Charitable Giving Case Study
Mrs. Jones came to Nicol Sanchez Wealth looking for ways to enhance her Charitable Giving Strategy.
Here are the key pieces of information:
- Mrs. Jones has a significant income and is in the highest tax bracket. We’ll use 50% for the sake of this case study.
- Mrs. Jones owns ABC Stock with a Fair Market Value of $50,000 and an adjusted cost base of $10,000.
Mrs. Jones would like to donate $50,000, and asked us to cash out her ABC Stock so that she could write a cheque to her charity of choice.
Making an in-kind donation of appreciated stock would be a more efficient way for Mrs. Jones to support her preferred charity.
If Mrs. Jones sells ABC Stock and donates the cash:
- Mrs. Jones pays capital gains taxes of $10,000.1
- Mrs. Jones receive a charitable donation receipt for $50,000, generating a charitable tax credit of ~$20,000.2
Her after-tax cost of donation is $40,000.
We suggested that Mrs. Jones should use a different approach, and donate the ABC Stock in-kind:
- Mrs. Jones does not pay capital gains taxes on the donation of ABC Stock.3
- Mrs. Jones receives a charitable donation receipt for $50,000, generating a charitable tax credit of ~$20,000.2
Her after-tax cost of donation is $30,000.
Donating the shares in-kind provides her with a $10,000 improvement on the after-tax cost of the donation.
1$40,000 capital gain on the sale of ABC Stock ($50,000 FMV - $10,000 ACB) which is 50% taxable. $20,000 included in taxable income at a 50% marginal tax rate.
2Tax credit of 20.05% in first $200 donation in Ontario and 40.16% on amounts above the first $200 in Ontario.
3As per the CRA policy on Gifts of publicly traded shares and stock options
Continuously monitor the strategy to ensure that it is still appropriate.
Annual reviews with Mrs. Jones ensures that her Charitable Giving Strategy is still the appropriate strategy to help her achieve her financial goals. This includes:
- Regular discussions on the investment portfolio itself and maintaining the proper asset allocation.
- Keeping up to date as the tax rules regarding charitable giving are updated.
- Discussing other strategies, such as Donor Advised Funds, Using New or Existing Insurance Policies or Leaving a gift in her will to see if there are ways to further improve the long-term result.
Our goal at Nicol Sanchez Wealth is to understand our clients’ unique goals and continually provide unbiased advice designed to help them achieve those goals.
More on Charitable Giving