BY: HANS ALBRECHT, CIM®, FCSI, VICE-PRESIDENT, PORTFOLIO MANAGER AND OPTIONS STRATEGIST, HORIZONS ETFS
December 18, 2018
As the weather gets a little colder in Canada, the end of the year is a time to reflect, take stock (not just on your investments), be warm, merry and spend time with friends and family. Among many, the holiday season is also known by another name: the season of giving.
More than just presents, December is the time of year when people are most likely to make a monetary donation to charity. For instance, CanadaHelps – a non-profit charitable organization – says they receive 33.4% of their dollars during the month of December alone.
On average, Canadians give 1.5% of their income to charity, to the tune of nearly $9 billion annually. In addition to compassion, religious beliefs and more, many Canadians cite receiving an income tax credit as one of the reasons behind giving. No matter what the motivation, these offerings go a long way to provide much-needed social and financial assistance and spread cheer to those in need.
While offering cash has been a traditional way of giving to charities, you might be surprised to learn that ETFs can be used as a strategy to increase your charitable giving. Contributing marketable securities, such as ETFs, can be a more effective method of donation – for both you and the charity – provided the charity accepts marketable securities. How? By donating securities to a charity, you’re giving a gift that could potentially grow greater than its current assessed value at the time of the contribution, resulting in a larger, positive financial impact for the organization. Many non-profit organizations have investment arms that will subsequently determine whether to hold the investment or to liquidate it for its cash value, or to reinvest.
Now for the benefit for you: you’ll receive an income tax credit and you won’t incur capital gains tax on those investments. The Canada Revenue Agency does not levy capital gains taxes on securities donated charitably.
Consider this: if you were planning to make a charitable contribution in cash and decided to liquidate some securities to fund it, you may have to pay capital gains tax on the transaction (if it is in a gain position), resulting in a charge on you and potentially a lower contribution to the charity. However, if you instead used a T1170 Capital Gains on Gifts of Certain Capital Property form and donated your securities directly to a qualified charity, you wouldn’t pay any capital gains tax even if it was a gain position.
With over 86,000 registered charities in Canada, there are many great causes worth your time and investments. This December, consider giving a gift with added impact: donate your securities to a charity and see the holiday cheer grow!
The views/opinions expressed herein may not necessarily be the views of Horizons ETFs Management (Canada) Inc. All comments, opinions and views expressed are of a general nature and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.
The information contained herein reflects general tax rules only and does not constitute, and should not be construed as tax advice. Investors’ situations may differ from those illustrated. Investors should consult with their tax advisors before making any investment decisions.