You may not have the available cash, but you can still make a difference and benefit tax-wise by the gifting of “publicly-traded securities”. This is more tax-effective than selling the securities and donating the cash proceeds. If, for example, you sell units of a mutual fund and donate the proceeds to HCP, you will have an income inclusion of the taxable capital gain, which is equal to 50% of the capital gain realized upon the disposition of the units.
However, if you donate publicly-traded securities “in kind” to a HCP the inclusion rate on the capital gain is 0% instead of 50%. Your charitable donation receipt is for the same amount as if you had donated the cash proceeds from the sale of the mutual funds, yet the tax owing on the capital gain is eliminated by donating the securities “in kind”.
Example: You want to make a $100,000 donation to HCP’s Couvelier Pavilion Campaign and receive the right to name a portion of the building.
You have a mutual fund investment valued at $100,000 that you donate:
- The adjusted cost base for this investment is $40,000.
- The unrealized capital gain on the investment is $60,000.
Income inclusion if you cash in the mutual fund and donate the proceeds: taxable capital gain is 50% x $60,000 = $30,000
versus
Income inclusion if an “in-kind” donation of mutual funds is made through a transfer of ownership to HCP: 0% x $60,000 = $0. In either situation, you will receive a charitable donation receipt for $100,000, which is the fair market value of the gift.
