Give and save at the same time
Canadians are a ‘giving’ people. According to Statistics Canada, in 2011, the total amount of financial donations that individuals made to charitable or non-profit organizations was $8.5- billion. When you use an effective ‘gifting strategy’ you will not only support your charity, you will also reduce your tax load at the same time.
One very effective gifting strategy is making a gift of eligible publicly traded securities or mutual-fund units to the charity of your choice. A few years ago, the federal government changed the rules regarding the gifting of securities by eliminating the tax on capital gains associated with the gifting of the securities. As a consequence, the real cost of your charitable giving is reduced. Here’s how it works:
• If you were to sell a security which has appreciated in value and then donate the cash proceeds to your charity, the sale will trigger a tax on 50 per cent of the capital gains.
• However, when you donate that security to your charity on an ‘in-kind’ basis, your gift qualifies for a tax credit and you avoid the tax on the capital gains that would normally arise from the sale of the security.
• The donation receipt is exactly the same in both cases – that is, for the fair market value of the security, which is generally determined by the closing price of the security on the day it was transferred to your charity. You can carry forward unused charitable donations for five years.
• You can choose to make your gift during your lifetime or through your estate.
• The favourable tax treatment for ‘in-kind’ gifts applies both to a personal donation and to corporate donations.
• Your securities ‘gift’ can be delivered to the charity of your choice through a simple electronic transfer; gifts of paper shares are also easily accomplished.
• Your charity will require a direction signed by you that provides proof you are the registered holder of the securities.
• Normally, once a charity has acquired ownership of an in-kind donation of securities, it will sell them and use the proceeds to fund its charitable activities.
Melanie Hall-Szyszkiewicz, Investors Group