| Gifts
of Publicly Traded Securities
Making charitable
gifts with publicly traded securities is often better
than writing cheques because 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 other than
a private foundation, 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 41.75%.
What is the real cost of giving the stock instead of
selling it?
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 ×41.75%) 4,175
Net tax saving
($4,175 – 1,560) $2,615
Option
2 – Donate Stock
Total gain
$8,000
Taxable gain
0
Tax on gain
0
Tax credit
(41.75% × $10,000) 4,175
Net tax savings
$4,175
Advantage
of gift compared to sale ($4,175 – 2,615) $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 partial
exemption from taxable gain applies to charitable bequests
as well as to gifts during your lifetime. Thus, if you
intend to make bequests 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.
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