Gifts of Appreciated Securities

The 2006 Federal budget enhanced the incentives for Canadians to donate publicly traded securities [shares or mutual funds] directly to charities by eliminating the payment of capital gains tax on such direct gifts.

This enhancement creates an excellent gifting mechanism that may multiply the benefits to you and to your favourite charity.

The new rules allow you to:

  • realize significant profits from the appreciated securities you wish to donate
  • pay no income tax on the gains realized
  • make a generous gift to charity
  • make use of the excess tax credit generated from this gift to reduce other tax liability

The sum of the parts is GREATER than the individual parts.

The following chart illustrates the benefit of gifting $50,000 of appreciated securities versus selling the security and giving the proceeds from the transaction.

 Sell the shares and donate the cashDonate the shares directly to charity
Purchase price$10,000$10,000
Current value$50,000$50,000
Capital Gain$40,000$40,000
Taxable Capital Gain @ 50%$20,000$0
Net Tax Payable @ 45%$9,000$0
Tax Credit @ 45% of donation*$22,500$22,500
Value of remaining Tax Credit used to pay other tax liabilities$13,500$22,500
Benefit to charity$50,000$50,000
Sum of Benefit$63,500$72,500

* Tax rates vary from province to province

SOME RULES

To qualify for this special tax treatment, the securities must:

  1. Be publicly traded securities which include:
    • Stocks or shares listed on an approved stock exchange
    • Units or shares in a Mutual Fund
    • Units of a segregated fund trust from an insurance policy
  2. Have appreciated in value
  3. Be donated in kind to a charity or public foundation
    • Not sold by donor
    • Ownership transferred directly to charity or public foundation

* This information is not intended to provide tax advice.