A gift of publicly traded securities to the University of Waterloo (Waterloo) is a wonderful way to support students, excellence in teaching and research, and benefit from very favourable tax credits.
Gifts of securities include privately or publicly held shares, bonds, mutual funds and stock options.
When gifting shares directly, you receive a charitable tax receipt for the fair market value on the day the shares are received by Waterloo (valued at average of high/ low trading price of the day) and you are exempt from capital gains realized on such gifts. If however, you sell the shares yourself and donate the proceeds, 50 per cent of the taxable gain must be included as income.
Here's how it works: A donor makes a gift of publicly traded shares that were purchased for $10,000 and are now worth $50,000. Assume that the donor has a combined federal and provincial tax rate of 46 per cent, and the donor has made other charitable contributions exceeding $200.
|SELL shares (no donation)||SELL shares & DONATE proceeds||DONATE shares|
|Proceeds of sale||$50,000||$50,000||$50,000|
|Adjusted cost base||$10,000||$10,000||$10,000|
|Taxable capital gain||$20,000||$20,000||n/a|
|Tax on capital gain||$9,200||$9,200||n/a|
|Gross tax savings||n/a||($23,000)||($23,000)|
|Net tax cost (savings)||$9,200||($13,800)||($23,000)|
To make a gift of securities, you may initiate electronic transfer of securities from your broker to Waterloo’s broker using our Letter of Direction for a Gift of Securities
Gifts of Securities through a Stock Option Program
Once the options are exercised, the shares must be transferred in-kind directly to University of Waterloo within 30 days of the exercise and within the same calendar year to qualify for a reduction in both employee benefit tax and capital gain tax to $0.
Treated by University of Waterloo as a gift of securities, the donor is entitled to claim additional security option deductions equal to 50 per cent of the taxable benefit.
If a company offers a “cashless” transaction option, donors may also gift the cash proceeds and receive the same tax benefits.
If there is an increase in value between the date the shares are exercised and the date the shares are donated, the shares will be exempt from all capital gain taxation.
Gifts of Charitable Options
Cost nothing to issue, and in small numbers represent a minor dilution of equity in a company.
Charitable options can only be issued in the prospectuses of companies conducting an IPO and only given to charitable organizations and public foundations (not private foundations).
Ten-year term exercisable at any time during their term, may not be transferred and, with minor exceptions, may not be amended during their term.
Total limit on charitable options for a single TSE listed issue is two per cent of outstanding stock.The above is provided as general information, and should not be taken as formal legal or tax advice. Donors should consult with their own legal and financial advisors before taking any action. For more information about making a gift of securities, contact our Finance Officer, Haiyan Xia