Appreciated Securities

Gifts of appreciated securities that are publicly listed have an added benefit of eliminated capital gains. Donors can benefit from this added incentive to reduce the real cost of their charitable giving or increase the amount of their gifts without increasing the cost.

The transaction is generally a simple electronic transfer of shares undertaken by the professional advisor but can include gifts of paper shares when that is what the donor holds.

The recipient charity will require a direction signed from the donor indicating they are the registered holder of the shares, and this document will also, in most cases, be used to inform the charity and their custodian of the imminent transfer.

Gift Examples

  • Publicly listed shares, rights and debt obligations1
  • Shares of a Canadian public mutual fund corporation
  • Units of widely held Canadian mutual fund trusts

Note 1: Securities that are listed on Toronto, Montreal and tiers 1 and 2 (but not 3) of the TSX Venture Exchange qualify for this incentive, as do those that are listed on the NYSE, Nasdaq (excluding the Over-the-Counter Bulletin Board) and most other major foreign exchanges

Benefits to the Donor

  • Immediate donation receipt for fair market value of security, generally determined as the closing price on the day the gift is received by the charity
  • Favourable reductions in capital gains taxation
  • Gifts can be given during donor’s lifetime or after, through their estate.

Most Appropriate for

  • Donors with investment portfolios that include significantly appreciated securities.

Example

Donor wishes to make a gift of $10,000

Fair market value of stock $ 10,000
Cost base of stock 2,000

 

Option 1 – Sell stock and make $10,000 gift from cash proceeds
Option 2 – Gift stock to charity

Option 1 Option 2
Sale/Gift of Stock $ 10,000 $ 10,000
Capital gain 8,000 8,000
Taxable gain (50% x $8,000) 4,000 0
Gift tax credit (45% * 10,000) 4,500 4,500
Tax on gain (45% * 4,000) (1,800)
Cost of gift 7,300 5,500

 


For illustration purposes a combined tax rate of 45% was used. Please note that combined tax rates vary across the provinces. 2015 tax table.

Note to reader: The purpose of this publication is to provide general information, not to render legal advice. In addition any changes in the tax structure may affect the examples listed in this information. Your client should consult their own lawyer or other professional advisor about the applicability of this information to their situation.

Additional Resources

Gifts of Appreciated Securities – Client info sheet
(add your own label or stamp to customize it for your clients)

Gifts of Stock Options

2017 Gifts of Private Securities

Donor Story

“Our stock returns provided the means for giving to our community,” say Joanne and Gerald Johnson. That’s why they joined the many people who choose to contribute appreciated stock directly to their local community foundation.

Last year, the Johnson fund supported a local family outreach program, a homeless shelter, and a local theatre group. “Some of our charities are too small to accept direct stock gifts,” says Joanne. “Giving through the community foundation eliminates that barrier.”

The Johnsons received a tax credit based on the fair market value of their appreciated stock, while avoiding the capital gains tax that would otherwise arise from its sale. Gerald says, “It’s a simple, satisfying way to give.”