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Gift of Securities to a Registered Charity

Giving appreciated securities directly to HART might be more beneficial in terms of taxes than giving cash.

If you choose to donate listed securities (stocks, bonds, and mutual funds) directly to HART, 1) there is no capital gain tax to be paid and 2) you will receive a tax receipt for the market value of your donated assets.

However, if you cashed in the securities, 50 per cent of the appreciated capital gain is added into income and then open to tax. After paying the taxes, the amount of the gift to the charity is reduced and therefore the amount of the donation receipt is reduced, reducing your charitable donations tax credit as well.

Bottom line: when you transfer securities directly to HART’S broker, you give a larger gift, pay no tax on the capital gain and receive a larger donation receipt which generates a larger tax credit.

Example 1:

Sell the shares and donate the cash: Say you own 1,000 shares of ABC Ltd. and it is traded on the Toronto Stock Exchange.  The shares cost you $4,000 ($4/share). At the time of your gift, the shares trade at $10/share, or $10,000.  If you sell the shares and donate the cash, your gain is $6,000. Only one-half of the capital gains are taxable, therefore, $3,000 would be recorded as taxable income.
Assuming your tax rate is 39%, your income tax on the gain is $1,170, leaving $8,830 to donate.

Example 2:

Donate the shares: You own the same shares described above. Instead you donate 1,000 shares directly.  Because the shares are directly donated, there is no tax on the capital gain, and the charity receives the full $10,000 value.
The comparison can be illustrated below:

Donate the shares

Sale of Shares Donate Shares
Market Value of Stock $ 10,000 $ 10,000
Initial Cost of Stock $ 5,000 $ 5,000
Capital Gain $ 5,000 $ 5,000
Gain Open to Tax (%) (50%)   ($2,500)       (0%)   ($0 000)
Gain Tax Rate – 45% (*45% x 2,500)   $ 1,125 (*45% x 0)   $0,000
Net Proceeds (10,000-1,125)   $8,875 (10,000 – 0)   $10,000
Donation Receipt $ 8,875 $ 10,000

(*A 45% tax credit rate it used in the calculations)


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