 13.16% Ontario on amounts above $200). This exceeds the $85,000 tax bill by roughly $145,000 — the terminal return goes to $0, and the excess credit carries back to the prior year’s return under ITA s.118.1(1).
- 3At death, the normal 75% of net income donation limit is raised to 100% of net income on both the terminal return and the prior-year return. This is the provision that makes large charitable bequests viable — without it, only 75% of the terminal-year income could be offset.
- 4Donating publicly listed securities in kind to the charity reduces the capital gains inclusion rate to zero under ITA s.38(a.1). The estate receives a donation receipt for the full $500,000 fair market value with no capital gains tax at all — the strongest possible outcome.
- 5Direct beneficiary designation on the account bypasses the estate: $0 Ontario probate fees vs. $6,750 if the portfolio flows through the will. But the direct designation route requires the financial institution to support charitable beneficiary designations on non-registered accounts — not all do.
- 6If the portfolio holds a mix of securities with different ACBs, each position triggers its own deemed disposition. Donating the entire portfolio in kind avoids the need to calculate gains position-by-position — the zero inclusion rate under s.38(a.1) applies to all qualifying securities.
Quick Summary
This article covers 6 key points about key takeaways, providing essential insights for informed decision-making.
The Scenario: $500,000 Non-Registered Portfolio, Ontario, No Surviving Spouse
Robert, 74, widowed, Mississauga resident. He dies in March 2026. His primary financial asset is a non-registered investment portfolio worth $500,000 at the date of death, with an adjusted cost base (ACB) of $180,000. The portfolio holds a mix of Canadian and U.S. publicly listed equities and ETFs, accumulated over 20 years. Robert's only other income in 2026 before death: $60,000 (CPP, OAS, and a small defined-benefit pension). His 2025 taxable income was approximately $120,000.
Robert has one adult son who does not need the inheritance. Robert wants the portfolio to go to a registered Canadian charity he has supported for decades. The question: what is the tax outcome, and does it matter how the gift is structured?
The answer: it matters enormously. Three different structures produce three very different results — ranging from an $85,000 tax bill to a $28,000 refund.
Step 1: The Deemed Disposition — $320,000 Capital Gain
Under section 70(5) of the Income Tax Act, CRA treats Robert as having sold every security in the portfolio at fair market value immediately before death. The $500,000 portfolio with a $180,000 ACB produces a $320,000 deemed capital gain. Robert didn't sell anything. No trade was executed. But the tax system doesn't care — deemed disposition is automatic.
Under the 2026 tiered capital gains inclusion rules (post-2024 federal budget, effective June 25, 2024):
| Gain tier | Capital gain | Inclusion rate | Taxable amount |
|---|---|---|---|
| First $250,000 | $250,000 | 50% | $125,000 |
| Above $250,000 | $70,000 | 66.67% | $46,669 |
| Total | $320,000 | $171,669 |
That $171,669 of taxable capital gain lands on Robert's terminal T1 return alongside his $60,000 of other income. Total taxable income: approximately $231,669.
Step 2: The Tax Bill Without a Charitable Gift — ~$85,000
At $231,669 of taxable income in Ontario, Robert's terminal return crosses into the upper brackets. Ontario's combined federal + provincial marginal rates climb through several tiers:
| Income range | Combined rate | Tax on this tier |
|---|---|---|
| $0 – ~$53,000 | ~20.05% | ~$10,627 |
| ~$53,000 – ~$112,000 | ~29.65% | ~$17,494 |
| ~$112,000 – ~$173,000 | ~44.97% | ~$27,432 |
| ~$173,000 – ~$220,000 | ~48.29% | ~$22,696 |
| ~$220,000 – $231,669 | ~51.97% | ~$6,060 |
| Total tax | ~$84,300 |
Call it approximately $85,000 in combined federal and Ontario income tax (after basic personal amount credits). Add Ontario probate fees if the portfolio flows through the estate: $6,750 ($0 on first $50,000, then $15 per $1,000 above). Without any charitable planning, the estate pays roughly $91,750 before the son receives a dollar.
