If you personally own publicly traded shares or mutual funds that have accrued gains, and wish to make
a donation to a registered Canadian charity or other qualified donee, consider donating the shares or
mutual funds directly to the charity. Doing so will benefit both you and the charity.
The capital gain realized on such gifts will have an inclusion rate of zero (meaning there will be a nil taxable capital gain) and you will receive a donation receipt for the fair market value of the shares donated.
Not all charities are prepared to accept this type of investment, but it would be worth their while to make arrangements with an investment advisor to open an account for them in order to receive the investments and then sell them in order to provide the cash for the charity.
As an example, say an individual owned shares of a publicly traded company, having a fair market value
of $10,000 and a cost of $4,000, and a desire to donate to his local Church. If he first sold the shares,
there would be a capital gain of $6,000, resulting in a taxable capital gain of $3,000, on which he would
pay tax of say 30%, or $900. This would leave him with $9,100 to donate to his Church, and he would
receive a donation receipt for $9,100. If he donated the shares directly to his Church, he would receive a
donation receipt for $10,000. The capital gain of $6,000 would be reported at a zero inclusion rate,
therefore no taxable capital gain and no tax on the sale. The Church would receive the investment worth
$10,000, could turn around and sell it and receive $10,000. Clearly the taxpayer and the Church both
benefit from the direct donation of the shares to the Church. The Church receives more money, and the
taxpayer receives a donation receipt for a higher amount.
This tax tip is a publication of DSK on developments in the area of taxation. The material is general in nature, is current as of published date, and should not be relied upon to replace the requirement for specific professional guidance. These posts should not be considered advice to be acted upon without further professional consultation, as each reader’s personal financial situation is unique.