Charities & not-for-profit

Wealth preservation update: charitable giving

Do you suggest to some clients that they donate publicly-traded securities—such as stocks and bonds—to a charity? This is a smart and tax-effective alternative to the donation of cash. But how they structure the charitable donations can be as important as the amount given—both for the charity and for the donor.

The rules

The disposition of a share results in a capital gain to the extent the fair market value of the share at the time of disposition exceeds its original purchase price. However, there is an exception to this rule where eligible property is donated to a qualified donee such as a registered charity. Eligible property includes securities, such as shares and bonds listed on a prescribed stock exchange, as well as mutual fund units.

For such donations, the taxable portion of the gain is reduced to nil so that the disposition of the security to the charity is fully exempt from capital gains tax. This tax relief also extends to qualifying donations made to private foundations.

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