David Brady and his spouse are ramping up their charitable donations this year by handing over some of their best-performing stocks.
“It’s so easy, it makes logical sense from a financial perspective and it allows us to give more to the charities that we support,” the 54-year-old accountant said.
Donating securities is one of the options investors have to reduce their tax liability as the year-end approaches. They can also sell their losing investments to offset some gains.
Brady says he’s done some tax-loss selling too, but decided last year to begin donating Peloton shares through charitable foundation CanadaHelps because it allows him to give more, is simple and can be done anonymously.
“I feel we have a commitment to support people that need help and charities that need assistance and this gives us better value so to speak. I would say 80% of our donations are now through securities,” he said from Toronto.
CanadaHelps, which works with about 86,000 charities across the country, says securities donations including stocks, bonds and mutual funds rose by 52% in the past year.
Some $22-million worth of securities were donated in the first 11 months of 2021, representing 7.3% of total donations.
Part of that increase can be attributable to the large stock market gains in 2021 with the S&P/TSX composite index up 20% despite a recent soft patch, says CanadaHelps CEO Marina Glogovac.
“So many people have done really well in the market, that that’s why we’re seeing this increase,” she said in an interview.
Canadian charities have been struggling to keep up with growing demand for their services during the Covid-19 pandemic.
Imagine Canada says half of charities are reporting a decline in revenues because of their inability to run special events during the pandemic, with an average decline of 44%, said CEO Bruce MacDonald.
“It’s kind of a bit of a vice grip that the sector is caught in,” he said.
And nearly half of charities are reporting an increase in demand for their services, up from 45% a year ago.
Donating shares is a great way to lower the tax bill of an investor, especially one who was planning to make charitable contributions anyway, says Jamie Golombek, managing director, tax and estate planning with CIBC.
“What an opportunity to donate the appreciated stocks or mutual funds to a registered charity, get your tax receipt for the fair market value and because of a special rule, pay zero capital gains tax on that accrued gain,” he said.
For example, someone holding a security bought for $1,000 with a current market value of $5,000 would have to pay $920 in capital gains taxes if it is sold. That would result in a net donation of $4,080 and a charitable tax credit of $1,876.60.
Instead, the investor can donate $5,000, pay no taxes and receive a $2,300 charitable tax credit.
Investors who haven’t settled on a specific charity can make that donation in-kind to a foundation or set up a donor-advised fund within a public foundation and then allocate the money later. CanadaHelps allows donors to allocate their contributions to specific charities.
Tax losses from selling shares can be used to offset future gains or be applied back three years as long as they are used in the current tax year first.
Shares must be sold by Dec. 29 so they can be settled before year-end.
With so many companies seeing their share values increase this year, a few companies are getting noticed because of their losses, said Greg Newman, senior wealth adviser for Scotia Wealth Management.
Lightspeed Commerce Inc. and cannabis names such as Aurora Cannabis Inc. are just two examples.
The Montreal-based e-commerce company’s shares are down nearly 43%, partly due to a short-seller’s report.
“People who got in at $30 three years ago or so, they don’t have a loss, but people that got in at $130 or $140 have a loss here and there are individual investors who maybe want to sell for that reason,” he said.
Aurora’s shares are down 30.6% so far in 2021 while Agnico Eagle Mines Ltd. and Barrick Gold Inc. shares are down 27.5% and 19.8%, respectively.
Golombek says many Canadians procrastinate and end up missing year-end deadlines.
Part of that stems from the perception that it’s a complicated process with lots of paperwork.
But donating shares, for example, just takes minutes. You fill out a form provided by the charity of your choice and send it to your broker who completes the transaction.
“I hope that people if they’ve done well … during the pandemic they would consider making a significant charitable gift with some of the good fortune in the market and doing so of course in a most tax-effective manner by donating in-kind to charity.”