Minimizing Taxes, Maximizing Generosity

Ralph lost his wife to cancer. When he stopped into our office with a cheque to top up his Gifting Fund™, he was still working through the tangle of emotions and practical tasks such life events bring. I invited him into my office to have a coffee and catch up. As Ralph and I chatted, he described the charity distributions that he wanted to complete in memory of his wife.

Ralph had always been a keen analytical thinker, and our discussion turned to Abundance Canada’s metrics from the last year. When I mentioned the significant influence in-kind donations of publicly traded securities (stocks, bonds and mutual funds) from non-registered investment accounts were having on the foundation’s annual donation totals, his eyes lit up. Ralph had never donated anything other than cash, so the idea of gifting publicly traded securities was a whole new concept for him. He peppered me with questions, excited to know more.

Maximizing Generosity… and Tax Efficiency

I explained the tax efficiency of in-kind donations of publicly traded securities, as compared to selling the securities and donating the cash proceeds from the sale. This gift planning strategy provides the donor an added tax advantage: when donating in-kind publicly traded securities, the capital gain has a zero-percentage rate inclusion (you pay no tax on the capital gain). The donor receives a charitable receipt for the market value of the donated securities based on the date the transfer is initiated. See the example below.

	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%)
Marginal Tax Rate (example)	40%	40%
Tax Payable	$8,000	$0

Gifting Publicly Traded Securities

As Ralph quietly considered all the information, I could almost see the thoughts turning over in his mind. It was certainly a different way of giving, but one that held some distinct promise. He told me not to cash the cheque he’d brought just yet. Although he had a hunch that this new gift planning option might be very relevant to his situation, he wanted to explore this in-kind donation idea with his financial advisor and get a second opinion.

Within three days, Ralph notified Abundance Canada to “rip up the cheque” he had left with us. He was really excited to maximize his giving while being tax efficient. Instead of donating cash, he initiated an in-kind gift of mutual fund units to Abundance Canada. Knowing he would incur a zero-percentage tax rate on the capital gain, Ralph decided to be even more generous. The total value of the in-kind transfer was 50% higher than the initial cheque had been!

After the mutual funds were received by Abundance Canada and sold, Ralph provided us with recommendations to send immediate support to three of his favourite charities and to leave the remaining balance of the proceeds from the sale of the securities in his Gifting Fund for future distributions.

The Joy of Giving Generously

Late last year, a card from Ralph arrived on my desk. In his neat, measured handwriting it said, “Thanks for being patient with me, for taking the time to explain all my options, and truly looking out for my best interest. Grateful, Ralph.” I smiled as I stood the card on the corner of my desk. Although it was fun to help Ralph save on his taxes, the real joy was listening to his story and helping him live more generously.

Ralph called me again a few weeks ago to arrange another meeting. After thinking things through, he has decided he wants to create a Generosity Plan™ to help achieve his charitable goals now and into the future. I’m sure he’ll have lots more questions as we consider all his giving options and develop a customized Generosity Plan that fits this new phase of his life. And we’re both really looking forward to catching up.