Maximize Your Impact by Donating Securities

When you think about supporting healthcare in the Nicola Valley, writing a check or making an online credit card donation is often the first method that comes to mind. The Canadian government provides a non-refundable tax credit when you make a personal donation to a registered charity like the Nicola Valley Health Care Endowment Foundation, directly reducing your federal and provincial income taxes payable. However, there is an even more financially savvy way to give: donating appreciated securities in-kind. 

If you choose to gift publicly traded shares, mutual funds, segregated fund trusts, or government bonds directly to our foundation instead of cash, you can significantly enhance your personal tax benefits while making a meaningful difference in our community.

Generally, when you gift property or sell an investment, it is deemed to have been disposed of at its fair market value (FMV). If the security has grown in value since you acquired it, you would normally trigger a taxable capital gain. The incredible advantage of donating eligible securities "in-kind"—meaning you transfer the shares directly to the charity without selling them first—is that the taxable capital gains are completely eliminated. This rule applies to individuals holding securities on account of capital. By utilizing this strategy, you receive an official donation tax receipt for the full fair market value of the shares, while entirely wiping out the tax bill on the growth of that investment.

To see how this works in practice, consider an example of a donor who wants to make a $50,000 donation using shares that originally cost $10,000 (meaning there is an accrued capital gain of $40,000). Assuming a combined federal and provincial marginal tax rate and donation credit rate of 46%, let’s compare the two routes: 

• Option A: Sell the shares and donate cash. Selling the shares triggers a $20,000 taxable capital gain (50% inclusion rate), leading to $9,200 in capital gains tax. After claiming the $23,000 donation tax credit, the actual out-of-pocket cost of making that $50,000 gift is $36,200. 
• Option B: Donate the shares directly. By transferring the shares in-kind, the taxable capital gain becomes $0, and the capital gains tax is eliminated. The donor still receives the full $23,000 donation tax credit. This brings the true out-of-pocket cost of the $50,000 donation down to just $27,000. 

In this scenario, donating the shares directly saves the donor an extra $9,200—money that stays in your pocket while your local healthcare foundation receives the exact same generous contribution. 

The tax rules offer excellent flexibility to align your donation goals with your personal financial planning:

• Carry-Forward Rules: You do not have to claim your entire donation tax credit in the year the gift is made. You can carry it forward for up to five years, allowing you to save the credits for a higher-income year to maximize your tax savings. 
• Donation Limits: While there is no limit to what you can give, you can generally claim a charitable donation of up to 75% of your net income in a single taxation year (or 100% in the year of death and the preceding year), with any excess carried forward. 
• Donating Depreciated Securities: If you have securities that have lost value, donating them in-kind will trigger a capital loss that can be used to offset other capital gains, while still granting you a donation tax credit for the current FMV of the shares. 
• Strategic Offsets: If you need to sell part of a large portfolio to fund personal lifestyle expenses, you can choose to donate a specific portion of your shares to generate enough donation tax credits to completely eliminate the tax liability on the shares you sold. 

While in-kind security donations are incredibly powerful, certain types of assets require distinct handling. For instance, assets held inside registered accounts like an RRSP or RRIF do not qualify for the zero capital gains treatment, as withdrawals from these accounts are taxed as regular income rather than capital gains. Furthermore, large donations can sometimes interact with the Alternative Minimum Tax (AMT), so it is crucial to consult with a financial expert. 

When considering an in-kind transfer, always contact the Nicola Valley Health Care Endowment Foundation to verify the transfer process and your financial advisor to ensure your donation strategy perfectly aligns with your personal financial circumstances.

Source: Charitable donations of securities by RBC Wealth Management, downloadable here.