Year-End Tax Planning: How to Maximize the Impact of Charitable Giving
Canadian investors can benefit from lower taxes by donating appreciated securities to a registered charity.
According to BMO Private Wealth, when you sell an appreciated security, you must pay tax on the capital gain, which leaves less for the charity.
However, when you donate eligible securities directly to a registered charity, you eliminate capital gains taxes, the charity receives the full value of the donation, and you can get a charitable tax receipt for the full market value, effectively lowering your overall taxes.
“If you had the intention of donating to a charity, you probably had set aside some cash to do that,” Tina Tehranchian, senior wealth advisor at Assante Capital Management told BNN Bloomberg. “You could donate stocks, get rid of the capital gains on those stocks, and then use your cash to buy back those stocks in your portfolio.”
Consider an investor who purchased shares of stock for $10,000 a while back that are now worth $50,000 today (an accrued gain of $40,000).
The Canada Revenue Agency states for 2025, 50 per cent of the incurred gain is taxable as income.
The 50 per cent “inclusion rate” simply determines how much of the profit is subject to taxes. That portion is then taxed once at the investor’s marginal rate of 46 per cent.
An investor would be faced with two scenarios: sell securities and donate the cash or donate the securities in kind to a charity.
Sell the stocks and donate the cash
If an investor sells the stocks and donates the cash, they incur a capital gains tax on the taxable half ($20,000) of the gain. At 46 per cent combined marginal rate, it results in a single tax bill of about $9,200. After applying a $23,000 tax credit from the donation, their net cost is $36,000.
Donate the stocks directly
Donating the shares directly avoids the $9,200 tax, leaving the investors’ net cost at $27,000, saving that $9,200 in capital gains taxes as opposed to donating cash.
Donate RRSP/RRIF withdrawals
Investors who prefer not to touch their portfolio can look at your Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) if they are of age.
According to McGill University, any funds withdrawn from your RRSP or RRIF are 100 per cent taxable in the year of withdrawal at your marginal tax rate.
However, donating the withdrawal can result in tax credits that offset the tax on that income.
“When you pull money out of an RRSP, it’s considered income, so it’s 100 per cent taxable,” said Tehranchian. “Now we do recommend that for people who have a RRIF, they have no choice but to withdraw the minimum income. If they do not need that income, then it is a good idea, if they have charitable intentions, to donate that money to charity to offset the taxes on the withdrawal from the RRIF.”
This article was first reported by BNN Bloomberg
