Gifts of Publicly Listed Securities
Tax Planning Opportunities for Gifts of Securities
For donors who hold highly appreciated shares, there are favourable tax rules to encourage donations of listed securities. The Government’s reduction of the capital gain inclusion rate to zero percent for donations of listed securities eliminates the tax on the capital gains from the gifting of those securities. This preferred tax treatment has proven to be a powerful incentive to give.
Listed securities of publicly traded stocks, bonds, bills, warrants, and mutual funds all qualify. But remember, to receive this additional tax benefit, the charity must receive the listed security in kind (rather than selling the stock and donating cash). The following example will illustrate the benefit of donating the security in kind vs. selling it and donating cash.
Example: Gift of Cash vs. Gift of Securities
Susan lives in Manitoba. She donates listed stock with a fair market value of $100,000 and a cost base of $10,000, to a charity of her choice. Her net income is $160,000 per year, and her other charitable gifts exceed $200.
| Sell Stock & Donate Cash | Donate Stock In-Kind | |
|---|---|---|
| Capital gain | $90,000 | $90,000 |
| Taxable gain (50%) | $45,000 | $0 |
| Tax on gain (46.4% x $45,000) | $20,880 | $0 |
| Donation receipt | $100,000 | $100,000 |
| Donation tax credit (assume 46.4%) | $46,400 | $46,400 |
| Net tax savings (tax credit – tax on gain) | $25,520 | $46,400 |
| After tax cost of donating stock vs. cash (fair market value – net tax savings) | $74,480 | $53,600 |
Annual Contribution Limit
The contribution limitation for in-kind gifts that have appreciated in value is 75 percent of annual net income from all sources. Any excess may be carried forward and claimed in any of the next five years.
Benefits to Donors
Donors can make their annual donations more tax-efficiently. By transferring their most highly appreciated securities (like demutualized shares) from their account to a Benefaction donor advised fund, they can easily give to their chosen cause and at the same time eliminate any capital gains they would otherwise have to pay on the sale of those assets. Plus, they will receive a tax receipt right away for the fair market value of the securities.
Private foundations are also eligible for similar tax treatment for gifts of lifted securities
This article is not intended to convey tax and or legal advice and is for illustration purposes only. Anyone interested in the strategy should seek guidance from their financial and/or legal advisor before making a gift.