Planning to donate to a registered charity?
Consider donating investment securities instead of selling them first and donating cash.
When you donate certain types of capital property (such as securities listed on a designated stock exchange or mutual funds) directly to a charity, you may not have to include any resulting capital gain in your taxable income, even though the entire value of the donated security qualifies for the donation tax credit. Here’s an example comparing a $5,000 cash donation to the equivalent amount in securities:
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Sell securities and donate cash
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Donate securities directly
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Value of donation (A)
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$5,000
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$5,000
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Adjusted cost base (B)
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$1,000
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$1,000
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Capital gain (C=A-B)
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$4,000
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$4,000
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Capital gain inclusion rate (D) *
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50%*
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0%
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Taxable capital gain (E = C x D)
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$2,000
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$0
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Tax payable (40.7% marginal rate assumed)
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($814)
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$0
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Donation tax credit
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$2,239
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$2,239
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Net tax savings (F)
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$1,425
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$2,239
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Net after-tax cost of donation (A-F)
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$3,575
|
$2,761
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*Effective on June 25,2024, the federal government proposed to increase capital gain inclusion rate to 2/3 (from 1/2) for the amount of capital gains (realized by individuals) that are more than $250,000 a year. So, the advantage of donating investment securities directly may be more significant than shown above.
