Note: Deadline for eligibility is December 31st of every year.
This being the season of giving and receiving, let’s consider the advantages of donating a portion of your stock portfolio to your favourite charity, instead of donating cash.
Donating stock to charity can be an ideal and relatively easy method of giving a portion of your wealth to help others in a tax-efficient manner. Here’s why.
Donating Stock vs Donating Cash
Donating stock, as opposed to cash, allows you to avoid capital gains tax on the inherent gain and still claim back 50% on every charitable dollar. Simply put, if you donated stock worth $10,000 to charity, you would save $5,000 on your tax bill from the donation credit, and would not pay tax on the inherent capital gain on the stock that you donated. To maximize the tax savings, many people choose to donate the stocks from their portfolio that have been the most profitable (those with the largest capital gain). Your investment advisor can assist you in choosing which stocks to donate.
This strategy will become even more effective if the federal government increases the capital gains inclusion rate from the current rate of 50%. You would also want to donate stock from your non-registered portfolio, so an analysis may be required on your overall holdings.
There are some creative options that can be considered for someone that has their own incorporated business as well. You would want to speak to a tax advisor on this.
Benefit to Charities
Stocks are a common way of giving for many of our clients; and, at the receiving end, charities can immediately and easily sell the stock to help finance whatever good work they do. The charity will gladly help with the necessary paperwork that must be completed ahead of time. Some charities may even wish to retain the securities, depending on its mandate.
Long-term Tax Planning
Some clients in a financial position to donate stock to charity hesitate to do so because they have concerns over their own financial security. In other words, will they have enough money to support their chosen lifestyle until they die? For these individuals, tax law offers people with those concerns a compromise, making it possible to leave a portion of stock to charity after they die. Your beneficiaries – typically family members – are allowed the same 50% tax advantage and avoidance of capital gains tax. In these cases, pre-planning is necessary when you draft your will. The government needs proof that the deceased person intended the stock to be donated to charity.
Consult with Your Accountant and Financial Advisor
The deadline for claiming a charitable donation is December 31; so, if a stock donation is on your 2018 to-do list, now is the time to consult your financial advisor.
