One form of a “gift in kind” is a transfer of a security that is listed on a recognized stock exchange. If you choose to give HART this form of gift, you receive a special tax benefit if shares have appreciated in value since you acquired them. When you make a gift of shares, there is no tax on the capital gains.
If an individual sells appreciated securities, tax must be paid on 50% of the capital gains. If appreciated securities are held on death, unless assets pass without income tax being applicable (usually where assets pass to a surviving spouse), tax must also be paid on 50% of the capital gains. A special provision of the Income Tax Act provides an opportunity for donors to eliminate a tax liability that would otherwise eventually have to be paid.
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.
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||Gift of Shares|
|Share value||$10 000||$10 000|
|Income tax on capital gains||$1 170||–|
|Net gift||$8 830||$10 000|
|Charitable gift tax credit*||($4 415)||($5 000)|
|Net cost of gift||$6 755||$5 000|
|The benefit to the charity||$8 830||$10 000|
*Applicable for Alberta resident taxpayers. Assumes other donations of $200 or more in the year.