Donating Publicly Traded Shares

In the 1997 Federal Budget the rules relating to publicly traded shares, and units in Mutual Funds, were changed. This resulted in there being tax advantages to donating shares directly to a charity, such as The Laurel Foundation, rather than selling the shares, and then increasing the value to the amount of the desired donation.

Here is an example of how a comparison demonstrates the two scenarios.

Assuming that as a retiree, Mary is satisfied that the equity in her home, pension and Registered Retirement Income Funds will provide a satisfactory income for her, and a sufficient inheritance for her family. She wishes to donate $50,000 to The Laurel Foundation to leave a legacy for the mental health of individuals suffering from autism spectrum disorders, and / or other behavioural afflictions.

If she sells $50,000 of shares or units in a mutual fund, the cost base, reflecting the purchase price, plus accumulated interest and dividend is $20,000. To achieve the desired donation of $50,000, she would have to top up the fund. Her financial advisor outlined the advantage of donating the shares, or fund investment directly. The comparison demonstrates this:

Sell, then Donate Transfer
Sales of Shares / Fund 50,000 50,000
Inclusion Rate 75% 37.5%
Taxable Gain 75% x 30,000 22,500 37.5% x 30,000 11,250
Tax @ 50% 11,250 5,625
Net from sale 38,750
Cash "Top Up" 11,250
Donation 50,000 50,000
Tax Credit @ 50% 25,000 25,000
Total Cost of Gift or Donation 36,250 31,625

Selling the Shares or Fund, Mary incurs a taxable capital gain of 22,500, on which the tax payable would be 11,250, assuming an average rate of 50%. So to achieve her objective of donating 50,000, she must top up with other money. The total cost would be then the donation of 50,000, plus the top up, minus the tax saving, for a total of 36,350.

Donating the Shares or mutual fund directly to The Laurel Foundation reflects the Canada Revenue Agency position that deems her to have sold the shares / fund, but will, on the disposition, include only 37.5% of the gain for taxation. Mary’s total cost would be the 50,000 donation, plus 5,625 tax on the capital, minus the 25,000 tax credit, for a total of 31, 625.

Her objective of donating 50,000 to The Laurel Foundation has been achieved in each case, but by donating the fund / share investment she will have saved 4,625.

If making such a donation is of interest to you, please contact your insurance or financial advisor, or tax accountant to explore this option, and determine its suitability for you.

The President or the Executive Director of The Laurel Foundation will be pleased to provide more detailed information about this approach at no obligation to you.

Phone or Fax: 604 942 7574