Charitable giving. a new opportunity!

Question: We're considering the option of donating some of our stocks to a favourite charity. Would it be better to sell the stock and then give the money to our charity or should we donate the stock directly?

Answer: This is a good question. Since the income tax changes were made to the 1998 and 2001 Federal Budget, people have begun to realize the attractiveness of charitable giving in order to save on their taxes. The reduction in the capital gain inclusion rate has provided an even greater advantage for taxpayers, equaling a large rise in donations for charities.

These changes have enabled individuals to give a security (such as a stock, mutual fund or segregated fund) directly to a favourite charity, while receiving additional tax breaks while they're still alive.

How does this tax break work? According to the Canada Revenue Agency (CRA - previously known as the Canadian Customs and Revenue Agency or CCRA), if you donate certain types of capital property to a registered charity or other qualified charitable organization (other than a private foundation), you only have to include in income and pay taxes on 25 per cent of the capital gain on these gifts. This is half the normal rate, which normally 50 per cent of the appreciation of capital assets is subject to tax.

This rate applies to the donation of thefollowing types of properties:

. a share right and debt obligation listed on a major Canadian stock exchange and certain foreign exchanges.
. 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
. a prescribed debt obligation
. ecologically sensitive land (including a servitude, covenant, or easement).

Under the changes, it's better to gift securities to charities rather than selling them and then donating the cash. For example, take the situation shown below of an individual who has stock units currently worth $10,000 with a tax (ACB) cost of $4,000.

For example:

** Tax credit calculation based on a rate of 16% on the first $200 of donation and 29% on any amount in excess of $200. The amount of tax credit is limited by an individual's income.

The information contained in this article is intended to provide general guidelines only. The material herein is provided solely for informational and educational purposes and is not to be considered as an offer or solicitation for the sale or purchase of any investments or insurance. The application and impact of the law can vary from case to case based on the specific or unique facts involved. Accordingly, the information in this article is not intended to serve as legal, accounting or tax advice. Users are encouraged to consult with their professional advisors for advice concerning specific matters before making a decision.