The benefits of gifting securities

Ryan Joyce, BComm, CIM
Investment Advisor
CIBC Wood Gundy 

Many of our clients have an interest in legacy planning and often wonder how they can make a lasting impact in their communities. The Victoria Foundation is an exceptional option for individuals interested in making a difference. The Foundation provides a variety of ways to achieve your charitable goals, ranging from one-time donations, all the way to leaving a lasting legacy to support the causes you care about in perpetuity.

One of the many benefits of the Victoria Foundation is that they provide access to a wide variety of worthy causes to support. They can help turn a basic philanthropic principle or desire into concrete action by recommending appropriate charities that align with the donors’ goals. They are also able to facilitate donations on behalf of donors. 

Our primary role in partnership with the Victoria Foundation is to facilitate the trading of donated securities. We assist the Foundation in turning the equity shares that they receive as donations into cash that can then be granted to worthy causes. In other scenarios, donors will gift securities to the Foundation to be added to the capital of an endowment fund in their name.  The annual grants from the potential growth and income support the charities that are important to the donor. This can also support the Foundation’s strategic initiatives and other leadership and community engagement activities.

Why would someone donate shares instead of simply giving cash? Put simply, the most efficient form of charitable giving is a gift of securities. When securities are donated directly, the capital gains tax does not apply to the disposition of those shares, which allows the donor to pay less tax over their lifetime and potentially make a larger donation to support charitable causes.

For example, if someone owns $5,000 of CIBC shares with an original cost of $1,000, they would have to claim a $4,000 capital gain on their tax return if they sell the shares. If, instead, they donate the shares directly, the capital gain is not triggered, and no tax is paid, while the shareholder still receives the taxable benefit of the full dollar value of the charitable contribution. This gain is also triggered on the death of the shareholder, making the gifting of shares a highly effective estate planning strategy as well. The Victoria Foundation receives the shares, and we assist them in selling those shares for cash that is then gifted to the cause or causes of the donor’s choice.

The table below illustrates this clearly. You can see that the amount of cash donations is smaller, as the tax collector takes a portion of the potential donation. The smaller donation also reduces the charitable tax credit that the donor receives. See below: 

Assuming 46% tax rate	Sell security and donate cash proceeds	Donate security directly
Cost of Securities	$1,000	$1,000
Market Value	$5,000	$5,000
Taxable Capital Gain	$4,000	$4,000
Tax Payable	$920	$0
After-Tax Donation	$4,080	$5,000
Charitable Tax Credit	$1,817	$2,239

 We are very proud to be associated with the Victoria Foundation, and we are also very thankful to be afforded the opportunity to play a small part in the good that they do for our community.