People who own stocks, bonds or mutual funds are pleased to
learn that their investments have increased. Unfortunately, when
such an investment is converted to cash the realized capital
gain is taxable. You can decrease the financial impact this will
have by donating your publicly listed security directly to a
charitable organization.
In 1997, the Federal government made these types of gifts more
attractive by reducing the taxable portion of the capital gain
to 25% from 50%. It is our pleasure to inform you that
the 2006 budget makes donating publicly listed securities (PLS)
even more attractive by eliminating the capital gains tax on
such gifts as shares, bills, warrants, mutual funds and futures
listed on stock exchanges - including those in Alberta, Montreal,
Toronto, Vancouver and Winnipeg.
You may own securities that you don’t
think will perform in the future as well as they have in the
past, or maybe you expect a correction in the entire market.
Nevertheless, you hesitate to sell because you don’t want
to pay tax on the gain. If you have been planning to make a charitable
gift, these securities could be the ideal asset to use for that
gift. The net cost of the gift could be relatively low.
Consider
the following example:
Making a gift of $10,000 in stock: Mr.
M.S. Donor purchased ABC Company stock some years ago has a Fair
Market Value (FMV) of $10,000 which he paid $2,000 (adjusted
cost base - ACB). He has made recent charitable donations
to the MS Society and has decided that he would like to make
a substantial gift to support the work of the organization. When
looking at his stock portfolio, he is considering giving his
ABC Company stocks to the MS Society as a Planned Gift. His combined
federal and provincial tax rate and charitable tax credit are
both 45%. Here is an example of the real cost of giving the stock
instead of selling it.
Option 1 — Sell the stock,
then make a gift
Amount of gift
$10,000
Total gain (FMV-ACB) ($10,000-$2,000)
$ 8,000
Taxable gain (50% x $8,000)
$4,000
Tax on gain (45% x $4,000)
$1,800
Tax credit (45% x $10,000)
$4,500
Net credit (tax credit – tax
on gain)
$2,700
Net cost (gift – net credit)
$7,300
Option 2 – Donate the stock “in
kind”
Amount of gift
$10,000
Total gain (FMV-ACB) ($10,000 - $2,000)
$ 8,000
Taxable gain (0% x $8,000)
$0
Tax on gain (0% x $4,000)
$0
Tax credit (45% x $10,000)
$4,500
Net credit (tax credit – tax on gain)
$4,500
Net cost: (gift – net credit)
$5,500
Net advantage of donating stock “in kind”
($7,300
- $5,500)
$1,800
(As opposed to $900 before elimination of
capital gains tax on gifts of stock)
Tax savings are $1,800 more if Mr. M.S. Donor gives the stock
instead of selling the stock and giving the cash proceeds. Or
put another way, the cost of making the gift is $1,800 less.
Before deciding on any financial matters, it’s best to
seek out the advice of a professional financial planner.
For
more information on making a gift of securities, please contactthe MS
Society Office in your area.
