When a taxpayer donates securities to a qualified donee, the taxpayer will receive a donation receipt for the market value of the securities. The donation of the securities is a disposition for income tax purposes. If there is a capital gain on the disposition, the taxpayer will pay tax on 50% of the capital gain.
When a taxpayer donates publicly traded securities to a qualified donee, any resulting capital gain, which would otherwise be taxable, is not included in income. The end result is the taxpayer has no tax payable on the transfer of the securities to the qualified donee and the taxpayer receives a donation receipt for the full value of the securities at the time of transfer. Note, a publicly traded security is a share, debt obligation or right listed on a designated stock exchange, a share of the capital stock of a mutual fund corporation, a unit of a mutual fund trust, an interest in a related segregated fund trust or a prescribed debt obligation.
For an individual who is resident in Alberta for income tax purposes, once the individual has made a total of $200 of donations in the year, the individual will receive a tax credit equal to either 50% or 54% of the amount donated for each subsequent donation. The 54% credit is for individuals who are in the highest tax bracket for Federal tax purposes (for 2021, this is individuals with taxable income in excess of $216,511). The 50% credit is for all other individuals. If the tax credit cannot be used in the year the donation is made, it can be carried forward for five years.
If you own publicly traded securities which have increased in value since purchase and you are thinking about making a donation to a registered charity, you may want to consider donating securities rather than selling securities and donating the net cash proceeds. Consider the following example which shows a $1,920 additional tax saving if publicly traded securities are donated to a qualified donee. (The example assumes a donation of publicly traded securities by an Alberta resident individual in the highest Alberta tax bracket who has already made at least $200 in donations in the year. 2021 tax rates and credits have been used).
|Sell securities and donate proceeds|| |
|Adjusted cost base||$2,000||$2,000|
|Taxable capital gain||$4,000||$0|
|Tax on gain||$1,920||$0|
|Total tax saving||$5,400||$7,320|
By donating publicly traded securities, your philanthropic goals can be attained by funding the registered charity of your choice while also helping minimize taxes.