Richard Niedermayer is a partner in the Halifax office of Stewart McKelvey. His practice focuses on estates and trusts, and tax. He is a currently Secretary of the National Wills, Estates and Trusts Section of the Canadian Bar Association and Vice Chair of the Atlantic Branch of the Society of Trust and Estate Practitioners (STEP). He is also a member of the Canadian Association of Gift Planners and the Canadian Tax Foundation.
I was contacted last week by the IWK Foundation to talk about the tax advantages of donating publically traded marketable securities rather than cash before the end of the year. The Foundation has noticed an upswing in the securities donated from people who have realized capital gains from their investments after a period of stagnation. The staff thought it might be a good time to remind the public of the tax advantages.
It is not just because securities are now rebounding that is leading people to donate. It is also because of the tax advantages. If you donate eligible securities to a charity you don’t have to pay tax on any capital gains, but you get a tax receipt for the fair market value on the date of the transfer.
For example; if you have stock that has gained $500 since purchase, you not only avoid paying tax on the $500, but you can also realize an additional tax saving by deducting the full value of the donation from the taxes you would otherwise pay.
The government has been moving in this direction for some time by reducing the amount of capital gains that was taxable to zero over the past few years. This tax relief is what is called ‘social capital.’ An individual can decide to donate to a charity and trade their donation for tax relief or realize the profit him or herself, and pay tax to the government to support the government’s spending.
The government is saying: you have a choice; it may reduce the money it is spending to support charitable ventures, but allowing citizens to decide to fill that shortfall by donating securities and, indirectly, rerouting tax revenue to the charities.
There is a maximum. After the first $200 of donations , each dollar you donate to charity is deducted dollar for dollar from your tax payable up to a maximum of 75 per cent of your income. In other words, if you were supposed to pay $4000 in taxes, you can divert it all to charity instead.
The deadline for taking advantage of this tax incentive for 2010 is December 31, but it would be wise to set the transaction in motion before Christmas. Most charities – and the IWK Foundation is no exception – will take care of most of the details for you.
To make a donation of stock call the Foundation at 470-8085 or 1-800-595-2266 and ask for Gena Walton. Or check www.iwkfoundation.org/securities