Charles Longworth feels passionately about the work of the Anglican Church in Canada’s North. He has worked in northern dioceses as an engineer and is particularly interested in supporting ministry in First Nations communities. Charles has thought about how he might do this, and has concluded that making a charitable gift with stocks and other listed securities would be better than writing a cheque. This is because all of the taxable gain in a qualifying gift of securities is now entirely exempt from taxation-as introduced in the May 2, 2006 federal budget.
If Charles sold some listed securities, 50 per cent of the gain would be taxable. However, as he has learned, when you contribute qualifying securities to the Anglican Church of Canada or to any charity other than a private foundation, none of the gain is taxable. For example, if you donate securities that originally cost you $2,000 and are now worth $10,000, you recognize $8,000 of capital gain but pay no tax on the gain.
Your donation receipt will be issued for the full fair market value of the securities on the date they are transferred to the church. In computing the amount of your charitable tax credit, you receive the benefit of all the appreciation that can now be applied to reduce taxes payable on other income.
Planning opportunities with listed securities
1. When it’s time to sell
You may own securities you don’t think will perform in the future as well as they have in the past, or maybe you expect a correction in the entire market. Nevertheless, you hesitate to sell because you don’t want to pay tax on the gain. If you have been planning to make a charitable gift, these securities could be the ideal asset to use for that gift. The net cost of the gift could be relatively low.
Consider this example: Charles thinks it is time to sell some stock now valued at $10,000, for which he originally paid $2,000. He has decided to make a $10,000 gift to the Council of the North Trust administered by the Anglican Foundation. His combined federal and provincial tax rate and charitable tax credit are both 45%.
If Charles sold the stock, he would have to pay $1,800 for the tax on his capital gain (50% x $8,000 = $4,000; the tax on this capital gain works out to $1,800: 45% x $4,000).
But Charles knows better. He will give his securities to the Anglican Foundation.
As he does so, he receives a tax credit of $4,500 (45% x $10,000). There is no tax on his capital gain of $8,000.
2. When you want to hold
Unlike Charles in the previous example, you may have a stock you think has a great future. While you like the idea of exempting part of the gain from taxation, you don’t want to lose out on likely future appreciation. Thus, you are more inclined to hold the stock and make this year’s charitable gift with cash.
If you hold such stock, you might consider giving it and using the cash, which you otherwise would have given, to repurchase the stock on the market. Thereby, you would have established a higher value (cost base) for the stock, and when you sell it in the future you will be taxed only on the gain accruing after the repurchase.
3. Bequest of securities
The full exemption from taxable gain applies to charitable bequests and to lifetime gifts. If you intend to make bequests to the church as well as to family members, it could be advantageous to fund your charitable bequest with appreciated, listed securities and your family bequests with other assets. You can do this by making a specific bequest of certain securities, or by empowering your executor to select the assets for the charitable bequest.
Suppose, for example, that your estate consists of your principal residence, plus cash, plus $100,000 of listed stock with an adjusted cost base (original cost) of $40,000, and that you want to leave $100,000 to the Anglican Foundation and the balance to your children. If the stock goes to the children, $30,000 of the gain (50% x $60,000) will be taxed, but if it goes to the Anglican Foundation, the full $60,000 gain will be exempt from taxation. Better, then, to give the church your stock and your children your cash and principal residence, neither of which is taxable.
It’s amazing what one can do when one is feeling generous, visionary, and thoughtful.
For more information about gift planning, please contact Archdeacon John M. Robertson at 1.888.439.GIFT or jrobertson@national.anglican.ca
