Support Your Favourite Charity with Gifts of Securities
Fred Smith* is a big-hearted man, and has always donated a percentage of his annual income to charity. When the homeless shelter in his city launched a fundraising campaign to construct a new building, he decided to give them an extra $10,000 above his annual support. Fred was excitedly telling a friend about the project over lunch one day when his friend told him that writing a cheque might not be the most tax-efficient way to give. He suggested Fred to consider donating publicly traded securities instead.
Why Donate Publicly Traded Securities?
Publicly traded securities are stocks, bonds, mutual funds, and ETFs (Exchange Traded Funds) listed on a designated stock exchange. When you donate publicly traded securities in-kind, you receive a charitable receipt for the value of the securities and avoid the tax on the capital gain. Fred admitted he had never considered donating anything other than cash, so his friend recommended he contact Abundance Canada to help. Fred gave us a call, and we sat down to go over the numbers.
Gifting Stocks to Charity
Among other assets, Fred had a non-registered investment account that included a stock worth $10,000 with an adjusted cost base of $4,000. If he sold the stock and donated the cash proceeds directly to the charity, he would pay tax on 50% of the $6,000 capital gain, effectively increasing his taxable income by $3,000. However, if Fred chose to donate the stock in-kind, he would avoid the capital gains tax. His taxable income would be $3,000 less than if he sold his stock to make the donation. In both scenarios Fred would receive a $10,000 donation receipt and the charity would receive $10,000, however by donating the stock in-kind vs selling and donating the cash proceeds, Fred avoids the $1,380 tax on the capital gain.
Selling the Stock and Donating cash
Donating the stock as a Gift In-Kind
|Selling Price of Fred’s Stock||$10,000||$10,000|
|Adjusted Cost Base||($4,000)||($4,000)|
|Taxable Capital Gain||$3,000 (50%)||$0 (0%)|
|Marginal Tax Rate (MB) *
(* varies by Province)
|Tax on Capital Gain||$1,380||$0|
After looking over the numbers, Fred established a Generosity Plan™ with Abundance Canada and donated his stock in-kind. He was delighted to not only provide the additional support to the homeless shelter but also reduce his future tax bill. He is already considering doing another gift in kind next year to cover his regular donations
Like Fred, you may be pleasantly surprised by the tax efficiency of this gift planning strategy. If you hold stocks, bonds or mutual funds in your non-registered investment account, why not consider supporting your favourite charities with a gift of securities?
Contributed by Harold Penner
Gift Planning Consultant
*Pseudonym used to protect the privacy of the individual