Why this matters for the “no inheritance tax in Canada” myth
Canada has no formal inheritance tax or estate tax. But the deemed-disposition rule under section 70(5) and provincial probate fees produce a combined effective tax rate of approximately 18% on this $500,000 estate — $91,750 out of $500,000. For estates with RRSP/RRIF-heavy holdings, the effective rate can reach 40–53%. The label is different; the cash leaving the estate is very real. For the full breakdown of how this works across asset types, see our inheritance tax Canada 2026 complete guide.
Step 3: The Donation Tax Credit — ~$230,000
If Robert directs the $500,000 portfolio to a registered Canadian charity, the estate receives a donation tax credit calculated at the top combined rates: 33% federal plus 13.16% Ontario on all amounts above $200.
| Donation credit calculation | Amount |
|---|---|
| Donation amount | $500,000 |
| Credit on first $200 (20.05%) | $40 |
| Credit on remaining $499,800 (33% + 13.16% = 46.16%) | $230,708 |
| Total donation tax credit | ~$230,748 |
The donation credit of ~$230,000 exceeds the terminal-return tax of ~$85,000 by approximately $145,000. The terminal return goes to $0 tax owing.
The 100% Net Income Limit and the Prior-Year Carry-Back
During life, donation tax credits are limited to 75% of net income per year. At death, ITA s.118.1(1) raises this to 100% of net income on both the terminal return and the immediately preceding year's return. This is the rule that makes the strategy work.
Robert's terminal-year net income is approximately $231,669. The $500,000 donation exceeds that, but the 100% limit means the full $231,669 of net income can be offset by donation credits. Since the credit (~$230,000) is calculated as a percentage of the donation — not the income — it can eliminate the tax on the full terminal-year income.
The excess credit (approximately $145,000) carries back to Robert's 2025 return. His 2025 income was $120,000. The 100% limit applies to the prior year too — so donation credits can offset up to 100% of his $120,000 in 2025 net income. The approximate tax paid on $120,000 in Ontario: ~$28,000. That full amount is refunded via a T1 adjustment.
The net-zero outcome
Terminal return tax: $0 (donation credit eliminates ~$85,000). Prior-year refund: ~$28,000. The estate not only avoids the $85,000 tax bill — it receives money back from CRA. The $500,000 goes entirely to the charity. The son inherits nothing from this portfolio (as Robert intended), but the estate is not diminished by tax.
The Net-Zero Tax Table: Three Outcomes Compared
| No gift (to son) | Cash sale + donate | In-kind donation | |
|---|---|---|---|
| Capital gains tax | ~$85,000 | $0 (credit offsets) | $0 (no gain) |
| Tax on other income ($60K) | included above | $0 (credit offsets) | $0 (credit offsets) |
| Ontario probate | $6,750 | $6,750 | $0* |
| Prior-year refund | $0 | ~$28,000 | ~$28,000 |
| Net cost / (refund) | $91,750 cost | ($21,250) refund | ($28,000) refund |
*In-kind donation assumes the charity receives the securities directly outside the estate via a beneficiary-like designation or trust arrangement. If the securities must flow through the estate first, probate of $6,750 applies.
The swing between the worst outcome (no gift, $91,750 cost) and the best outcome (in-kind donation, $28,000 refund) is approximately $120,000. On a $500,000 portfolio. Structure is everything.
In-Kind Securities Donation: The Zero Inclusion Rate Under ITA s.38(a.1)
This is the part most estate planners underuse. Under ITA s.38(a.1), when publicly listed securities are donated in kind to a registered Canadian charity, the capital gains inclusion rate drops to zero. Not 50%. Not 66.67%. Zero.
For Robert's portfolio, this means:
- The $320,000 capital gain does not exist for tax purposes
- The estate receives a donation receipt for the full $500,000 fair market value
- The donation credit (~$230,000) applies against Robert's other $60,000 of terminal-year income, eliminating that tax too
- The massive excess credit carries back to 2025 for an additional refund
The in-kind route transforms a $91,750 tax hit into a $28,000 refund. The catch: the securities must be publicly listed on a designated stock exchange (TSX, NYSE, NASDAQ, and others designated by the Department of Finance). ETFs, mutual fund units, and publicly traded shares all qualify. Private company shares, GICs, and non-exchange-traded bonds do not.
