Tax Articles
Securities: A Great Gift Idea
Brampton Board of Trade
Kais Aziz, CA
At this time of the year, many of us receive countless requests from charitable organizations. But before you write a cheque to your favourite charities, you might want to think about making a gift of securities.
In May, the federal government made it more attractive to gift securities directly to charities when the budget announced that charitable donations of publicly listed securities to registered charities would be exempt from capital gains tax. This is a major bonus for charitable givers who wish to donate securities with an accrued capital gain; previously, 25% of any capital gains triggered were taxed.
Eligible securities include:
- shares, rights and debt obligations (typically bonds or debentures) that are listed on a prescribed stock exchange (including most major foreign stock exchanges),
- shares of a Canadian public mutual fund corporation and units of a mutual fund trust,
- interests in a segregated fund trust, and
- a bond, debenture, note or mortgage of the Canadian federal or provincial governments.
The chart shows that if you sell the shares and donate the cash to a charitable organization, you will have to pay $464 in tax. On the other hand, if you donate the shares directly to a charity, you will pay no tax. Kinda puts a whole new twist on gift ideas, doesn’t it?
Tax on capital gain |
| |
Sell shares and
donate cash |
Donate shares
directly |
| Current value of shares |
$3,000 |
$3,000 |
| Original cost of shares |
(1,000) |
(1,000) |
| Capital gain |
$2,000 |
$2,000 |
| Taxable portion of gain |
(50%)
$1,000 |
(0%)
$0 |
Tax (46.4%: top tax rate for an Ontario resident in 2006) |
$464 |
$0 |
Kais Aziz, CA, is a senior manager of BDO Dunwoody LLP (www.bdo.ca). One of Canada’s leading accounting firms, BDO helps entrepreneurs and family businesses succeed. If you have questions about this article or you would like to receive BDO’s Tax Factor newsletter, contact Kais at (905) 270-7700 or kaziz@bdo.ca.
