Gifts of Securities
Elimination of Capital Gains Tax on Gifts of Appreciated Securities
On May 2, 2006, the Minister of Finance Jim Flaherty delivered the 2006 Federal Budget. The Budget contained an important provision that has direct implications for donors who support registered charities, such as The University of Western Ontario.
Effective immediately, the Federal Government announced the elimination of capital gains tax on gifts of publicly traded securities to registered charities. Under the old rules, donors were required to pay tax on 25 per cent of capital gains on these gifts. This new provision offers donors an opportunity to realize very significant tax savings when making a gift of appreciated securities to Western.
It is important to note that if you choose to sell appreciated securities during your lifetime, or if these assets are liquidated through your estate, tax must be paid on 50 per cent of the capital gains on those securities. This new provision provides an opportunity to eliminate a significant tax liability that would otherwise eventually have to be paid.
A gift of publicly traded securities can provide you with an unexpected means to make a significant contribution to Western at a relatively low-cost to you. These recent changes mean that by making a gift of equities, bonds, and mutual fund units to Western, your taxable capital gain is eliminated.
Advantages of Giving Securities
- Western will issue you a charitable tax receipt for the fair market value of the gift of securities to be used for tax purposes. The fair market value will be the closing price of the securities on the date the securities are received by Western.
- By giving the securities directly to Western, your taxable capital gain is eliminated.
- If your donation exceeds the amount eligible for a tax credit in the year your gift is made, the excess credit may be carried forward up to five years.
- If you leave securities to Western through your Will, your estate will receive the same tax benefits. Gifts made through your Will can be claimed up to 100 percent of your net annual income in the year of death and the year preceding.
"I thought about giving shares to Western in the past, but I didn't want to pay the capital gains tax. The new rules make a difference - and helped me make a difference for Western."
—John Thompson, MBA '66
How it works
Consider the following example: Mr. Brown gives the University publicly traded securities that he bought for $15,000. The securities are now worth $25,000. The capital gain is $10,000. Mr. Brown’s assumed combined federal and provincial marginal tax rate is 45 percent.
Consider the following example: Mr. Brown gives the University publicly traded securities that he bought for $15,000. The securities are now worth $25,000. The capital gain is $10,000. Mr. Brown’s assumed combined federal and provincial marginal tax rate is 45 percent.
| Gift of Securities to Western | Previous Regulations | New Regulations |
| Gift amount | $25,000 | $25,000 |
| Cost base of securities | $15,000 | $15,000 |
| Capital gain on securities | $10,000 | $10,000 |
| Taxable amount of capital gain | $2,500 | $0 |
| Tax payable* on capital gain | $1,125 | $0 |
| Tax credit from gift | $11,250 | $11,250 |
| Net cost of gift | $14,875 | $13,750 |
In summary, by donating $25,000 worth of appreciated securities to Western, Mr. Brown has eliminated any capital gains tax and has saved an additional $1,125 in taxes owing.
