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 Edmonton or to any charity none of the gain is taxable. For example, if you donate securities that originally cost you $4,000 and are now worth $10,000, you realize $6,000 of capital gain but pay tax on none of the gain.
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 Edmonton. His combined federal and provincial tax rate is 39% and his charitable tax credit rate is 50%. What is the real cost of giving the stock instead of selling it?
Option 1 – Sell stock
|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
|Taxable gain (0% × $8,000)||0|
|Tax on gain||0|
|Tax credit (50% x $10,000)||5,000|
|Net tax saving ($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.
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 charitable contributions made prior to the year of death that can be claimed 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.
The information on this webpage does not constitute legal or financial advice and should not be relied upon as a substitute for professional advice. The Planned Giving Office encourages you to seek professional legal, estate planning and financial advice before deciding on a course of action. The examples given above reflect rates at the time of writing and are subject to change.