When a taxpayer sells publicly traded securities and then donates the proceeds to the Church, the individual pays income tax on the capital gain realized on the sale of the security and receives a donation receipt for the amount of the gift received by the parish. The income tax on the capital gain can be as high as 47.37% on one-half (the taxable portion) of the gain.
To encourage charitable donations, the capital gain is free of income tax when the listed security is donated as opposed to being cashed in and the cash proceeds donated, i.e. the security itself must be donated.
This can be a very significant tax reduction to the donor.
If a cash donation is being considered and you have securities with an unrealized capital gain, then consider the donation of the security. You could donate the number of shares that equal in value the cash donation amount that you wish to make. This saves tax on the capital gain.
If you donated shares of a public company with a value of $20,000 and a cost base of $12,000, the resulting income tax would be as follows even though there is an $8,000 gain on the disposal.
|Donation and donation receipt:||$20,000|
|Federal & P.E.I. tax credits:||$9,098|
|Tax on $8,000 capital gain:||$0|
|Net income tax reduction:||$9,098|
Note: If the shares were sold and cash donated, the income tax on the $8,000 capital gain could be approximately $1,895.
In summary, prior to making a cash donation, consider the donation of shares, a debt obligation (bond/debenture), a right listed on a prescribed stock exchange, a share of a mutual fund trust, or a prescribed debt obligation where the fair market value of the security is higher than the cost.
Note: The securities can be sold by the church to enable immediate use of the funds.