Donations of Securities
The LGAC has accepted its first donations through the transfer of securities and established the administrative process for other donors. Since 2006, Canadians have been able to donate securities to a charity and take advantage of a provision in the Income Tax Act under which a capital gain on the disposition of the donated securities is excluded in the donor’s tax calculation. This can provide the donor with an additional tax benefit if the cost base of the security would normally trigger a capital gain.
For example, assume an Ontario donor with a combined federal and provincial marginal tax rate of 40%. If the donor has already made a charitable donation of $200 in the year, subsequent donations will receive a tax credit of about 40%, thereby offsetting the tax on income for the donation amount. Normally, if the taxpayer sells a security where the proceeds of disposition is higher than the security’s cost base, 50% of the capital gain is taxed as income at the taxpayer’s marginal tax rate. However, if a donor makes the donation through the transfer of securities, the capital gain is excluded. For instance, if the market value of the security is 35% higher than the cost base of the security, the tax on the capital gain would normally be 7% (40% x 50% x 35%). The 7% saving raises the total tax benefit from the donation from 40% to 47%. Note that the calculation will vary from province to province and depends, obviously, on the size of the capital gain on the specific donated security.
The LGAC has posted a Donation of Securities Form on this website (Donation of Securities Form). On the Form, the donor provides the name of the security and the specific number of shares to be donated, as well as the donor’s investment account information. The donor delivers the Form to his or her investment advisor who arranges for the transfer of the securities from the donor’s investment account to the LGAC’s investment account. (The LGAC’s investment account information is also on the Form). While the security’s transfer can usually be executed within a few hours after the donor delivers the Form to his or her investment advisor, donors should be aware that the value of the donation is based on the ‘fair market value’ of the securities at the actual at the time of day that the securities are deposited into the LGAC’s account. Canadian charities can issue a tax receipt for the fair market value amount. In order to minimize a charity’s market risk, charities instruct their investment advisors to sell the donated securities as soon as possible after they are received in their account. Any change in the value of the securities after receipt in the charity’s account does not affect the donation amount. When donor files his or her income tax return, the donor records the transaction on the Canada Revenue Agency Form 1170, inputting the donation amount as the cost base of the donated securities, rather than the actual historical cost base, thereby eliminating any capital gain.
While there is no specified minimum donation amount for making a donation of securities, it will likely be of interest to donors considering a donation of $2,000 or more. The LGAC needs to be advised in advance of any securities donation so it can instruct its investment advisor to sell the securities as soon as possible after they reach the LGAC’s account. Any member wishing to discuss the donation of securities should contact the LGAC’s Administrator, Brian Cardie, at firstname.lastname@example.org. He will arrange a call to review the process with you in more detail.
|LGAC Donation of Securities Form Nov_14.pdf||209.17 KB|