Critical: don't sell first, then donate the cash
If the executor sells the securities and donates the cash proceeds, the zero inclusion rate under s.38(a.1) does not apply. The full $320,000 gain is triggered on the sale, and the donation credit offsets it after the fact. Same net result on the terminal return — but the estate must have liquidity to pay the tax before the credit is applied (the CRA doesn't net them in real time). And the estate misses the chance to eliminate the gain entirely, which matters if the prior-year carry-back capacity is limited. Always donate the securities themselves, not the cash.
Direct Beneficiary Designation vs. Bequest Through the Will
There are two ways to get the portfolio to the charity. Each has different probate and administrative implications.
Option 1: Bequest Through the Will
The will directs the executor to transfer the portfolio (or its proceeds) to the named charity. The portfolio is an estate asset. Ontario probate applies: $6,750 on $500,000. The executor has discretion over timing and can choose to transfer securities in kind or liquidate first. The donation is made “by the estate” and must be completed within 60 months of Robert's death to qualify for the terminal-return credit.
Option 2: Direct Designation (Where Available)
Some financial institutions allow a transfer-on-death or beneficiary-like designation on non-registered accounts, directing the assets directly to the charity outside the estate. This bypasses probate entirely — $0 instead of $6,750. The securities transfer directly to the charity's account. The donation receipt is issued for the fair market value at the date of transfer.
The limitation: unlike RRSPs, RRIFs, and TFSAs, non-registered investment accounts in Ontario do not have a statutory beneficiary designation under provincial legislation. The availability of a direct designation depends entirely on the financial institution's policies. If the institution doesn't support it, the will route is the only option.
The probate math
Ontario probate on $500,000: $6,750 ($0 on first $50K, $15/$1K above). If the direct designation is available and keeps the portfolio out of the estate, the estate saves $6,750. On larger portfolios the savings scale: on $1M, it's $14,250; on $2M, it's $29,250. For the full probate fee schedule, see our Ontario Estate Administration Tax guide.
Mixed Portfolios: When Not Every Security Qualifies for In-Kind Donation
Robert's portfolio is entirely publicly listed equities and ETFs — everything qualifies for the zero inclusion rate. But many non-registered portfolios hold a mix:
- Qualifying (zero inclusion on in-kind donation): TSX/NYSE/NASDAQ-listed stocks, ETFs, listed mutual fund units
- Non-qualifying (normal deemed disposition rules apply): GICs, term deposits, private company shares, non-listed bonds, real property held in the account
When the portfolio is mixed, the strategy is straightforward: donate the qualifying securities in kind to the charity (zero gain, full receipt), and pass the non-qualifying assets to the family beneficiary. The deemed disposition on the non-qualifying assets still triggers a gain, but the donation credit from the in-kind gift offsets that tax too.
Within the qualifying securities, prioritize donating the highest-gain positions in kind. A stock bought at $10 and now worth $100 produces $90 of avoided gain per share when donated in kind. A stock bought at $80 and now worth $100 produces only $20 of avoided gain. The donation receipt is the same either way ($100), but the tax savings differ. For more on how capital gains interact with inherited investments, see our capital gains tax on inherited property guide.
What the Executor Needs to Do — Timeline and Filings
The donation must be structured correctly on the tax return. Here is the sequence:
- Obtain the date-of-death fair market value for every security in the portfolio. The financial institution provides this. This establishes both the deemed disposition amount and the donation receipt value.
- Transfer securities in kind to the charity's brokerage account. Do not sell them. The charity issues a donation receipt for the FMV at the date of transfer (which may differ slightly from the date-of-death FMV if the transfer takes time). Coordinate with the charity to minimize the timing gap.
- File the terminal T1 return. Report the deemed disposition on Schedule 3. Claim the donation tax credit on Schedule 9. If the portfolio was donated in kind, report the capital gain at the zero inclusion rate under s.38(a.1).
- File a T1 adjustment for the prior year if there is excess donation credit to carry back. CRA processes the adjustment and issues a refund.
- Complete within 60 months. Donations made by the estate must be completed within 60 months of death to qualify for the terminal-return credit. In practice, do it within the first year — the estate needs the credit to offset the tax that is due six months after death.
