Gifts of stocks or securities
Donating public securities and mutual funds is the most tax-smart way to make donations in Canada. Eliminating the capital gains tax, you can give more and receive a larger tax receipt.
The benefits
The Canada Revenue Agency (CRA) does not apply capital gains tax on donations of publicly traded securities. Capital gains are the increase in the value of your securities over the price you paid at purchase. When you sell your shares for cash, you're responsible for the tax due on the gain, even if you plan to donate the proceeds from the sale. If you pay the tax out of those proceeds, there's less money left to donate. It's a smaller donation and you have less to claim for your charitable tax credit at the end of the year.
But when you donate your securities, those capital gains aren't subject to tax. This means you are giving a larger donation and you will benefit from a tax receipt for the full value of your eligible securities or mutual funds.
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 shares and donate the cash proceeds, you'll owe tax on the capital gain. So, you set aside the taxes due from the proceeds, leaving you with less than the full cash value to donate and a tax receipt which reflects the smaller donation.
But when you donate the shares directly, you owe no capital gains tax and you're able to donate the full value, which makes your donation larger and you get a tax receipt which reflects your larger contribution.
The following chart summarizes the benefits of donating securities directly, rather than selling them and donating the profits.
The benefits
The Canada Revenue Agency (CRA) does not apply capital gains tax on donations of publicly traded securities. Capital gains are the increase in the value of your securities over the price you paid at purchase. When you sell your shares for cash, you're responsible for the tax due on the gain, even if you plan to donate the proceeds from the sale. If you pay the tax out of those proceeds, there's less money left to donate. It's a smaller donation and you have less to claim for your charitable tax credit at the end of the year.
But when you donate your securities, those capital gains aren't subject to tax. This means you are giving a larger donation and you will benefit from a tax receipt for the full value of your eligible securities or mutual funds.
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 shares and donate the cash proceeds, you'll owe tax on the capital gain. So, you set aside the taxes due from the proceeds, leaving you with less than the full cash value to donate and a tax receipt which reflects the smaller donation.
But when you donate the shares directly, you owe no capital gains tax and you're able to donate the full value, which makes your donation larger and you get a tax receipt which reflects your larger contribution.
The following chart summarizes the benefits of donating securities directly, rather than selling them and donating the profits.
DETAIL |
SELL SECURITIES AND DONATE THE AFTER-TAX PROCEEDS |
DONATE YOUR SECURITIES |
Original cost of securities |
$10,000 |
$10,000 |
Current market value |
$50,000 |
$50,000 |
Capital gain |
$40,000 |
$40,000 |
Tax on capital gain |
$10,000 ($40,000 capital gains X 50% taxable gains X 50%** - assuming gift is made in Ontario at a marginal tax rate of $50%) |
$0.00 (No capital gains tax payable on donated shares.) |
Tax credit |
$25,000 ($50,000 donation x 50%**) |
$25,000 ($50,000 donation x 50%**) |
Net tax savings from donation |
$15,000 ($25,000-$10,000 tax on capital gains) |
$25,000 |
Total tax savings from donation |
$15,000 ($25,000 tax credit - $10,000 tax on capital gains) |
$35,000 ($25,000 tax credit + $10,000 in tax on gain not paid) |
Net cost of gift |
$35,000 ($50,000 gift - $15,000 total tax savings) |
$15,000 ($50,000 gift - $35,000 total tax savings) |
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