Publicly Traded Securities: The Most Tax-Efficient Way to Donate
Donating publicly traded securities (stocks, bonds and mutual funds) is the most tax-efficient way to make charitable donations. When publicly traded securities are donated “in-kind” to a Canadian charity like Abundance Canada, the capital gains inclusion rate drops from 50% to 0%.
If your client donates the securities from within their corporation, they will realize an additional benefit; the tax-free portion of the capital gain is added to the corporation’s Capital Dividend Account (CDA).
When a corporation donates publicly traded securities, the entire capital gain is tax-free, so 100% of the capital gain is added to the CDA. A positive balance in the CDA can be paid out to shareholders as a tax-free dividend.
Example of the Tax Advantage for a Donation of Securities to Charity by a Corporation
| Sell securities and donate cash | Donate securities as gift in-kind | |
|---|---|---|
| Donation to charity | $50,000 | $50,000 |
| Adjusted Cost Base | ($10,000) | ($10,000) |
| Capital Gain | $40,000 | $40,000 |
| Taxable Capital Gain | $20,000 (50%) | $0 (0%) |
| Increase in the CDA | $20,000 (50%) | $40,000 (100%) |
Tax Planning Tips
- Eliminate the taxable capital gain on the donated securities
- Receive a donation receipt for the fair market value of the securities
- 100% of the capital gain is added to the CDA
Download a copy of our Technical Information Sheet on Publicly Traded Securities here.
Next Steps
Contact Abundance Canada if you have clients who might benefit from donations of publicly traded securities.
Forms
Gift in Kind Form – Mutual Funds
