Amy Donates her Shares

CALCULATING AMY’S CAPITAL GAINS

• By donating the security, Amy avoids triggering the capital gain on which she ordinarily would owe tax. In this case, $508.78.

• Amy realises that donating the appreciated securities means she does not need to withdraw funds from her bank account. However, if funds are available, she should consult with her portfolio manager to review the merits of buying additional to replace the ones that were donated.

• As a general rule of thumb, the advantage of donating appreciated securities is greatest when:

  • donors are in high tax brackets, often due to one-time events like the sale of a business or an investment property;

  • the “unrealised” capital gains for the security being considered are large; the larger the gain, the bigger the advantage.

When considering both the donation tax credit and the ability to avoid taxes on capital gains, the total cost of Amy’s $5,000 donation is reduced to $2,253 from $2,762.