When This Strategy Doesn't Work (or Works Less Well)
The net-zero outcome depends on several conditions. Here is where it breaks down:
- Surviving spouse: If Robert had a surviving spouse, the spousal rollover under section 73(1) would transfer the portfolio at ACB with no deemed disposition. No gain, no tax, no need for the donation credit. The charitable gift can still be made, but the tax offset is smaller because there is less tax to offset.
- Portfolio with losses: If the portfolio has an overall capital loss at death, there is no capital gains tax to offset. The donation credit is still generated, but it applies against other income (pension, CPP, RRIF withdrawal). The zero inclusion rate for in-kind donations doesn't help — there is no gain to eliminate.
- Non-qualifying securities: If the portfolio is primarily GICs, private bonds, or unlisted investments, the in-kind zero inclusion rate does not apply. The donation credit still works, but the estate bears the capital gains tax first.
- Partial gift: If only a portion of the portfolio goes to charity, the donation credit is smaller and may not fully offset the capital gains tax. The split can still be advantageous — see the worked example in the Related Questions section below.
Comparing to RRSP/RRIF Charitable Donations
If Robert also had a $500,000 RRIF and wanted to leave one account to charity and one to his son, which should go where?
The RRIF is almost always the better asset to donate. When the RRIF holder dies without a surviving spouse, the full $500,000 is included as ordinary income on the terminal return — not just the gain, the entire balance. At Ontario's top combined rate of 53.53%, the tax on a $500,000 RRIF is approximately $220,000. The donation credit (~$230,000) eliminates that tax almost exactly. For the full RRIF-to-charity mechanics, see our guide to donating through a Canadian estate.
The non-registered portfolio, by contrast, only triggers tax on the gain (not the full value), and the gain uses the more favourable capital gains inclusion rates. Pass the non-registered portfolio to the son — the ACB steps up at death, so the son inherits at FMV with no embedded gain. Donate the RRIF to the charity to maximize the credit against the highest-taxed asset.
Frequently Asked Questions
Q:How does the deemed disposition work on a non-registered portfolio when the owner dies in Ontario?
A:Under section 70(5) of the Income Tax Act, when a person dies, CRA treats them as having sold all capital property at fair market value immediately before death. For a non-registered investment portfolio, this means every security — stocks, ETFs, mutual funds, bonds — is deemed disposed of at its market value on the date of death. The difference between the fair market value and the adjusted cost base (ACB) of each security is a capital gain (or loss). For a portfolio worth $500,000 with an ACB of $180,000, the total deemed capital gain is $320,000. Under the 2026 rules, the first $250,000 of annual capital gains is included at 50% ($125,000 taxable), and gains above $250,000 are included at 66.67% ($46,669 taxable on the remaining $70,000). Total taxable capital gain: approximately $171,700. This amount is added to all other income on the deceased’s terminal T1 return and taxed at the applicable federal and Ontario rates.
Q:What is the donation tax credit rate on a charitable bequest in Ontario in 2026?
A:The donation tax credit for amounts above $200 is calculated at the top combined federal and provincial rates. In Ontario, this is 33% federal plus 13.16% provincial (including the Ontario surtax effect at the top bracket), for a combined credit of approximately 46.16% on every dollar donated above $200. On a $500,000 donation, the credit is approximately $230,700. The first $200 of donations receives a lower credit (15% federal + 5.05% Ontario = 20.05%), but this difference is negligible on a six-figure gift. The credit is a non-refundable tax credit — it reduces tax payable dollar-for-dollar up to the amount of tax owing. Any excess credit on the terminal return can be carried back to the prior year’s return.
Q:Can the charity be named as direct beneficiary of a non-registered investment account?
A:It depends on the financial institution and the province. In Ontario, non-registered investment accounts do not have a statutory beneficiary designation mechanism like RRSPs, RRIFs, or TFSAs (which are governed by specific provisions in the Income Tax Act and provincial insurance legislation). However, some financial institutions allow a transfer-on-death instruction or a similar arrangement for non-registered accounts. If the institution does not support a direct beneficiary designation, the portfolio must flow through the estate via the will — which means Ontario probate fees apply ($0 on the first $50,000, then $15 per $1,000 above that). On a $500,000 portfolio, probate is $6,750. The alternative is to hold the non-registered investments inside a joint account with the charity or use a trust structure, but these are complex and require legal advice specific to the charity’s willingness to participate.
