Benefit Yourself and Others by Donating Appreciated Shares

In my role as a financial advisor, I help my clients to accumulate their wealth, preserve it and transition it to the next generation. However, in certain situations I am very happy to help them give some of their money away.

It is certainly not an original observation that the happiest people have a sense of meaning and purpose in their lives, feel strongly connected to social networks of various kinds, and feel that they have some control over the way their lives are unfolding. Philanthropy is a powerful way of expressing your values through your wealth, by supporting organizations doing work that is important to you. It allows you to put your money to work in addressing social issues like poverty or young people at risk, or supporting the cultural and sports organizations that make our communities more vibrant places to live, or backing organizations with a spiritual focus that seek to put our lives in a meaningful context.

Donors report a deep sense of satisfaction because they feel they are making a difference with their gifts of money and time, and they feel more engaged with the communities where they are contributing. Because philanthropy is a proactive way of interacting with the world and helping to solve problems, it makes us feel more in control over what is happening in the world around us.

Scientific research supports what we have long intuited to be true, that there is a strong ‘feel-good’ aspect to charitable giving.  When we give, various areas of the brain associated with receiving unexpected rewards light up.  For example, an area in the brain called the mesolimbic system is activated (this is the same area that controls pleasurable responses to sex or opiates) and the nucleus accumbens releases the pleasure chemical dopamine.

Philanthropy also brings tax benefits

There is no denying that it also feels good to get a tax break. You are eligible to claim tax credits for donations up to 75% of your net income in any given year, and up to 100% in the year of death. Charitable donations are eligible for both federal and provincial tax credits, which can be carried forward for up to five years, and are deducted from the amount of tax you owe. The deadline for making a tax-deductable charitable donation is the last day of the year for which you want to claim the credit.

If you are making a substantial charitable donation and are planning to fund your donation by selling a security, there are significant tax advantages to gifting the security directly to the charity. From a tax point of view, donating shares to a charity is the equivalent of selling them at fair market value and thus triggering either a capital gain or a capital loss.  In 2006, an exception was made for publicly traded securities (stocks, bonds, and mutual fund units) which have appreciated in value.

If, for example you wish to donate $10,000, here is a comparison of the tax consequences of selling the security and then donating the cash, as opposed to donating the security directly to the charity. If you sell a security, you must pay tax on the capital gain before you make the donation. A much more tax efficient approach is to donate the security directly, which results in a charitable receipt of $10,000 with no capital gains tax. You end up with a tax credit of $4,600, allowing you to keep $1,840 more than if you had sold the security in order to make a cash donation.

Daryn Form is a Senior Financial Advisor with Assante Capital Management Ltd. providing wealth management services to principals of family-owned and privately held companies. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and is registered with the Investment Industry Regulatory Organization of Canada.  The information mentioned in this article is for general information only. Please contact him to discuss your particular circumstances prior to acting on the information above.  The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd.  Rates are not guaranteed and are subject to change at any time without notice.