DONATION OF PUBLICLY TRADED SECURITIES: Increase the Value of Charitable Giving

20 Oct DONATION OF PUBLICLY TRADED SECURITIES: Increase the Value of Charitable Giving

An individual who gifts cash or assets to a charity is able to claim a donation tax credit which reduces their personal tax liability. If the individual gifts certain publicly traded securities directly to the charity, they may enjoy additional benefits.

While the full value of the securities will be a charitable donation either way, if the securities are donated directly to the charity, the taxable portion of the capital gain is reduced to 0%. That means there is no tax liability on the disposition. For example, consider an individual who wishes to gift $5,000. If that individual sells $5,000 worth of publicly traded securities, they must then pay capital gains tax on the disposition. However, if they donate the shares directly to the charity, they are not subject to the capital gains tax, but still benefit from the donation tax credit.

Though the planning may seem simple there are a number of complexities that may arise. For example, while similar benefits can be obtained when gifting securities acquired through an employee stock option plan, careful planning is required to eliminate the taxable benefit which normally arises on exercise of these options.

Corporations also benefit from no capital gains tax on these donations. In addition, they receive the added benefit of increasing their capital dividend account by the full amount of the capital gain, potentially allowing payment of tax-free dividends.

Action Item: When planning charitable giving, consideration should be given to gifting publicly traded securities, rather than cash, to better the tax benefits.

This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.