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Perfect your portfolio, make a gift

Perfect your portfolio, make a gift

Let’s examine how your gift to Queen’s can help to optimize your portfolio.

Illustration of a man holding a large light bulb

If you are a Canadian resident for tax purposes, and if you have appreciated stocks in your portfolio, you may be dreading the thought of selling and facing a big tax bill.

Fortunately, there is a provision in the Income Tax Act that might take away some of the sting. When you donate publicly traded securities to a qualified charity, your gift isn’t subject to tax and you get a tax receipt equal to the shares’ fair market value.

Let’s say you bought a stock for $50,000 and it appreciated to $100,000. You’re in the top tax bracket and face a 50% marginal tax rate. If you sell the securities in the market, you must include a capital gain of $25,000 in your taxable income (half of the appreciated value), which will generate $12,500 in personal income tax.

Instead, if you donated an optimal number of shares, you can generate a tax refund that would completely offset the tax you owe. For instance, based on the facts above, if you donated $20,000 of the securities in-kind to Queen’s you would not have to include the capital gain associated with those securities in your taxable income and you will receive a charitable donation receipt for $20,000
that will generate a tax credit of $10,000. You could then sell the remaining $80,000 of securities in the market, which will result in a $20,000 taxable capital gain being included in income ($80,000 proceeds, less $40,000 adjusted cost base, with 50% of the $40,000 capital gain being included in taxable income). The tax liability associated with the capital gain is $10,000 ($20,000 taxable capital gain at a 50% tax rate), which is completely offset by the donation tax credit.

The optimized donation strategy reduces the proceeds that end up in your pocket by $7,500 (if you sell $100,000 of securities, you generate after-tax proceeds of $87,500, while if you follow the optimized strategy and make a $20,000 donation, you generate after-tax proceeds of $80,000); however, instead of writing a tax cheque to the government of $12,500, you have made a donation of $20,000 to Queen’s University. To ensure that this strategy is implemented correctly, we encourage you to consult with your tax advisor.

Mark Skeggs
Mark Skeggs

Mark Skeggs, Com'98, is Vice-President, Wealth Planning, at Gluskin Sheff where he explores succession, tax, retirement, and estate planning issues for Gluskin Sheff's business owner and high net worth clients. He is also the Chair of the Queen's Gift Planning Advisory Committee. 

Readers are cautioned to consult their own professional advisers to determine the applicability of information and opinions in any particular circumstances. The Queen's Gift Planning office produces a separate newsletter with charitable giving information specific to U.S. residents twice annually. If you wish to join this mailing list, please let us know

graphic of cover of Queen's Alumni Review, issue 2, 2021