Securities gifts include stocks, bonds, bills, warrants and futures traded on approved stock exchanges in Canada and certain other countries. The 2006 Canadian federal budget introduced a special tax incentive on gifts of publicly traded securities and mutual funds - gifts of securities to a charity eliminate the capital gains tax. Donating securities directly, as opposed to selling the securities first and then donating the cash received, is more lucrative for both the donor and the charity. For example:
A donor has shares bought for $400, which are now worth $1,000. If the shares are sold and the cash donated, the individual will have a capital gain of $600, taxed as though 50 per cent were income.
At an Ontario marginal tax rate of 46.41 per cent, the capital gains tax would be $139.23, leaving a donation of $860.77, which would garner a tax receipt of $399.48.
Direct donations are worth more - If the $1,000 worth of shares is donated directly, the tax credit is $464.10 and the $139.23 of capital gains tax is avoided. So the charity benefits by receiving the full $1,000 and the investor benefits by more than $600. In fact, granted the tax credit was more than the original price, the investor has actually made a profit on the shares.
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