How to give stock as a gift

Giving a stock as a gift can end up being a nice nod to the future. Stocks can encourage a lifelong interest in investing, and the value can increase over time — and help to create an extra source of income through dividends. But consider the tax implications, and children younger than 18 need a custodian account.

How to gift stock in 3 steps

1. You and the receiver need to open a stock trading account.
2. You purchase the stock, or decide on a stock you already own.
3. Transfer the stock to the receiver’s trading account.

Step 1. Select a brokerage account

Both you and the person receiving the stock need a brokerage account when you give a stock as a gift. The easiest and cheapest way to do this is through an online stock trading platform. Using the same brokerage account makes the transfer smooth, and can sometimes save you in transfer fees.

When deciding on a brokerage account, consider:

• Transfer options. Find out the process for transferring stocks, and the fee — you’ll typically pay $75.
• Minor accounts. If your recipient is under 18, find out if they offer accounts for children.

Must read: Compare the best stock trading platforms in Canada

Step 2. Buy the stock

Here’s the fun part — choosing the companies to buy for your recipient. Either choose a company your loved one likes or uses often, or choose based on your knowledge of growths and returns.

Here are a few types of shares to consider:

• Dividend stocks. Household names — known as blue-chip companies — like Bell, Canadian Tire, and the big 5 banks, tend to be safe options and they pay dividends. The shortfall is they’re less likely to see significant capital growth in the long run.
• Exchange-traded funds. If you’re looking for a more diversified long-term investment, ETFs are a collection of multiple stocks and are usually less volatile.
• Renewables. Risk is based on government policy, but renewable energy stock has seen some growth and could be a strong investment in the long run.
• Growth stocks. These are new or obscure stocks with the potential to grow. Although growth stocks are riskier, picking the right one could offer bigger profit in the long run compared to a safe blue-chip stock.
• Global stocks. Typical brokerages won’t let you buy foreign stocks, but some of the biggest multinational companies are listed on US stock exchanges and available in popular trading accounts. Or buy units in a global-themed ETF, whether you’re interested in developed countries, emerging markets or specific continents like Europe or Asia.
• Favorite company. New and young investors might get hooked on investments with a stock from a familiar name.

What’s the cost of buying stock?

Most stocks cost between $200 and $1,000. As for fees, many brokerage accounts offer commission-free trading and free account set up. The biggest cost is the transfer fee, so find out what it is and incorporate it into the overall cost of the gift.

Step 3. Transfer the stock

The process to transfer stocks varies depending on the account the stock is held in and the recipient’s account.

The easiest transfer happens when the giver and receiver have accounts at the same brokerage firm. The giver fills out a form that includes the recipient’s account number and personal information. The transfer usually takes a few minutes.

Transfers to a different brokerage account can take a few days, similar to a bank transfer.

If you purchased the stock directly from the company or it’s an older, paper stock — bought before online stock trading technology — contact the company’s stock transfer agent to perform the change of ownership.

Related: Compare online stock trading platforms

What should I consider when gifting a stock?

The biggest consideration is taxes when you decide to give a stock as a gift.

Gift tax

The good news is that the CRA does not tax gifts. If you give stock to family or a friend, they do not have to pay any tax on it.

Capital gains tax

You, the giver, may be subject to capital gains tax. This is the annual tax on any profits you would’ve made from the stock. The CRA will treat your gift as you having disposed of your shares for their fair market value (FMV). This is something you’ll need to report when you file your taxes.

Who is most likely to be researching how to gift stocks?

Finder data suggests that men aged 25-34 are most likely to be researching this topic.

Buying stock for children

Stocks can be thoughtful gifts for kids to get them interested in finance and could give them a leg up into adulthood.

Children under the age of 18 (or 19 in some provinces) can’t legally buy or own stock. However, a parent or guardian can open an in-trust account registered under an adult’s name until they’re old enough to have it on their own. When the child turns the age of majority, you can transfer ownership solely to them.

Bottom line

Whether they’re already valuable or have potential for the future, stocks can be an exciting gift to those you love. They’re thoughtful because they require a bit more work up front than a typical gift — and sometimes can last longer.

Once you’ve considered who your grand gesture will go to, compare trading accounts or other services that best match your intentions.