Giving cash or writing a cheque to your favourite ministry is often the preferred method for donating to a charity. It’s quick, seamless and the ministry receives the funds right away.
The Canada Revenue Agency (CRA) does not apply capital gains tax on publicly traded securities (such as stocks or mutual funds) that are donated. Capitals gains are the increase in the value of your securities over the price you paid at purchase. If you have mutual funds currently valued at $100,000 and you paid $40,000 into those funds then the capital gains would be $60,000.
If you sell your shares on your own, the CRA will tax you on the capital gains even if you simply turn around and donate the proceeds from the sale. Since you would be paying tax out of those proceeds, there’s less money left to give to the Lord’s work. The ministry would receive less and you have a smaller donation to claim for your charitable tax credit at the end of the year.
When you donate securities directly to a ministry, the capital gains are not subject to tax. This means the ministry receives more funds and you get more of a benefit from a tax receipt for the full value of the securities or mutual funds.
Let’s say you hold mutual funds with a current market value of $100,000 and capital gains of $60,000 (the increase in the value of the funds). You decide to cash in the funds and then turn around and give them to the Lord’s work. The CRA would would tax you on 50% of the capital gains. That could end up being $15,000 going to the CRA.
If you were to donate the mutual funds directly to the ministry they would receive all $100,000 and you would pay NO capital gains tax on the $60,000.
Ask for advice
Legacy Ministries recommends those desiring to give to the Lord’s work to contact us for help in planning your gift. We do not charge for this service and we can do a free asset evaluation to determine the most tax efficient way to give. We always suggest before making any final decision that you consult a professional accountant.
Disclaimer: This article provides information only and is not intended to confer legal or financial advice or opinion. If you have any further questions please consult a lawyer or accountant. Please note as well that many of the statements herein are general principles which may vary on a case by case basis.