When capital property is donated, there is a disposition for tax purposes, which may result in a capital gain. The fair market value (FMV) of the property donated is used as the proceeds of disposition, and as the amount of the donation. In some circumstances it may be helpful to designate the proceeds amount to be an amount less than FMV.
If any “advantage” was received (compensation or other benefits) in return for the donation (e.g., tickets, meals), the eligible gift for purposes of the donation claim is the proceeds of disposition less the advantage received.
Another benefit of donating capital property is that your total donations limit will be increased by 25% of the taxable capital gain on gifts donated, up to a maximum total limit of 100% of net income. Capital gains can be eliminated by donating certain types of capital property (qualified investments, prescribed debt obligations, or ecologically sensitive land) to qualified donees. The taxable capital gain is eliminated for this type of donation made after May 1, 2006. For donations of this type of property made before May 2, 2006, the taxable capital gain is 25% instead of 50%.
It can be very difficult, if not impossible, for securities to be transferred in the last week of December. Trying to do so risks the possibility that the donation receipt will be dated in the following year. A donation of mutual funds can take several months, because the recipient of the donated securities must set up an account with the particular mutual fund involved. The recipient may require approval from their board of directors to set up an account, so timing will depend on how often the board meets.
If you are currently debating if you should donate capital property, contact us today and we can help you determine if it is the right for you.