Now is a very tax friendly time to give to charity in Canada. Understanding the rules for donating assets can make a big difference when it comes to capital gains tax. More importantly, it opens up options for clients as to what form those donations can take.
Now is a very tax friendly time to give to charity in Canada. Understanding the rules for donating assets can make a big difference when it comes to capital gains tax. More importantly, it opens up options for clients as to what form those donations can take.
To encourage individual charitable giving, there is a tax incentive for donations of publicly traded securities, says Marvi Ricker, vice president and managing director of philanthropic services for BMO Private Banking.
“Oddly enough, not everyone knows to use shares instead of cash when donating,” says Ricker. “The capital gains tax is eliminated, resulting in substantial savings. If the client still wants to own that favourite stock, you can buy it back right away using cash. That way you increase the cost base to the new market value and eliminate the capital gain.”
This advantage applies to large or small donations of securities, though most donors only consider it for larger gifts that involve a capital gain of at least $1,000, as the tax benefits become more attractive.
Clients should be told right off the bat that gifts of certain types of appreciated assets get special tax treatment, says Margaret Mason, a partner at Bull, Housser & Tupper.
“If clients donate shares in publicly traded companies, the most frequent gift in this realm, it’s wise to choose shares that have a pregnant capital gain,” she says. “This is so because the capital gain is exempt from taxation, which is a sort of “double-dip”.”
The “double-dip” is that donors don’t have to pay tax on the appreciation in the securities, and they get a tax credit for the fair market value. The example below illustrates how clients can benefit through donation of securities compared to donating the cash from the sale of a security. The client not only saves $18,400 in capital gains tax, but also gets a charitable tax credit of $46,000.
In 2015 the Federal budget included even more extensive tax incentives for individual charitable giving. Specifically, the existing capital gains tax exemption for donations of publicly-listed securities is extended to include donations from the sale of private shares or real estate beginning in 2017.
According to Brad Offman, founder and principal at Spire Philanthropy, it is critical that clients are aware of these new rules so they can donate in the most tax-efficient way possible. Whether supporting medical research, their alma mater, or giving a parcel of land to a local non-profit the tax benefits are substantial.
“You need to be aware of the benefits as well as the rules of donating different types of assets, and we recommend working with a professional advisor,” says Offman. “The list of options open to donors is expanding. You can write a cheque, donate securities, real estate or private shares – taking advantage of the new rules in this year’s budget which come into effect in 2017.”
A lot of people aren’t aware of all the opportunities. Learning about these types of donations is going to benefit both the donors and the charities they want to support, says Offman.
This is welcome news to Canada’s charitable sector, at a time when the incidence of tax filers claiming a charitable tax credit continues its multi-year decline.
To encourage individual charitable giving, there is a tax incentive for donations of publicly traded securities, says Marvi Ricker, vice president and managing director of philanthropic services for BMO Private Banking.
“Oddly enough, not everyone knows to use shares instead of cash when donating,” says Ricker. “The capital gains tax is eliminated, resulting in substantial savings. If the client still wants to own that favourite stock, you can buy it back right away using cash. That way you increase the cost base to the new market value and eliminate the capital gain.”
This advantage applies to large or small donations of securities, though most donors only consider it for larger gifts that involve a capital gain of at least $1,000, as the tax benefits become more attractive.
Clients should be told right off the bat that gifts of certain types of appreciated assets get special tax treatment, says Margaret Mason, a partner at Bull, Housser & Tupper.
“If clients donate shares in publicly traded companies, the most frequent gift in this realm, it’s wise to choose shares that have a pregnant capital gain,” she says. “This is so because the capital gain is exempt from taxation, which is a sort of “double-dip”.”
The “double-dip” is that donors don’t have to pay tax on the appreciation in the securities, and they get a tax credit for the fair market value. The example below illustrates how clients can benefit through donation of securities compared to donating the cash from the sale of a security. The client not only saves $18,400 in capital gains tax, but also gets a charitable tax credit of $46,000.
| Benefits of donating appreciated securities to charity |
Sell securities - donate cash | Donate securities |
| Original cost of securities | $20,000 | $20,000 |
| Current market value of securities | $100,000 | $100,000 |
| Capital gain | $80,000 | $80,000 |
| Tax on capital gain (assumes 46% marginal tax rate on 50% of capital gain) |
$18,400 | - |
| Donation to charity | $100,000 | $100,000 |
| Charitable tax credit (assumes 46%) | $46,000 | $46,000 |
| Net after tax cost of $100,000 donation | $72,400 | $54,000 |
In 2015 the Federal budget included even more extensive tax incentives for individual charitable giving. Specifically, the existing capital gains tax exemption for donations of publicly-listed securities is extended to include donations from the sale of private shares or real estate beginning in 2017.
According to Brad Offman, founder and principal at Spire Philanthropy, it is critical that clients are aware of these new rules so they can donate in the most tax-efficient way possible. Whether supporting medical research, their alma mater, or giving a parcel of land to a local non-profit the tax benefits are substantial.
“You need to be aware of the benefits as well as the rules of donating different types of assets, and we recommend working with a professional advisor,” says Offman. “The list of options open to donors is expanding. You can write a cheque, donate securities, real estate or private shares – taking advantage of the new rules in this year’s budget which come into effect in 2017.”
A lot of people aren’t aware of all the opportunities. Learning about these types of donations is going to benefit both the donors and the charities they want to support, says Offman.
This is welcome news to Canada’s charitable sector, at a time when the incidence of tax filers claiming a charitable tax credit continues its multi-year decline.
