Favorable tax rules regarding the donation of listed securities to a registered charity make this option particularly attractive for many donors. When securities are donated to the STARS Foundation, a charitable receipt is issued for the fair market value of the gift. This is determined by the closing price on the date of the transfer to the STARS Foundation.
A gift of securities provides an innovative and creative way to make a charitable gift and can often help fund a larger gift than you might otherwise be able to make. Listed securities include stocks, bonds, bills, warrants and mutual funds.
Gifts of publicly listed securities are becoming increasingly popular. In 2006, the federal budget provided Canadians with the largest charitable giving tax incentive in the last decade by eliminating the capital gains inclusion rate on gifts of listed securities to registered charities.
For example, let’s assume that you intend to make a gift of 1,000 shares that originally cost $50,000 and that the shares trade at $80 at the time of the gift. If the shares are sold and the proceeds are donated to a favorite charity, the net cost of the gift would be $6,000 greater than if the shares had been gifted directly to the charity (assuming a 40 per cent marginal tax rate; combined federal and provincial rates).
To illustrate the result, please see the following comparison:
|Cash gift||Gift of shares|
|Sell shares and donate cash||$80,000|
|Gift of shares instead||$80,000|
|Less donor’s original cost||($50,000)||($50,000)|
|Capital gain rate||50%||0%|
|Reportable taxable gain||$15,000||$0|
|Assumed tax rate||40%||40%|
|Tax on reportable capital gain||$6,000||$0|
|Plus tax on capital gain||$6,000||$0|
|Minus tax credit ($80 x 50% in AB)||$40,000||($40,000)|
|Net cost of $80,000 donation||$16,000||$10,000|
We recommend that you speak with your tax advisor, accountant or financial planner before considering a gift of listed securities.