Capital Gains

Did you know?

...that the federal budget announcement on May 2, 2006 called for the elimination of capital gains tax on gifts of publicly traded shares to public charities? This long-awaited tax change could translate into an increase by as much as $500-million annually in donations to Canadian charities.

What does this mean to you?

In past years, when you made a charitable donation of capital property such as shares or real estate, 25 per cent of the capital gain that had accumulated on the property was generally included and subjected to tax, and you received a credit on the value of the securities.

With the federal government eliminating the remaining capital gains tax, you could actually make money on your gift if the charitable tax credit exceeds the cost of your original investment.

Here's an example:

Thomas is considering a gift of 1,000 units of ABC securities valued at $25,000. The units cost him $15,000 some time ago, and he is wondering if he should sell them first or gift them outright to XYZ Charity.

1st scenario - If Thomas sold the units first, the taxable portion of his capital gain would be $5,000 ($25,000 - $15,000) x 50%). At his 40% tax rate, he would have to pay tax of $2,000 ($5,000 x 40%) leaving him $23,000 (25,000 - $2,000) to donate to XYZ. His tax receipt would be $23,000, which would generate $10,350 ($23,000 x 45%) in tax savings. Thomas' net tax savings would be $8,350 ($10,350 - $2,000 in taxes paid).

2nd scenario - Now, with the capital gains tax exemption, if Thomas gifted the securities intact, his taxable capital gain would be reduced to $0. Thomas would receive a $25,000 tax receipt and would generate tax savings of $25,000 x 46% or $11,500.

Thomas receives an additional $3,150 ($11,500 - $8,350) in tax savings by simply gifting the securities intact.

For further information on this newest change in our tax laws and how the change can benefit you, please consult your financial advisor.

To learn more about how you can make a difference in the lives of students at The University of Winnipeg or to learn more about gift planning and the benefits of a donation of shares, please contact Sue Kennedy, Gift Planning Officer, at 786-9123 or s.kennedy@uwinnipeg.ca . We look forward to hearing from you.