Q:What happens if the portfolio is sold by the estate and the cash is donated instead of donating securities in kind?
A:If the estate sells the securities and donates the cash proceeds to the charity, two things happen. First, the deemed disposition at death triggers the full capital gain — $320,000 on a $500,000 portfolio with a $180,000 ACB — and the taxable portion (~$171,700) is included on the terminal T1 return. Second, the estate receives a donation tax receipt for the cash amount donated (the after-tax proceeds, or the full $500,000 if other estate assets cover the tax). The donation tax credit offsets the capital gains tax. But the in-kind route is superior: under ITA s.38(a.1), donating publicly listed securities directly to a registered charity reduces the capital gains inclusion rate to zero. The estate receives a $500,000 donation receipt with no capital gains tax at all. The cash-sale route costs the estate the capital gains tax first, then recoups it through the donation credit — same net result, but it requires the estate to have liquidity to pay the tax before the credit is applied. The in-kind route avoids this cash-flow problem entirely.
Q:Does the 100% net income limit for donations at death apply to both the terminal return and the prior year?
A:Yes. Under ITA s.118.1(1), the donation tax credit limit is raised from 75% to 100% of net income for both the year of death (the terminal T1 return) and the immediately preceding taxation year. This means unused donation credits from the terminal return can be carried back one year and applied against up to 100% of that year’s net income — not the normal 75%. On our $500,000 example, the donation credit of ~$230,000 exceeds the terminal-return tax of ~$85,000 by approximately $145,000. That excess can be carried back to the prior year. If the deceased had $120,000 of income in the prior year and paid ~$28,000 in tax, the carry-back produces a refund of up to $28,000. The total tax recovery across both years: roughly $113,000 (the $85,000 terminal return elimination plus the ~$28,000 prior-year refund). Any credit still remaining after the carry-back is lost — there is no further carry-forward from a terminal return.
Q:What qualifies as a "publicly listed security" for the zero-inclusion in-kind donation rule?
A:The zero capital gains inclusion rate under ITA s.38(a.1) applies to gifts of securities listed on a designated stock exchange. This includes shares of Canadian and U.S. public companies listed on the TSX, TSX Venture, NYSE, or NASDAQ (among others designated by the Department of Finance), units of exchange-traded funds (ETFs), and mutual fund units or shares of mutual fund corporations that are listed on a designated exchange. It does not apply to private company shares, real estate, GICs, or bonds that are not exchange-traded. If the $500,000 portfolio holds a mix of qualifying and non-qualifying securities, only the qualifying securities benefit from the zero inclusion rate when donated in kind. Non-qualifying securities donated in kind are still subject to the normal deemed disposition rules, though the donation tax credit still applies to the full fair market value of the gift.
Question: How does the deemed disposition work on a non-registered portfolio when the owner dies in Ontario?
Answer: Under section 70(5) of the Income Tax Act, when a person dies, CRA treats them as having sold all capital property at fair market value immediately before death. For a non-registered investment portfolio, this means every security — stocks, ETFs, mutual funds, bonds — is deemed disposed of at its market value on the date of death. The difference between the fair market value and the adjusted cost base (ACB) of each security is a capital gain (or loss). For a portfolio worth $500,000 with an ACB of $180,000, the total deemed capital gain is $320,000. Under the 2026 rules, the first $250,000 of annual capital gains is included at 50% ($125,000 taxable), and gains above $250,000 are included at 66.67% ($46,669 taxable on the remaining $70,000). Total taxable capital gain: approximately $171,700. This amount is added to all other income on the deceased’s terminal T1 return and taxed at the applicable federal and Ontario rates.
Question: What is the donation tax credit rate on a charitable bequest in Ontario in 2026?
Answer: The donation tax credit for amounts above $200 is calculated at the top combined federal and provincial rates. In Ontario, this is 33% federal plus 13.16% provincial (including the Ontario surtax effect at the top bracket), for a combined credit of approximately 46.16% on every dollar donated above $200. On a $500,000 donation, the credit is approximately $230,700. The first $200 of donations receives a lower credit (15% federal + 5.05% Ontario = 20.05%), but this difference is negligible on a six-figure gift. The credit is a non-refundable tax credit — it reduces tax payable dollar-for-dollar up to the amount of tax owing. Any excess credit on the terminal return can be carried back to the prior year’s return.
