When you make an outright gift of listed securities, such as shares, bonds, bills, warrants, debentures, futures, and mutual fund units, you receive a special tax benefit (From 2017, based on budget proposals, capital gains tax on certain qualified property would be eliminated where an asset is sold and the proceeds donated to a registered charity within 30 days of the sale: you will not be taxed on any portion of the capital gain). You will receive a donation receipt for the full amount of your gift of listed securities.
Outright gifts—either of cash or other property—provide support for a charity’s day-to-day activities, or for special projects and needs. There are many ways of making outright gifts, but they share a common characteristic: as soon as the gift is made, it can be put to use.
Gifts of Cash
Gift of cash, whether by cheque, money order, credit card, or currency—are the most familiar way to contribute to charity. A cheque is treated as delivered on the day it was mailed. (For example, a gift sent by mail, if postmarked in December, qualifies as a charitable donation in that tax year, even if it is not received until January.) A gift by credit card is considered made on the date the obligation was incurred and these can be made on-line using the Foundation's website, www.ppclifoundation.ca. The on-line web portal may also be used to set-up monthly, quarterly or annual giving and to pay tribute by way of a commemorative gift.
For example, if your combined federal and provincial tax credit equals 50 per cent (the combined rate for Alberta for those earning less than $200,000), a $ 1,000 gift to the Foundation actually costs you only $ 500 since it results in a tax savings of $ 500! (The amount you can claim in charitable donations in any one year is limited to 75 per cent of your net income for that year. Any amount over that can be carried forward for up to five years.) A tax credit is allowed for charitable gifts, which means that the net cost of the gift to the donor will be less than the amount given to the charity. If you make outright gifts, you can deduct a percentage of the value of your accumulated receipts — 15 percent for the first $200 donated and 29 percent for any additional gifts — from the federal income tax you owe. In recent years, all provinces and territories have moved away from the traditional “tax on tax” collection system, adopting what is known as a “tax on net income” (or “TONI”) system. As part of this new approach, each province and territory has its own tax brackets and its own charitable tax credit system. These credits, when added to the federal credits in respect of the same donations, become the combined credit and produce tax relief of the same magnitude as the former system. Married couples may pool charitable donation receipts to take advantage of the higher credit on donations exceeding $200.
Sam T., whose combined federal and provincial tax credits equal 50 percent, writes a cheque for $1,000 to the PPCLI Foundation, but the net cost of the gift to him is only $500, because his donation receipt for $1,000 reduces his income taxes in the year of the donation by $500.
The maximum amount of contributions creditable in any one year is 75 percent of your net income. Any unused contributions can be carried forward and used in any of the next five years, again subject to the annual contribution limit.
Gifts of appreciated property
Non-cash assets, such as securities and real estate, are also suitable as outright gifts. In fact, recent federal budgets make gifts of listed securities particularly attractive. There is no tax payable on capital gains for gifts of listed securities. Instead, donors receive a donation receipt for the full market value of the gift. To qualify for special tax treatment, the securities must be contributed in-kind to a public charity such as the PPCLI Foundation.
Here is an example of how gifts of cash and securities may make a very significant difference in tax savings:
William M. donates listed stock valued at $12,000 which he had purchased for $2,000. His capital gain is $10,000. If he contributed the shares in-kind to the PPCLI Foundation, there would be no taxable gain. Instead, he would receive a donation receipt for the full market value of $12,000. Assuming a combined tax rate of 50 percent, William would have a tax credit of $6,000 (donation x 50%) and net tax savings of $6,000.
Suppose William simply sold the securities instead of contributing them in-kind and then made a cash contribution to the Foundation. He would have to pay tax ($2,500) on half of his capital gain, that is, on $5,000. He would receive a donation receipt for his cash gift of $12,000 but his tax payable on the gain would reduce his tax savings to $3,500 rather than $6,000 in the first illustration.
Here is an examples of outright gifts used for commemorative gifts to the Foundation:
When Lieutenant-Colonel (Retired) Jeffery Williams passed away in 2011, Charlie M., a longstanding associate, wished to give a gift in memory of Jeff. Knowing of the work of Jeff on the PPCLI history and his biography of Brigadier Andrew Hamilton Gault, he decided to give a gift to the Foundation of $500 in memory of Jeff. Assuming a federal/provincial tax credit of 48 percent, that can yield income tax savings of as much as $240. At the time of this gift, the For the Soldier Legacy Fund (an endowment fund) did not exist. In similar circumstances today, the gift might be directed to that Fund as is the case with the second example.