It is important to consider what method of gifting is most effective for your own personal situation.
All charitable gifts to the Central Okanagan Foundation are eligible for a tax receipt; however, some methods of giving may be more advantageous for you than others. Please contact our executive director at 250.861.6160 for more information or consult your own financial advisor for advice on your individual situation.
NOTE TO READER:
The purpose of this publication is to provide general information, not to render legal advice. In addition any changes in the tax structure may affect the examples listed in this information. Please consult your own lawyer or other professional advisor about the applicability of this information to your situation.
Usually, one-half of a capital gain is subject to tax; with gifts of publicly-listed securities, that amount is eliminated when the gift is made to a charitable organization or a public foundation, such as a community foundation (1).
The income tax system supports the generosity of Canadians by providing a tax credit for donations to registered charities. This incentive is good public policy because each dollar of tax revenue that is lost through donations results in $2.25 that is put to work in the community.
At the same time, the income tax system presents a barrier to giving. Many would-be donors have their assets invested in securities that have appreciated in value. Selling these securities to generate cash to make a donation will trigger capital gains taxes that partially offset the tax credit incentive.
The following illustrates the additional tax savings that donors realize when making gifts of appreciated publicly-listed securities rather than cash and the additional savings that are available now that the government has eliminated the taxation of gains in respect of such gifts.
Mr. Price is considering a $100,000 donation to his favourite charity, and has sufficient net income to claim the full amount of the donation in the year in which it is made. Among his assets are 1,000 shares of Publico, a publicly listed corporation. He also has $100,000 of available cash.
The shares have a fair market value of $100,000 and an original cost of $1,000.
Mr. Price is evaluating three alternatives: making a $100,000 cash donation; selling the Public shares and giving the cash to charity; or transferring the Public shares to charity for the fair market value of $100,000.
We have assumed that Mr. Price is in the top marginal tax bracket (taxable income in excess of approximately $116,000) and that the combined federal and provincial top marginal rate is 45%4.
|What is the net tax benefit of the donation||Gift Cash||Sell shares and gift cards||Gift the shares:
capital gains tax is eliminated
|Proceeds/deemed proceeds of sale/donation||$100,000||$100,000||$100,000|
|Capital Gains (proceeds less cost)||N/A||99,000||99,000|
|Tax on captial gain||N/A||(22%) 21,780||(0%) Nil|
|Donation tax credit||(45,000)||(45,000)||(45,000)|
|Net tax savings from donation (available to shelter other income from tax)||45,000||23,220||45,000|
Now let's evaluate the effect on Mr. Price's net worth, comparing a sale of the shares with gifting the shares under the current tax rules and if the government eliminates the tax. Mr. Price’s current net worth is $1,000,000.
|What is the after-tax cost of making the donation?||Gift Cash||Sell shares and keep cash||Sell shares and gift cash||Gift the shares:
capital gains tax is eliminated
|Net worth before sale / donation||$1,000,000||$1,000,000||$1,000,000||$1,000,000|
|Tax on sale / donation||N/A||(21,780)||(21,780)||Nil|
|Donation tax credit||45,000||N/A||45,000||45,000|
|Net worth after sale / donation||945,000||978,220||978,220||945,000|
|Value to charity||100,000||N/A||100,000||100,000|
|Cost to donor||55,000||N/A||55,000||33,200|
|Government foregone taxes||45,000||N/A||45,000||66,7806|
Professional Advisors Reference Manual and Resource Guide – Copyright 2009