For many of us, donating time, money, energy and skills to the causes that matter to us most is an important part of who we are. Statistics show that 82% of Canadians age 15 and over donate to charitable and non-profit organizations. Between 2010 and 2013, the total amount donated by Canadians to charity was an astonishing $12.8 billion. For many of our clients, charitable gifting is an annual event, often coinciding with the holiday season. What most people don’t realize, however, is that there are additional tax efficient alternatives to just donating cash to a registered charity. Any benefactor considering making a gift to charity should consider donating Publicly Traded Securities (see list below) as they will be then eligible for the extra tax incentive available to Canadian taxpayers.
In Canada, most charitable organizations are set up to receive publicly traded securities as donations instead of cash. Under normal circumstances, when you sell a publicly traded security to raise cash to then give to charity, you are subject to income tax on half of the increase in value (or capital gain). If, however, you simply donate those assets instead of selling them, the government eliminates the taxes you would normally pay on the appreciated investments.
Consider Mary an investor in the 46% tax bracket who donates $20,000.00 annually (in addition to the $200 donation that attracts tax credits at a lower rate):
You can see from the example above that Mary receives an additional $2,760.00 tax benefit when she donates her shares directly.
What constitutes a Publicly Traded Security?
- Units of a mutual fund
- Shares of capital stock of a mutual fund corporation
- Partnership interest that are exchangeable for publicly traded securities
- Prescribed debt obligations
- Segregated fund trusts
When making the donations you must ensure that it is to a registered Canadian charity (has been registered as a charity by the Minister of National Revenue), and check first with the charity you have chosen to confirm it is able to accept donations of publicly traded securities.
The key to successful tax planning is staying informed and having a well thought out strategy. The Insightful Wealth Group Team work closely with our clients to ensure any financial decisions fit with their overall plan.