Securities donation is the most tax-effective way to give

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If you’re thinking of giving to charity this year, a securities donation might be the most tax-effective way to do so, according to one tax expert.

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“That is probably the best opportunity in terms of tax-effective charitable giving,” Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth Management, said in a recent interview with the Financial Post’s Larysa Harapyn. “You’re getting a donation receipt and you’re paying no tax on those gains.”

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He said that donating stocks or mutual funds directly to a charity has additional benefits compared with cash or credit card gifts. One benefit is that you receive a charitable tax receipt for the fair market value of the securities to claim as a donation on your tax return. In addition to that, you avoid paying capital gains tax on the entire accrued gain on those shares.

The charitable tax donation deadline for 2024 has been extended to Feb. 28 but the extension does not apply to securities donations. That doesn’t mean that you can’t take advantage of the opportunity while planning for the 2025 tax year, however.

Golombek recommends putting together a budget of how much you want to give to charity and making those donations through stocks in which you’ve accumulated large capital gains.

The federal government’s capital gains inclusion rate increase, which was supposed to be implemented on June 25, 2024, has been postponed to Jan. 1, 2026. Canadians might already notice some changes to the Canada Revenue Agency‘s forms when filing taxes this year, Golombek said, but they won’t impact anything yet.

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A new rule that Airbnb-owners should keep in mind for the 2024 tax year is the limitation for expenses on short-term rentals. If you rent out a property in a zone where it’s illegal to do so, according to your municipality, you won’t be able to write off any expenses, including mortgage interest, against that rental income. “So, just be forewarned,” Golombek said.

He also reminded Canadians who have made contributions to the First Home Savings Account this year that they don’t need to claim that amount in 2024. Instead, Golombek said it could be more beneficial to save it for a future year when they are in a higher tax bracket.

Students with a Registered Education Savings Plan can also be strategic with their use of the basic personal amount on which they do not pay any income tax. Golombek said they can take out up to that dollar amount from their RESP every year and pay no tax on their withdrawals.

“Something for parents and kids to think about,” he said. “If you don’t claim that basic personal amount, you lose it forever for a particular year, so it’s something you want to try and take advantage of every year.”

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Golombek advised self-employed Canadians to keep receipts of their expenses for their statement of business income. If you’re travelling or taking clients out to lunch, it’s also a good idea to write down who you met with and the purpose of that meeting on the receipts in case the CRA audits you and asks you to justify why that was a legitimate business expense.

“CRA is looking at them so you want to make sure you’ve got backup for your expenses,” Golombek said.

The 2024 tax filing season officially begins on Feb. 24.

• Email: novid@postmedia.com

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