Do you donate to charity and own stocks or other investments that have a large capital gains? Did you know there is more benefit to you by donating investments with capital gains instead of cash? And of course your charity still benefits.
Charitable Donation Tax Credits
First let’s look at the Charitable Donation Tax Credit. The government of Canada realizes that charities need help, so they provide an incentive for doing so in the form of a tax credit. In BC for instance you will get a 20.06% tax credit on your first 200 donated. On anything over that amount up to 75% of your income you get a 43.70% tax credit. There is a charitable giving calculator available on my website: click here to access the calculator. This will let you see just how much less taxes you would need to pay.
Super Tax Credit
Currently there is another tax credit you can receive called a super tax credit for first time donors, or if neither you nor your spouse has donated since 2007. This would provide you an additional 25% in tax credits. This can only be claimed once and has to be done before 2018.
Why Donating Investments Might be Better
To encourage donations, the federal government changed the rules about paying capital gains tax on investments donated to charity. You no longer have to pay the capital gains tax on investments donated directly to charity. So, if you have an investment that you paid $10,000 for and it is now worth $25,000, you can donate it and get a $25,000 receipt – even if it only cost you $10,000.
Strategy for Donating Investments
So my strategy is this:
- If you are going to donate any way, donate an investment of the same value, that has a capital gain,
- Receive a charitable donation receipt for the amount you donated,
- Use the cash you were going to donate for a new investment.
By doing it this way you will of course benefit the charity, which is the whole purpose of donating, but you could also benefit yourself. Especially if you have an investment that is no longer really suitable, but you have owned it so long, you almost can’t afford to sell it. You can rebalance your portfolio, get a tax receipt and buy a more appropriate investment.
Make sure to consult an advisor to make sure you are making the right choices as this can be a bit complicated, but a good advisor will know just what will work best for you.
Of course if you have any questions click here for my contact information. I am always happy to help!