In 2006, the federal government eliminated capital gains on gifts of publicly traded securities to charitable organizations, making this type of donation one of the most attractive ways to give. The donation must be transferred “in kind”, and not from the cash proceeds of the sale of the security. Gifts of securities includes stocks, trust units, mutual funds bonds etc.
Example
(assuming combined tax savings credit of 50%)
The following example illustrates the difference between selling shares outright and donating the proceeds, versus transferring the shares to Citadel Foundation.
John wants to donate $40,000 to Citadel Foundation. He currently owns a publicly traded security that he purchased for $20,000 now worth $40,000.
| Option A Sell Securities And Donate Proceeds To Citadel Foundation |
Option B Donate Securities Directly To Citadel Foundation |
|
|---|---|---|
| 1) Proceeds Of sale | $40,000 | $40,000 |
| 2) Initial Cost Of securities | $20,000 | $20,000 |
| 3) Capital gain (1-2) | $20,000 | $20,000 |
| 4) Taxable Capital Gain | $20,000 x 50% = $10,000 | $0 |
| 5) Donation Receipt | $40,000 | $40,000 |
| 6) Tax savings | $40,000 x 50% = $20,000 | $40,000 x50% = $20,000 |
| 7) Tax Owing On Capital Gain | $10,000 x 50% = $5,000 | $0 |
| Total Savings | $20,000 – $5,000 =$15,000 | $20,000 |
By donating his shares to Citadel Foundation, John has a total tax savings of $20,000, $5,000 more than selling his securities and donating the proceeds.