A gift to charity can save you thousands on capital gains taxes
Do you own shares in a demutualized insurance company?
Demutualization is a process by which a member-owned company, such as a co-op, or a mutual life insurance company legally changes its structure, in order to become a publicly traded company owned by shareholders.
Recently, Economical Mutual Insurance Company demutualized and became Definity Financial Corporation (trading on the TSX as DFY). If you were an eligible policy holder of Economical Mutual Insurance Company, you might now be the owner of Definity Financial Corporation shares.
How to offset your capital gains tax
The demutualized Definity shares have a zero-dollar adjusted cost base (ACB), so if you sell these shares, 50% of the proceeds of the sale will be a taxable capital gain. However, there is a tax rule that allows a shareholder to donate these demutualized shares to charity and avoid paying tax on the capital gains.
For example, let’s say you have 1,000 Definity shares with a market value of $36,000 ($36 per share) and your income is being taxed at a 40% marginal tax rate. Selling those shares would be a taxable gain. But if you donated the shares in-kind to charity, you would receive a $36,000 donation receipt and avoid paying $7,200 in capital gains tax.
If you hold Definity shares or other insurance company shares from a demutualization process, contact an Abundance Canada gift planning consultant or your financial advisor. They will discuss with you how the gift planning opportunity noted above could allow you to support the causes you care about in a tax efficient way.
Set-up a Donor Advised Fund
A Donor Advised Fund (DAF) might be a great option for facilitating your gift of demutualized shares. A DAF is like a parking lot where donors can contribute, receive a charitable receipt, and make distributions to charities. It allows you to donate now and then recommend which charities should receive grants from the DAF, when they should receive the grants, and what dollar amount the grant should be. Essentially, it allows you to donate now and distribute later.
This can be a powerful tax planning tool for individuals who are looking to maximize their charitable contributions in a given year, or to offset capital gains. Donors can contribute a wide range of assets to a DAF, including cash, publicly traded securities, private company shares, or life insurance policies.
Abundance Canada can help!
Abundance Canada is a public foundation with a long history of assisting clients with significant and complex charitable gift planning scenarios. We have extensive experience facilitating all types of asset donations and our DAF model has been described by donors and advisors as simple, uncomplicated, and flexible.
To learn how Abundance Canada can assist you with donating your demutualized Definity shares or other stocks, bonds, or mutual funds in-kind, please contact us or call 1.800.772.3257 to speak with a gift planning consultant.