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If you want to make a donation to your favourite charity and you happen to have some public company shares in your portfolio with an accrued gain, you may want to consider gifting the shares to the charity instead of cash. There is a 0% inclusion rate for the capital gains that arise on the donation of shares listed on a designated stock exchange.
Say for example that you want to donate $25,000 and you happen to have shares of RBC with a current fair market value of $25,000 and an original cost of $15,000. Here are the results of donating those shares versus donating cash:
New England Patriots’ quarterback Tom Brady was named Most Valuable Player of the Superbowl earlier this month. With this honour, Brady was also supposed to receive a new Chevy truck valued at over US$35,000.
Unlike in Canada, this prize would have been taxed as income on Brady’s US income tax return. At the highest US tax rate, this “free” truck would have cost Brady US$13,860 in taxes.
At first, Brady indicated that he wanted to give the truck to fellow teammate, Malcolm Butler. Unfortunately, this could have exposed Brady to additional US gift tax.
Luckily this tax fiasco has been avoided…Chevy announced that the truck would be presented directly to Butler so Brady will no longer receive the prize and the related tax consequences.
New legislation effective January 1, 2016 will significantly impact estate planning including how testamentary trusts, charitable donations made in a Will and life interest trusts (such as alter ego or joint spousal trusts) are taxed.
Most significantly, testamentary trusts (other than Graduated Rate Estates) will no longer have access to graduated personal tax rates.
If your estate planning includes the use of trusts, watch for further communications from your Manning Elliott advisor as we learn more about the application of the new legislation.
For 2014 and 2015, BC’s marginal tax rate of 45.8% will apply to income over $150,000. The Minister of Finance confirmed in the 2015 Budget, that this rate will revert back to 43.7% in 2016. If you are paying income tax at the highest rate, you may want to consider realizing any accrued losses in 2015 and deferring the sale of assets with accrued gains until 2016.
Not all donations are eligible for a tax credit. Before making a donation, you may want to confirm that the charity is registered with the Canada Revenue Agency and therefore able to issue official donation receipts. You can search the CRA’s database of registered charities here: