Gifts of Stock
or Securities
Recent
tax changes have made it even more attractive to donate publicly traded
securities. Under new rules in the 2006 federal budget, you may give stocks,
bonds, futures and options, as well as shares in mutual funds and you will pay
no tax on the capital gain. This greatly reduces the out-of-pocket expense of
making such a donation.
For example, a gift of stocks that are worth $10,000 today that you previously
acquired for $5,000 would provide you with about $4,500 of income tax savings*,
and there would be no capital gains tax owed. This would make the cost of your
$10,000 gift a mere $5,500, and would save you what could amount to thousands of
dollars of capital gains tax.
To make such a gift is easy. Simply download a Securities Transfer Form and
follow the instructions.
Donations of
Publicly-Traded Shares / Mutual Funds
Income Tax Consequences
Prior
to the
budget of May 2, 2006, the inclusion rate - the amount of the gain included into
the calculation of your taxable income – was set at 25% for publicly-traded
shares and mutual funds when these were donated to a charitable organization.
The latest Federal budget changed the inclusion rate
to now be 0%.
In real dollar
terms, assume the following scenarios of an individual who has taxable income
which includes a capital gain on the sale of publicly-traded shares. Under this
scenario, shares are not donated to a charity:
| Taxable Income |
$50,000 |
$100,00 |
$150,000 |
$200,000 |
| Capital gain of |
$10,000 |
$10,000 |
$10,000 |
$10,000 |
| Tax on capital gain: |
$1,708 |
$2,170 |
$2,320 |
$2,320 |
Now, assume the
same individual donated these shares to STEGH Foundation:
| Taxable Income |
$50,000 |
$100,00 |
$150,000 |
$200,000 |
| Capital gain of |
$10,000 |
$10,000 |
$10,000 |
$10,000 |
| Tax on capital
gain: |
|
|
|
|
|
Old Rules |
$929 |
$1,085 |
$1,160 |
$1,160 |
|
New Rules |
$0 |
$0 |
$0 |
$0 |
The
real dollar effect can be summarized then as follows, using the above scenario:
| Taxable Income |
$50,000 |
$100,00 |
$150,000 |
$200,000 |
| Capital gain of |
$10,000 |
$10,000 |
$10,000 |
$10,000 |
| Tax with no donation |
$1,708 |
$2,170 |
$2,320 |
$2,320 |
| Tax on donation |
$0 |
$0 |
$0 |
$0 |
| Tax dollar
saving |
$1,708 |
$2,170 |
$2,320 |
$2,320 |
Also read BMO
Nesbitt Burns - Donating Appreciated Securities (pdf)