Charitable Donations of Securities to Joe`s M.I.L.L.
Gifting shares, instead of cash, could enhance your tax benefits.
When you donate a publicly listed security, with an accrued capital gain, you benefit from the elimination of the capital gains tax plus the donation tax credit.
Let’s suppose that you are a senior. 20 years ago, you purchased 500 shares of the AB Co of Canada for $9,000 ($18.00 per share). Today those shares are trading at approximately $100.00 per share.
As a senior, let’s assume you have a taxable income somewhere between $49,000 and $79,000.
Your marginal income rate is approximately 29.65%. Marginal tax rates increase above the $79,000 threshold.
You decide you want to make a sizeable donation to Joe’s M.I.L.L.. You have a couple of options:
Sell the 500 shares of AB Co and donate the remaining cash to Joe’s M.I.L.L.
Donate the 500 shares of AB Co directly to Joe’s M.I.L.L.
Let’s see the results in each case:
Selling the shares
Share proceeds: $50,000 - Let's calculate the income tax consequences:
Gain on sale: $41,000
½ is taxable: $20,500
Income taxes @ 29.65%: $ 6,078
Donation to Joe’s M.I.L.L.: $43,922
Donation tax credit @ 48%: $21,082
2. Donating the shares to Joe’s M.I.L.L.
Value of the Donation: $50,000
Donation tax credit @ 48%: $24,000
In addition, you do not have to pay income taxes on the capital gain on the disposition of the shares. In other words, you do not have the pay the $6,078 as set out in scenario #1.
In Scenario #1, your donation tax credit is $21,082, but you need to pay income taxes of $6,078. Your net savings is $15,004.
Joe’s M.I.L.L. receives $43,922
In Scenario #2, your donation tax credit is $24,000 with no additional income taxes.
Joe’s M.I.L.L. receives $50,000.