Kathy Assayag JCF Executive DirectorIt is rare that our tax laws include rules that we can actually get excited about. The treatment of the donation of Marketable Securities is one such rule.

Why Marketable Securities?

Generally, when a donor donates assets other than cash, they are considered to have sold the asset at fair market value. Therefore, if the asset has appreciated in value since the donor acquired it, they would realize a capital gain and would have to pay tax on that gain.  To incentivize charitable donations, the Canadian government provides tax credits for donations. Perhaps the most advantageous strategy for knowledgeable investors is to donate their appreciated marketable securities.

“Donating marketable securities such as stocks, bonds or mutual funds

can create significant tax deductions”

The beauty of donating Marketable Securities (publicly traded stocks, bonds and mutual funds) is that the donor will not have to pay tax on any appreciated value in the Marketable Security. Thus, the donor not only benefits from the tax benefits of making the donation, but also saves the tax that otherwise would have been owing on a sale of the securities.

marketable securities

Socks, bonds and mutual funds are marketable securities that can be donated and thereby create a tax benefit

How Does It Work?

Let’s look at the following example to illustrate the advantages of donating Marketable Securities.

Assume Mr. Arnold owns a stock for which he paid $50,000 and is now worth $100,000.

SCENARIO 1: Mr. Arnold sells the stock for $100,000, realizes a capital gain of $50,000, a taxable capital gain of $25,000 and pays tax of approximately $12,500. He then donates $87,500 ($100,000-$12,500) of cash, receives a donation receipt in that amount and saves approximately $43,750 in tax. So, at the end of the day the charity has $87,500 and Mr. Arnold is out of pocket $56,250 ($100,000-$43,750).

SCENARIO 2:  Mr. Arnold donates $100,000 of stock and pays no tax. He will also save approximately $50,000 in tax because of the $100,000 donation receipt he will receive. At the end of the day the charity has $100,000 (instead of $87,500 in Scenario 1) and Mr. Arnold is out of pocket only $50,000 (instead of $56,250 in Scenario 1)

If Mr. Arnold likes the stock and feels it will continue to appreciate, he can purchase the stock again on the market with the cash that would otherwise been used to make the donation. This stock will now have a higher cost base, which means less taxable gains in the future.

It should be noted that there are even greater advantages to donating Marketable Securities if the donor is a corporation as the donation will create a greater pool of money that can be withdrawn tax free from the corporation.

“There are even greater advantages to donating Marketable Securities

if the donor is a corporation”

For any donor who has the option of donating cash or Marketable Securities which have appreciated in value, it is clear that the Marketable Securities should be donated. Simply put, it is a win-win situation. Now, that’s Smart Philanthropy.

As always, we encourage you to seek the advice of your trusted professional advisors to make sure this and SMART philanthropy tools work for you and your family.

For more information, please contact a Philanthropic Advisor by phone: 514-345-6414; email: [email protected]; website: www.jcfmontreal.org.

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