This article was originally published in the 2021 Planned Giving Newsletter.
Charitable giving is a deeply rewarding experience that benefits our communities and the causes that are dear to us. The government encourages giving by providing a variety of tax incentives for individuals looking to give back. There are many types of charitable gifts, each with its own advantages and tax implications. It is important to review and understand the basic features of each type of gift so that you may choose the option that best suits your needs and financial circumstances.
Donation Tax Credit
All donations by individuals to a registered charity in Canada are eligible for the donation tax credit. In Alberta donations up to $200 receive a combined (provincial and federal) tax credit of $50 (15% federally and 10% provincially).
When donating more than $200 in Alberta, the provincial tax credit jumps from 10% to 21% and depending on your income tax bracket, the federal tax credit jumps from 15% to 29% (or 33% if your income exceeds $210,371).
In addition to the donation tax credit, in-kind donations of property, stocks, bonds, mutual funds, or segregated funds that have increased significantly in value are perfect candidates for tax incentivized giving. Gifting these securities directly to a registered charity in-kind provides a special tax treatment and exemption from capital gains that cannot be taken advantage of by selling the security and donating the proceeds.
To understand the impact of donating securities in-kind, assume “Etta” owns a mutual fund that has a fair market value of $100,000 that she purchased many years ago for $20,000. She is considering donating the mutual fund to charity.
If Etta sells the mutual fund first and donates the sale proceeds, she would realize a capital gain of $80,000 and pay tax on half of that capital gain. In this case she would be looking at approximately $18,000 in capital gains and a tax benefit of approximately $32,000. Instead, Etta could avoid selling the mutual fund by donating the fund in-kind and the capital gains tax would be eliminated. She would be entitled to the full tax receipt of $100,000, a net tax benefit of $50,000 on her gift. Her decision to donate in-kind saved her $18,000 in tax!
If we consider that some of Etta’s investments have not performed as anticipated, she can also donate any depreciated securities to charity and claim the capital loss to be used against either capital gains realized in the current year or carried back and used against any gains she may have realized in the prior three years. The capital loss may also be carried forward indefinitely to future years.
Charitable giving has a real and positive impact on our communities, the organizations we support, and ourselves as individuals. The government has recognized the value that giving has on society and provided incentives that we can all use to gain the maximum value for our dollars. In-kind donations are a fantastic example of these incentives. If giving is a priority to you, reach out to YESS and the tax experts in your life to fully explore tax incentivized strategies for giving.
|Donating a gift of publicly traded securities or mutual funds to YESS is a simple, cost-effective, and tax-efficient way to make a charitable donation during your lifetime or through your will, and YESS receives the full value of the gift.
How to donate stock from a non-registered account during your lifetime
It is important to know that the ownership of the shares must be transferred in-kind to realize a tax benefit. Have your broker transfer your shares in-kind directly to YESS through our CIBC Investor’s Edge account using a Letter of Authorization/Direction to Transfer Securities.
How to donate stock from a non-registered account through your will
If you plan to make a gift of publicly traded securities through your will to YESS, the correct legal name to include is:
Y.E.S.S.: Youth Emergency Shelter Society of Edmonton o/a (YESS) Youth Empowerment and Support Services
CRA Registered Charitable No.: 12953-7437 RR 0001
Ayden is an Investment Advisor with the Harty Investment Group at CIBC Wood Gundy. He has a passion for finance and portfolio management and has enjoyed every moment of his 8 years of experience in the financial services industry.
The Harty Investment Group provides wholistic wealth management through customized portfolio management, estate and trust planning, tax planning, charitable giving, intergenerational wealth transfer strategies and business succession planning.
Outside of the office, Ayden enjoys spraying golf balls, wrestling his daughter Colette, and sharing a glass of wine and a meal on the patio with his wife Brittany. Ayden is a former member of the YESS Board of Directors.
To learn more about making a legacy gift, please contact Eileen Papulkas by phone at 780.468.7070 x298 or by email at email@example.com