Question: Can the charity be named as direct beneficiary of a non-registered investment account?
Answer: It depends on the financial institution and the province. In Ontario, non-registered investment accounts do not have a statutory beneficiary designation mechanism like RRSPs, RRIFs, or TFSAs (which are governed by specific provisions in the Income Tax Act and provincial insurance legislation). However, some financial institutions allow a transfer-on-death instruction or a similar arrangement for non-registered accounts. If the institution does not support a direct beneficiary designation, the portfolio must flow through the estate via the will — which means Ontario probate fees apply ($0 on the first $50,000, then $15 per $1,000 above that). On a $500,000 portfolio, probate is $6,750. The alternative is to hold the non-registered investments inside a joint account with the charity or use a trust structure, but these are complex and require legal advice specific to the charity’s willingness to participate.
Question: What happens if the portfolio is sold by the estate and the cash is donated instead of donating securities in kind?
Answer: If the estate sells the securities and donates the cash proceeds to the charity, two things happen. First, the deemed disposition at death triggers the full capital gain — $320,000 on a $500,000 portfolio with a $180,000 ACB — and the taxable portion (~$171,700) is included on the terminal T1 return. Second, the estate receives a donation tax receipt for the cash amount donated (the after-tax proceeds, or the full $500,000 if other estate assets cover the tax). The donation tax credit offsets the capital gains tax. But the in-kind route is superior: under ITA s.38(a.1), donating publicly listed securities directly to a registered charity reduces the capital gains inclusion rate to zero. The estate receives a $500,000 donation receipt with no capital gains tax at all. The cash-sale route costs the estate the capital gains tax first, then recoups it through the donation credit — same net result, but it requires the estate to have liquidity to pay the tax before the credit is applied. The in-kind route avoids this cash-flow problem entirely.
Question: Does the 100% net income limit for donations at death apply to both the terminal return and the prior year?
Answer: Yes. Under ITA s.118.1(1), the donation tax credit limit is raised from 75% to 100% of net income for both the year of death (the terminal T1 return) and the immediately preceding taxation year. This means unused donation credits from the terminal return can be carried back one year and applied against up to 100% of that year’s net income — not the normal 75%. On our $500,000 example, the donation credit of ~$230,000 exceeds the terminal-return tax of ~$85,000 by approximately $145,000. That excess can be carried back to the prior year. If the deceased had $120,000 of income in the prior year and paid ~$28,000 in tax, the carry-back produces a refund of up to $28,000. The total tax recovery across both years: roughly $113,000 (the $85,000 terminal return elimination plus the ~$28,000 prior-year refund). Any credit still remaining after the carry-back is lost — there is no further carry-forward from a terminal return.
Question: What qualifies as a "publicly listed security" for the zero-inclusion in-kind donation rule?
Answer: The zero capital gains inclusion rate under ITA s.38(a.1) applies to gifts of securities listed on a designated stock exchange. This includes shares of Canadian and U.S. public companies listed on the TSX, TSX Venture, NYSE, or NASDAQ (among others designated by the Department of Finance), units of exchange-traded funds (ETFs), and mutual fund units or shares of mutual fund corporations that are listed on a designated exchange. It does not apply to private company shares, real estate, GICs, or bonds that are not exchange-traded. If the $500,000 portfolio holds a mix of qualifying and non-qualifying securities, only the qualifying securities benefit from the zero inclusion rate when donated in kind. Non-qualifying securities donated in kind are still subject to the normal deemed disposition rules, though the donation tax credit still applies to the full fair market value of the gift.
Planning takeaway
A charitable bequest of a non-registered portfolio in Ontario can produce a net-zero or even net-positive tax outcome on the terminal return. The in-kind donation route is the strongest play — zero capital gains, full donation receipt, no probate if structured outside the estate. But the mechanics require deliberate planning: the will (or beneficiary designation) must name the charity, the executor must transfer securities in kind rather than selling first, and the terminal-return filing must correctly apply the s.38(a.1) zero inclusion rate. Have an estate lawyer who works with charitable bequests review the will before the plan is finalized — the cost of getting it right is $2,000 in legal fees; the cost of getting it wrong is $85,000 in avoidable tax.
Related Articles
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