Choosing to donate publicly traded securities that have appreciated in value will extend your tax savings even further. As a matter of fact, most people who choose to donate securities end up with an after-tax cost that is less than one-half of the gift!
If you have invested wisely and now own a portfolio consisting of highly appreciated stocks, bonds, mutual funds, rights, or interests in related segregated funds, selling these securities could subject you to significant capital gains tax (a tax on the amount the investment has increased in value). When you donate securities traded on a designated stock exchange directly to the University of British Columbia, you benefit from the donation tax credit and the complete elimination of the capital gains tax. As a result, the combined tax savings can be quite impressive.
To illustrate the tax effects for a BC resident, let’s look at the tax consequences of a $10,000 gift of publicly traded securities made in 2013*. For the purposes of this example, we will assume:
- The donor paid $6,000 to acquire this stock, but it is now worth $10,000, so their capital gain is $4,000 (the taxable portion of this gain is 50% of this or $2,000);
- The individual’s marginal tax rate is in the mid-range at 32.5% (for the purposes of calculating the tax on the capital gain);
- The individual has made other gifts to charities over $200; and,
- The individual has sufficient income to be able to deduct the entire gift in the current or following five years.
Firstly, the donor will receive a charitable receipt in the amount of $10,000 (the value of the securities) and pay $4,370 less in tax ($10,000 x 43.7%) when filing the tax return in early 2014.
The complete elimination of capital gains results in additional tax savings of $650 ($2,000 x 32.5%)
With the combined tax savings (donation tax credit and capital gains) factored in, the net cost of the donation drops to only $4,980 (the $10,000 gift minus $4,370 tax credit minus the $650 savings on capital gains tax).
*This information is for general information purposes only and is not intended to be legal or tax advice. Readers should consult with their own tax and legal advisers with respect to their particular circumstances before taking any action based upon the information contained in this web page.
It’s Easy to Make a Gift of Securities
- The process of making the gift is very simple as most securities are held electronically and can easily be transferred from the donor’s brokerage account to a brokerage account held by the University of British Columbia. This transfer is normally completed in one to two days, except for with mutual funds, which take longer;
- The donor will receive a charitable tax receipt for their gift valued at the mid-point of the trading value or the closing value of the securities (whichever is higher) on the date the securities are received in UBC’s brokerage account;
- As is normal practice, UBC will sell the securities once they are transferred to UBC’s brokerage account, but this will not affect the amount of the donor’s tax receipt.
We’re Here to Help
Please contact UBC Gift & Estate Planning if you are considering a gift of securities. We can provide custom tax illustrations to show you how a gift of securities will work in your circumstances, and will facilitate the transfer, ensure a timely tax receipt and ensure that your gift is directed to your area of interest.