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The Benefits Of Donating Securities To Charity

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As the end of the year approaches, many Canadians will think about making donations to charity in order to get the tax credit for 2018. If this is something that you’re considering and plan to sell investments to come up with the money, there may be an opportunity to get an even larger tax credit using the same investment.

If you own securities that have increased in value and you decide to sell those investments, the realized capital gain (profit you have made) is taxable. Arguably, this is a good problem to have. However, you can decrease the financial impact of such capital gains by donating (not selling) your securities directly to a registered charity of your choice.

Since 2006, donating securities not only gets you a tax receipt equal to the full market value of the securities being donated, but you can also avoid paying capital gains tax on any gain you’ve made. This policy applies to various investments including; stocks, mutual funds and ETF’s.

Let’s look at an example of how this works:

Say that you own shares that were purchased long ago for $10,000 and are now worth $100,000. You are considering making a charitable donation in 2018 and are in a 50% tax bracket. One option is to sell the shares, pay the tax and give the net proceeds to the charity. An alternative is to donate your shares directly to the charity. What should you do?

The following compares donating the proceeds after a sale to donating the shares directly.


 

Sale of Shares

Direct Donation

Market Value

$100,000

$100,000

Original Investment

$ 10,000

$ 10,000

Capital Gain

$ 90,000

$ 90,000

Taxable Gain on Sale

$ 45,000

     Nil

Tax at 50%

$ 22,500

     Nil

Amount of Donation

$ 77,500 - after tax

$100,000 - no tax to donor

If you sell the shares and donate the cash to the charity, you will have to include the taxable capital gain (one-half the difference between the purchase and selling price) in your tax filing. Instead, with our help, you should give the shares to the charity directly to ensure you avoid the capital gains inclusion.

Your charity gets a bigger donation and you get a bigger tax credit. Definitely a win/win situation! If you decide that a stock donation may be best for you, let’s discuss the amount you want to donate and to which charities. We can then decide which security or securities might be the best ones to donate in order to get a better tax break.


Mark Shimkovitz, CIM®, PFP®, CDFA®, VP Financial Advisor
40 King St. W. Ste. 5300, Toronto Ont. M5H 3Y2
P: 416-777-4944 E: Mark.Shimkovitz@raymondjames.ca

Mark Shimkovitz is a Financial Advisor with Raymond James Ltd. Information provided is not a solicitation and although obtained from sources considered reliable, is not guaranteed. Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. The view and opinions contained in the article are those of the author, not Raymond James Ltd. Raymond James Ltd., member of Canadian Investor Protection Fund.