Most of us make charitable donations throughout year. It might be a nominal amount for a friend’s fun run or a larger sum for an organization or campaign that you feel connected to. In most cases, we don’t think about how this is done. We log into the website. Select our amount. Add in our credit card details. And out pops a charitable tax receipt.
For those looking to make meaningful charitable contributions there may be a better way. The CRA allows for the in-kind transfer of securities to a charity without incurring the capital gain. That’s right, you avoid triggering the tax on the capital gains and still receive your charitable receipt.
Let me give you an example. Here the individual, call her Susan, has $100,000 of the Global Fund which has knocked it out of the park over the last 10 years. She’s done well and is looking to support her favourite charity. She’s thinking – she hit the jackpot so why not spread the wealth around.
Susan - amazing.
Let’s look a little deeper to see how this works. The market value is $100,000 but the adjusted cost base or tax base is $40,000. Meaning, if Susan sold the security that would trigger a capital gain of $60,000 which may translate into a tax bill of $12,000. As a result, Susan would only have $88,000 to donate. Yikes. Or, viewed another way - it would cost her $12,000 to donate $100,000. That doesn’t feel right.
Alternatively.
We could have the Global Fund transferred in-kind or, as is, to the charity without triggering the capital gain. $100,000 out – means $100,000 in. This means we are transferring units of the Global Fund – not a specific dollar amount.
It’s a simple shift, but it makes a big difference.
Now before we all start thinking about what wing of the hospital we are going to build we first need to remember that this only applies to non-registered accounts. RRSPs, RRIFs or TFSAs don’t qualify as selling securities within them doesn’t trigger a taxable capital gain.
In practice, we don’t transfer securities to the charity directly. Instead, a 3rd party helps administer the process. In our case, Assante has partnered with a company called Benefaction. Once the transfer is complete, you get the tax receipt and the funds are earmarked for charity. You get to choose the charity, campaign and amount through their on-line tool keeping in mind that CRA stipulates that 5% needs to be donated each year. Importantly, Benefaction has a minimum account size of $25,000.
It’s a win-win… with one small loser.
You benefit. The charity benefits. And the CRA? Well, they miss out on some tax revenue. But in this case, that’s a trade-off most of us can live with.
If you have any questions, feel free to get in touch.
Bryan Deviney is a Senior Financial Advisor with Assante Capital Management Ltd. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Please contact him at 416.216.6500 or visit www.bryandeviney.com to discuss your particular circumstances prior to acting on the information above. Assante Capital Management Ltd. is a Member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.
The case study mentioned in this presentation is provided for illustrative purposes only and does not represent an actual client or an actual client’s experience, but rather is meant to provide an example of our process and methodology. The results portrayed is not representative of all of our clients’ experiences.
