Let’s look at the benefits of a $20,000 gift of publicly traded securities for a British Columbia resident. We will assume:
- The donor initially paid $10,000, but the stock is now worth $22,000, so their capital gain is $12,000 ($6,000 is taxable)
- The donor’s marginal tax rate is in the mid-range at 32.5% (for the purposes of calculating the tax on the capital gain);
- The donor has made gifts to other charities worth more than $200; and,
- The donor has sufficient income to be able to deduct the entire gift in the current or following five years.
The donor will receive a charitable receipt in the amount of $22,000 (the value of the securities) and pay $9,614 less in tax ($22,000 x 43.7%) when filing their tax return.
The complete elimination of capital gains results in additional tax savings of $1,950 ($6,000 x 32.5%).
With the combined tax savings (donation tax credit and capital gains), the net cost of the donation is just $10,436 ($22,000 minus $9,614 tax credit minus the $1,950 capital gains tax savings) or 47.4% of the gift.