Federal Budget 2006 and Gifts of Publicly Listed Securities
May 18, 2006
The 2006 Federal Budget provides for a long sought after tax break on gifts of publicly listed securities to a charitable organization or public foundation. A publicly listed security (e.g. shares, bonds, mutual funds etc. and further referred to collectively as "shares") is one that is listed on a recognized stock exchange.
The increase in the value (profit) of shares realized upon the sale of those shares is called a capital gain. Typically 50% of that capital gain is taxable. However, a special tax benefit is available to individuals who do not cash out their shares but who donate the shares directly to a registered charitable organization or public foundation.
From 1997 to May 1, 2006 the special tax benefit provided that only 25% of the capital gain on shares that were gifted would be taxable. Effective as of May 2, 2006, (pending Parliamentary approval of the 2006 Federal Budget) 0% of the capital gain on shares that are gifted would be taxable. This means that when you make a gift of shares you do not need to include any of the capital gain that you would have had to declare as taxable income had you sold the shares and given the cash proceeds instead.
For example, let’s assume that you want to make a gift of 100 shares that cost you $5,000. The shares trade at $80 at the time of your gift. If you would sell the shares and make a gift of the cash proceeds, your net cost would be $675 greater, than if you make a gift of the shares directly to a charity (assuming a 45% marginal tax rate; combined federal and provincial rates). To illustrate the result, please see the following comparison:
| Cash Gift | Gift of Shares | ||
| Sell the shares and donate the cash | $8,000 | ||
| Gift of shares instead | $8,000 | ||
| Less your original cost | -5,000 | -5,000 | |
| Capital gain | 3,000 | 3,000 | |
| Capital gain rate | 50% | 0% | |
| Reportable capital gain for tax purposes | 1,500 | 0 | |
| Assumed tax rate | 45% | 45% | |
| Tax on reportable capital gain | 675 | 0 | |
Net cost of gift to you: | |||
| Original cost | 5,000 | 5,000 | |
| plus Tax on capital gain | 675 | 0 | |
| minus Tax Credit (8,000 x 45%) | -3,600 | -3,600 | |
| Net cost of your $8,000 gift | $2,075 | $1,400 | |
Implementation of the 2006 Budget has begun via Bill C-13, the Budget Implementation Act, 2006 ,which received first reading on May 11, 2006.
Many charities do not have the ability to receive and sell shares directly. As a service to its members and to donors, CCCC is able to facilitate donor gifts of shares to charities through the CCCC Community Trust Fund.
Click here for more information on the Community Trust Fund.
Click here for more information on transferring Publicly Listed Securities.
