You can’t take it with you – start your legacy now!
Board Chair, Arthritis Research Canada
Partner and Managing Director, KPMG Corporate Finance Inc.
Donations through wills and estates are becoming more and more common. While this is a wonderful way to leave a legacy, you may also consider alternative vehicles to make donations right now and see your legacy in action while paying less tax today.
If you donate certain listed securities (including shares listed on a designated stock exchange), you will not pay tax on accrued gains. Plus you can use the donation credit to offset other income. Gifting securities directly yields a better result than selling them and donating the proceeds. If you hold $10,000 of listed securities with a $5,000 accrued gain, you could save $1,245 by donating the shares directly:
|Sell Securities & Gift Proceeds||Gift of Listed Securities|
|Tax on Capital Gain|
($5,000 x 50% x 49.8%)
($5,000 x 50% x 0%)
|Donations Tax Credit|
$10,000 x 49.8%1
|After-Tax Cost of Donation||($6,265)||($5,020)|
1. Assumes top 2019 combined Federal and British Columbia tax rates, sufficient other income to fully utilize the donation and other donations of at least $200.
You may also consider shares of a private company, works of art, a vacation property or some other capital asset that has grown in value that you wish to donate. While the 0% tax rate doesn’t apply to donations of such property, you may still be able to avoid paying tax on the capital gain by virtue of an increased donation credit if you donate the asset directly to the charity instead of cashing out and donating the proceeds.
If you own stock options, consider donating the exercised shares. You can exercise the option and immediately donate the shares or direct an approved broker to sell them and donate the proceeds. You have to donate within 30 days of exercise (and in the same year) to get the benefit of eliminating the tax otherwise payable on the stock option benefit by an additional deduction. You won’t get this additional deduction if you sell the shares yourself and donate the proceeds – an approved broker must do so on your behalf.
While the executor of your estate can do all of the above subsequent to your passing, these options allow you to see the impact of your donation during your lifetime!