RMHO - A new tax break when you donate securities to charity

Under the old rules, when you donated securities to charity, it was deemed a disposition for tax purposes. That meant that any appreciation in the value of the securities from the date you acquired them to the date they were donated was treated as a taxable capital gain.

However, in the 2006 federal budget, this rule was changed to provide a significant tax break for charitable donors. You may now donate stocks, bonds, futures and options, as well as shares in mutual funds to a registered charity without paying any tax on the capital gain.

As a donor, these tax savings may increase the amount you can afford to give, or simply reduce the our-of-pocket expense of your gift.

Significant tax savings

The following table compares the tax consequences of selling a security and realizing a capital gain, versus donating the same security to a charity.

	.. Sell Security	Donate Security
Market Value of security	$100,000	$100,000
Adjusted Cost Base of security	$50,000	$50,000
Taxable portion of capital gain (50%)	$25,000	$0
Tax on capital gain*	$11,603	$0
Charitable donation/tax receipt	N/A	$100,000
Charitable tax credit*	N/A	$46,410
Net Proceeds	$88,398	$46,410

* Based on Ontario's top marginal tax rate of 46.41 %

In this example, making a donation of securities allowed the investor to avoid $11,603 in capital gains tax in addition to receiving a $46,410 charitable tax credit. On an after-tax basis, when you factor in both the tax credit and the capital gains savings, this $100,000 gift to charity cost the investor only $41,987.

It is now possible for you to donate shares and receive a charitable tax receipt equal to their market value, without triggering any capital gains tax. Thanks to this new tax legislation, it's never been more affordable to show your generosity.

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