Gifts of Publicly
Traded Securities
Making charitable gifts with publicly traded
securities is often better than writing cheques because one half of the taxable
gain in a qualifying gift of securities is exempt from taxation.
If you sell publicly traded
securities, 50% of the gain is taxable. However, when you contribute qualifying
securities to the Diocese of
Your donation receipt will
be issued for the full fair market value (FMV) of the securities on the date
they are transferred to the Church. In computing the amount of your charitable
tax credit, you get the benefit of all of the appreciation but you pay tax on a
small fraction of it.
Planning
Opportunities With Publicly Traded Securities
When it’s time to sell
You may own
securities you don’t think will perform in the future as well as they have in
the past, or maybe you expect a correction in the entire market. Nevertheless,
you hesitate to sell because you don’t want to pay tax on the gain. If you have
been planning to make a charitable gift, these securities could be the ideal
asset to use for that gift. The net cost of the gift could be relatively low.
Consider this example.
Charles M. thinks it is
time to sell some stock now valued at $10,000 with an adjusted cost base of
only $2,000. He has also been thinking of making a $10,000 gift to the Diocese
of
Option
1 – Sell stock
Total gain $8,000
Taxable gain (50% × $8,000)
4,000
Tax on gain (39% ×
$4,000)
1,560
Tax credit ($10,000 ×50%) 5,000
Net
tax saving ($5,000 – 1,560) $3,440
Option 2 – Donate Stock
Total gain $8,000
Taxable gain (0% × $8,000) 0
Tax on gain 0
Tax credit (50% × $10,000) 5,000
Advantage
of gift compared to sale ($5,000 – 3,440) $1,560
Charles
is $1,560 better off donating the shares than selling them and donating the
cash.
When you want to hold
Unlike
Charles in the previous example, you may have a stock you think has a great
future. While you like the idea of exempting part of the gain from taxation,
you do not want to lose out on likely future appreciation. Thus, you are more
inclined to hold the stock and make this year’s charitable gift with cash.
If you have
such a stock, you might consider giving it and using the cash, which you
otherwise would have given, to repurchase the stock on the market. You would have
an increased cost base for the stock, and when you sell it in the future you
will be taxed only on the gain accruing after the repurchase.
Bequest of Securities
The
exemption from taxable gain applies to charitable bequests as well as to gifts
during your lifetime. Thus, if you intend to make a bequest to charity as well
as to family members, it could be advantageous to fund your charitable bequest
with appreciated, publicly traded securities and your family bequests with
other assets. You can do this either by making a specific bequest of certain
securities, or by empowering your executor to select the assets for the
charitable bequest.
Suppose,
for example, that your estate consists of your principal residence, plus cash,
plus $100,000 of publicly traded stock with an adjusted cost base of $40,000,
and that you want to leave $100,000 to charity and the balance to your
children. If the stock goes to the children, $30,000 of the gain (50% × $60,000) will be taxed, but if it goes
to the Church none of the gain will be taxed. Better, then, to give the charity
your stock and the children your cash and principal residence, neither of which
is taxable.
Contribution
Limits
For gifts of publicly traded securities to registered
charities such as the Diocese of Edmonton, your parish or The Anglican Church
of Canada, the maximum amount of charitable contributions made prior to the
year of death that can be claimed for credit in any one year is 75% of net
income plus 25% of the taxable gain arising from the
gift. Unused tax credits can be carried forward for up to five years beyond the
year of the gift. The
contribution limit for gifts made in the year of death (including bequests) is
100% of net income reported on the terminal income tax return. Any unused tax
credit may be carried back to the year immediately preceding death.
If you would like more information, in confidence and
without obligation, please complete and return the Request
for Planned Giving Information form.