Securities as a Charitable Gift Option
The Canada Revenue Agency does not apply capital gains tax on donations of appreciated publicly traded securities. You can benefit tremendously from this added incentive to reduce the real cost of your charitable giving or increase the amount of your gifts without increasing the cost.
The donation is generally transacted by a simple electronic transfer of shares to the charity by your professional advisor but can include gifts of paper share certificates if applicable. If paper share certificates are to be donated, please contact us first to arrange for receipt.
What are the benefits of gifting publicly traded securities directly to a charity?
If you own publicly traded securities, outside of a registered account (RRSP, RRIF, TFSA), which have increased in value since you purchased them, and you donate them in-kind to a charity, you will realize even more tax savings than you would if you sold the securities and gave the cash.
If you sell the securities, 50% of the capital gain will be taxable income. However, if you donate the securities in-kind, the taxable capital gain is avoided, and you will receive a charitable receipt for the complete market value of the securities, on the day we receive the securites in our account.
Here’s an example of how it works:
Let’s say you purchased common shares in ABC Company for a cost of $10,000. If the current market value of those shares has increased to $50,000, you would have a capital gain of $40,000. If you sell those appreciated shares and donate the cash proceeds to IMCS, you will owe tax on 50% of the capital gain. If, however, you donate the shares in-kind and transfer the shares directly to IMCS, you owe no capital gains tax and you’re able to receive a charitable tax receipt for the full value.
Example of Tax Advantages of Donating Securities to Charity:
Sell Securities & Donate Cash | Donate Securities Gifts in Kind | |
|---|---|---|
| Market Value | $50,000 | $50,000 |
| Adjusted Cost Base | ($10,000) | ($10,000) |
| Capital Gain | $40,000 | $40,000 |
| Taxable Capital Gain | $20,000 (50%) | $0 (0%) |
| Marginal Tax Rate | 40% | 40% |
| Tax Payable | $8,000 | $0 |
NB: In this example, when the securities are donated directly to the charity as a gift in-kind, the donor does not realize a taxable capital gain, saving the donor $8,000 in tax payable. The $50,000 donation receipt can then be used to off-set other income tax payable.
Which securities should I donate for maximum tax savings?
Donate securities that are held in a non-registered investment account. Investments held in a registered account, such as an RRSP or RRIF, do not qualify for these tax savings.
Donate the securities that have the largest capital gain to maximize the tax savings for zero capital gains inclusion for the donated securities.
Capital gains on investments held in a tax-free savings account (TFSA) are already tax exempt. Donating these investments will not generate the same tax savings as donating securities held in a taxable investment account.
Consult with your tax or professional advisors on which stocks, bonds or mutual funds present the best gifting opportunity.
Gift Examples
- Shares listed on a designated stock exchange (Toronto Stock Exchange, Montreal Stock Exchange, Tiers 1 and 2 of the TSX Venture Exchange, NYSE, NASDAQ and most major foreign exchanges)
- Shares of a mutual fund corporation
- Units of a mutual fund trust
- Prescribed debt obligations such as government savings bonds