By Leslie Milton, CPA, CA, LPA
You would probably not be shocked to learn that some people experience a feeling of euphoria when they treat themselves to a gift. A new set of golf clubs, a Prada purse, a vacation, or a sports car for example.
You might be surprised, however, to learn that scientists have proven that giving to charity releases endorphins that activate regions in the brain associated with pleasure, social connection and trust.
In essence, we are conditioned to be selfless creatures.
There are various means of achieving this euphoric feeling of giving. Charities are always looking for means of diversifying and securing their long-term funding. A donation of an eligible security from your non-registered portfolio is an effective and tax-efficient means of accomplishing this goal. In order to be an eligible security, it has to be listed on a designated exchange.
Consider the following scenarios.
Let’s say you are in the 46.41% tax bracket in Ontario and wanted to give $10,000 to a charity. In order to give the charity a cash gift of $10,000, you would have to earn $18,660 of income due to taxes of $8,660 (46.41%).
On the other hand, what if you have a “winner” in your stock portfolio? Let us assume you have shares worth $10,000 which cost you, say, $3,000. You could sell the shares with the intention of donating the $10,000, but you would be required to pay Canada Revenue Agency $1,624, which is the tax on 50% of the $7,000 capital gain, ultimately leaving you with only $8,376 to donate. In order to top that number up to $10,000, you would have to add an additional $1,624 of cash, which represents earnings of $3,030 before taxes.
So how much will you save if you just donate the security itself? This security is listed on a designated stock exchange; therefore, the gain realized on donating this security is non-taxable, meaning you don’t have to pay taxes on the accrued gain on the security resulting in a $1,624 saving. You will receive a donation receipt for the value of the shares at the time they are transferred to the charity. You will report the disposition on your personal tax return, but there will be no personal income taxes owing resulting from the gain.
The beginning of a new year encourages people to look at their finances and their wills, and to consider their retirement needs and philanthropic goals. If you are considering a significant bequest in your will, you should ensure your executors have the power to donate securities.
Speak with your advisor before making any decisions. Scientists have proven that giving to charity feels good; just make sure you give in the most beneficial way.
