Gifts of Publicly Listed Securities

Do your clients own highly appreciated securities?

Changes to the income tax act make donating securities such as stocks, bonds and mutual funds traded on major stock exchanges very tax efficient for your clients.

When your client transfers publicly listed securities directly to the QEII Foundation, the capital gain inclusion rate is 0 percent, rather than the usual 50 percent. This means none of the gain is taxed and your client will still receive a charitable tax receipt for the full market value of the securities. Your client may be able to substantially increase the amount of their gift for the same after-tax cost. In order to qualify for this special tax treatment, the securities must be transferred in-kind to the QEII Foundation, and not sold with the proceeds contributed. The elimination of capital gains tax also applies to gifts of securities in a will.

Please note: Refer to procedures for donating securities for important information.

Need an example? George and Sarah are interested in supporting new diagnostic imaging equipment at the QEII, and decide to make a gift in memory of Sarah’s parents. Their advisor suggests it is time to sell some shares they purchased years ago at a cost of $30,000. Today they are worth $70,000. Their combined federal and provincial tax rate is 50 percent.

Option 1 – Sell stock
Proceeds from sale - $70,000
Cost base of stock - $30,000
Capital Gain recognized - $40,000

Taxable Gain (50% of $40,000) - $20,000
Tax on Gain (50% of $20,000) - $10,000

Net after-tax proceeds - $60,000

Option 2 – Donate stock in kind
Total amount donated - $70,000
Cost base of stock - $30,000

Capital Gain recognized - $0
Taxable Gain (0% of gain) - $0
Tax on Gain (50% of taxable gain) - $0

Tax credit (50% of $70,000) - $35,000
Cost of gift (donation less tax credit) - $35,000

Net cost of gift compared to sale proceeds
($60,000 - $35,000) - $25,000

It costs George and Sarah $25,000 to make the $70,000 donation.

What are the benefits of this kind of gift?

✓      Immediate charitable tax receipt for fair market value of security

✓      Elimination of capital gains tax on securities, perhaps making a larger gift possible

✓      Gifts may be given during donor's lifetime or through their estate

Does your client own a holding company? If your client owns a company holding publicly-listed securities it may be advantageous to use these assets to make the gift. The tax free portion of the transaction, which in this case will be the entire capital gains, may be credited to the company’s capital dividend account. Balances in this notional account may be paid tax free to shareholders.

What about capital loss? In cases where there is a capital loss, donating these securities allows your client to realize the capital loss and apply this loss against past or future capital gains. Capital losses can be carried back three years and forward indefinitely to offset capital gains.

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Have questions? Contact us:

Charles O'Neil: 902 442 7196
Lori Scott: 902 442 7199
Katharine Berrington: 902 442 7146

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Resources for your practice

Professional Advisors Guide
A guide for financial advisors - CAGP
Ten articles that will make a difference in your practice.

Survey and report
CAGP report link
Understanding advisors' approaches and clients' perspectives.

The QEII Foundation inspires generosity to advance health care at the QEII Health Sciences Centre. With financial support from all levels of the community, the Foundation helps fund new technologies, research, innovation and education that contribute to life-changing moments experienced every day by patients and their loved ones.

 

 

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Contact Us

QEII Health Sciences Centre Foundation
5657 Spring Garden Road
Park Lane Mall, Suite 3005, Halifax, Nova Scotia B3J 3R4
Phone: 902 334 1546 | Toll Free: 1 888 428 0220
Fax: 902 442 7172 | Email: info@qe2foundation.ca

Charitable Business No: 88646 3496 RR0001

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