The Most Tax-Efficient Way to Make Charitable Donations
Donating publicly traded securities (stocks, bonds and mutual funds) is the most taxefficient 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 you donate the securities from within your corporation, you will realize an additional benefit; the tax-free portion of the capital gain is added to your 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
| Action | 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 based on the fair market value of the securities on the day you initiate the transfer to Abundance Canada.
- 100% of the capital gain is added to the CDA.
Next Steps
Established in 1974, Abundance Canada envisions a world where everyone lives generously, because we believe generosity changes everything™. To learn more about creating your Generosity Plan, contact Abundance Canada at 1.800.772.3257 to speak with a gift planning consultant. All consultations are confidential, with no obligations.