Capital Losses Benefit for Donors of Securities
With the recent economic downturn, many have found that their investment portfolios have declined in value.
Losses do present an opportunity to charitable donors to make the most of their losses by;
- donating depreciated securities so as to record their losses,
- which can be used to offset certain past and future capital gains, and
- claim an official donation receipt for an immediate tax benefit.
Where a donation of depreciated securities is made to a registered charity, like SOS Children's Villages Canada;
- the donor receives an official donation receipt in the amount of the fair market value of the gift
- allowing the donor to claim a charitable tax credit immediately.
The donation of securities will trigger a capital loss, which may be used to offset both past and future capital gains.
The Income Tax Act allows capital losses to be carried back up to three years, and to be carried forward indefinitely. By triggering an immediate loss on the donation of securities, the donor records a loss that will be available to reduce capital gains tax in the future.
Depending on the value of the securities, the donor may be able to acquire the identical securities at a lower adjusted cost base, thus creating the possibility of greater gains in the future.
The capital gains that arise on the subsequent sale of these shares can be avoided if these securities are instead donated to a charity, like SOS.
An example provided to us by a financial advisors who supports SOS.
A note of caution; it is possible for the donor to repurchase the same securities after waiting the statutorily prescribed 30-day period (if the donor repurchases the securities prior to the expiration of this period, the Income Tax Act deems the loss on the initial donation to be nil).
As everyone's situation is different, please consult with your tax and/or financial advisor.
When you are ready to make the donation please contact Dave Greiner at 1-800-767-5111 ext 514 to learn more or send him a note at [email protected]