Smart giving: the benefits of donating stocks and securities
Q&A with Robin Stanton, VP and Portfolio Manager at RaeLipskie Partnership
Want to maximize the impact of your charitable giving while reducing your tax bill? Donating publicly traded stock directly to WRHN Foundation is one of the more tax-efficient ways to give.
WRHN Foundation sat down with Robin Stanton, VP and Portfolio Manager at RaeLipskie Partnership, to answer some top questions about donating stocks and securities.
Q: What is the biggest advantage of donating stocks and securities?
A: When you donate publicly traded securities directly, the government encourages these donations to Registered charities by eliminating the capital gains tax you would otherwise owe if you sold the shares first. You also get a charitable tax receipt for the full market value of the security, on which you can claim a donation tax credit.
So, it’s a win-win: the charity receives the full benefit of your gift, and you reduce your potential tax liability.
Q: Can’t I just sell the stock first and donate the cash?
A: You can, but then you lose out on the potential tax benefits of donating the stock directly. If you sell the stock yourself, 50% of the realized capital gain is subject to tax. That reduces the total net proceeds you’re able to give – meaning the Foundation gets a smaller donation, and you have to pay the capital gains tax that’s triggered by selling the stock.
In other words, donating the shares directly eliminates the tax liability completely: The full market value goes straight to the cause you’re supporting, and you don’t get the tax hit in the spring.
Q: Can’t I just sell the stock first and donate the cash?
A: Simply put, a capital gain is the profit you make when selling an investment for more than its cost (Profit = Current Market Value − Purchase Price and fees). In Canada today, 50% of that profit is taxable. When you donate shares directly to a charity, that tax is eliminated.
The actual tax savings depends on many factors including the donor's individual tax bracket, total donations, Province of residence, etc. so exact figures will vary. It’s important to consult your own financial/tax adviser to review your personal circumstances.
Q: Who can make a stock donation? Do you need to be a wealthy investor or can anyone with stocks donate them?
A: Anyone with an investment account holding publicly traded securities (such as stocks, ETFs, or mutual funds) can donate. You don’t need to be a major investor to take advantage of this giving strategy.
It’s important to note, however, that shares must be held in a regular, taxable investment account. Tax-sheltered accounts like RRSPs or TFSAs already shelter and/or defer your gains from tax, so this specific gifting strategy doesn’t apply to them.
Q: Which types of stock work best?
A: Stocks or funds that have appreciated significantly yield the greatest tax advantages. Because significant market gains can accumulate over years, donating long-held investments allows you to reduce substantial tax liabilities.
With how strongly the equity markets have performed over the last few years, this is actually a really great time to think about donating stocks. Strong market growth over recent years means many people may hold stocks that have increased substantially in value.
Donating these high-growth stocks lets you:
- Protect your profits: Lock in gains for a charity without losing a chunk to taxes.
- Rebalance smoothly: Sell off oversized stock positions to adjust your mix of investments, without triggering a sizable tax bill.
Q: I’m interested in donating stocks. What do I need to do to make this happen?
A: It’s actually a pretty straightforward process.
- Request the form: You can obtain a stock transfer form directly from the foundation/charity you want to donate to – in this case, WRHN Foundation – right on their website. You can also ask your financial advisor for this form.
- Complete the transfer: Fill out the details and submit it to your broker.
- Get your receipt: Once the stock is transferred to the Foundation’s account, the charity receives the shares and issues you an official donation receipt for the market value on the day of receipt.
Q: Thinking ahead to the year-end tax receipt deadline, how long in advance should I initiate a stock donation?
A: Don’t wait until the last minute for this one!
While transfers typically take a few days once initiated, financial institutions and charities can experience high transaction volumes near year-end. There are holidays, staffing issues, , and other administrative backlogs in late December that can cause delays.
To make sure your donation counts for the current tax year, it’s best to initiate the process well before December is upon us.
Disclaimer: This information is for educational purposes only. Applicable tax rules and considerations vary based on many different factors. We recommend consulting your personal tax or financial advisor to discuss the best strategy for your individual circumstances.
Interested in donating stocks and securities?
Donating a gift of securities, including stocks, bonds and mutual funds, is a tax-efficient way to support care for our community at Waterloo Regional Health Network (WRHN).