The last quarter of the year is when most of us try to make sure we have made our charitable donations before the December 31st deadline to be able to qualify for a charitable donation tax credit in 2020.
If you own stocks and bonds and other publicly listed securities with significant accrued capital gains, you should consider gifting them to a charity in your lifetime or in your will as the favourable tax treatment can shave thousands of dollars off the tax bill for you or your estate.
If you transfer publicly listed securities or mutual funds to a registered charity or registered private foundation, the capital gains on those securities will not be subject to tax. You will still be eligible for receiving a charitable donation tax credit based on the fair market value of the securities at the time of transfer to the charity.
If you really like those securities and would like to have them as part of your portfolio, you can always purchase them back by using the cash you had earmarked for giving to charity. By donating the securities in kind and using cash to purchase them back you will eliminate the capital gains on the shares that you donate and will bump up the cost base of your securities so when you sell them in the future or on your death there would be less capital gains tax payable.
If you acquire stocks with your employee stock options, you can also donate your stock options to a charity. By doing so, not only will the capital gains not be taxable, but your employment benefit that is included in your taxable income is eliminated as well.
You should note that if you acquired flow-through shares on or after March 22, 2011, a capital gain will be realized when donating them to a charity and the above rules will not apply.
Tina Tehranchian, MA, CFP®, CLU®, CHFC®, is a FP CanadaTM Fellow and a Senior Wealth Advisor at Assante Capital Management Ltd. in Richmond Hill Ontario. She can be reached at (905) 707-5220 or through her website at www.tinatehranchian.com. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Before acting on any of the above, please make sure to see a professional advisor for individual financial advice based on your personal circumstances.