Transcript: Philanthropy — one size doesn’t fit all — CIBC Family Office Webinar Series

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[CIBC Private Wealth logo.]

[Philanthropy: One size doesn’t fit all — CIBC Family Office Webinar Series.]

[Donating using donor advised funds and public foundations.]

Kate Lazier: If you know what charity you want to help, and you wanted to do a significant gift now, there's nothing stopping you from giving that gift directly to charity. 

[Kate Lazier, Director of Philanthropy and Legacy Planning, CIBC Private Wealth.]

Where a donor advised fund or a public foundation come in as a useful tool is where you want to give that money over time. So let’s say I wanted to benefit the University of Toronto. I could either give them, you know, my 10 million dollar gift today — maybe they’ll create a building or start a new program — or maybe I wanted to fund a scholarship over time and instead of giving the 10 million, I’m going to give them the investment income every year. If I want to do that later and just give them the investment income each year, then I’d want a foundation. So it really depends on the person’s goals.

[Upbeat music.]

[Donating using appreciated securities and stock options.]

>> Jamie Golombek: Let's take a look at some of the strategies for high net-worth individuals. Probably the most common one that you've hopefully heard of by now is the ability to make a donation using appreciated securities.

[Jamie Golombek, Managing Director, Tax and Estate Planning, CIBC Private Wealth.]

[Make donation using appreciated shares Publicly-traded shares available for a donation: 

  • Market value of shares: $10,000
  • Adjusted cost base: 6,000
  • Capital gain: $4,000.]

[A photo of a business woman and man shaking hands and holding a large cheque]

If you donate publicly traded shares to a registered charity, normally if there's a capital gain, if you donate them directly, there isn't any capital gains tax. We have an example here. On a very simplistic level, if we take a look at the math behind this, we would have an example on the left side we have — if we had sold those shares and realized the $4,000 capital gain — paid some capital gains tax and then effectively got our donation credit about 50%, our total cost of that gift is 6,000. But as you probably know, if you donate those shares in kind to a registered charity, the tax goes to 0. And effectively, you pay no tax on the capital gain. You still get the receipt. And at the end of the day, your total cost on that is just under $5,000. And that's probably the biggest opportunity that we have in terms of donation of appreciated securities.

[Table comparing the scenarios of selling shares to donate cash and donating shares in kind.]

[Ontario 2021 cost of $10,000 donation: sell shares and donate cash versus donate shares in kind.

  • First column lists the proceeds, adjusted cost base, capital gain, tax on capital gain, cost of donation, tax on capital gain, tax savings from donation and total cost for each scenario
  • Second column lists the numbers for when you sell shares and donate proceeds: 
    • Proceeds is $10,000
    • Adjusted cost base is 6,000
    • Capital gain is $4,000
    • Tax on capital gain* is $1,070
    • Cost of donation:
      • Donation is $10,000
      • Tax on capital gain is $1,070
      • Tax savings from donation** is 5,040
      • Total cost is $6,030
  • Third column lists the numbers for when you donate shares in kind.
    • Proceeds is $10,000
    • Adjusted cost base is 6,000
    • Capital gain is $4,000
    • Tax on capital gain is $0
    • Cost of donation:
      • Donation is $10,000
      • Tax on capital gain* is 0
      • Tax saving from donation** is 5,040
      • Total cost is $4,960

* 50% of capital gains are taxable, at a rate of 53.5% in ON in 2021 assuming the donor pays tax at the top marginal rate.

** 50.4% x donation amount, which assumes that $200 of donations have already been made in the year and taxable income is >$220,000.]

Now what else can we do? A lot of executives, high-net- worth individuals have stock options. So if you have an employment stock option, that's an option to buy shares in your corporation. Let's say you got them at $60 and now we're trading at $100. And you were to make a $100,000 donation, of course, what you could do is, you could exercise your stock options and sell the shares and donate the cash. Of course, there's a special rule that says if you exercise employee stock options and you donate those shares within 30 days, the gain, which effectively is the employment benefit on the stock option, goes to 0.

[Employees: Donation of $100,000 shares from stock option exercise

Example:

  • Option to buy 1,000 shares at $60 per share ($60,000)
  • Exercise option when market price is $100 per share ($100,000)
  • Donor’s marginal tax rate is 53.5%; tax credit rate = 50.4%

Goal:

  • Make $100,000 donation

Options:

  • Sell shares and donate $100,000
  • Donate $100,000* of shares within 30 days of exercising options and same calendar year

* Assumes share price remains constant.]

Take a look at a quick example.

Again, I won't go through the math on the next slide, but just if you look at the bottom line here, it's the same principle that we just showed you with the donation of securities in kind to charity. If I exercise my options and simply donated the cash, my total cost of that $100,000 gift will be 60,000. And where if I've exercised the options and I donate the proceeds within 30 days, then effectively I pay no tax on my stock option benefit. I get my receipt for 50% and my cost of the gift drops to just under 50% or just under 50,000.

[Table comparing the cost of a $100,000 shares donation from stock option exercise in ON 2021

There are 3 columns:

  • First column lists FMV upon exercise, exercise price, income from stock option exercise, taxable income after deduction, tax on income from exercise, cost of donation, donation, tax on income from exercise, tax savings from donation, total cost.
  • Second column list the numbers for when you exercise and donate shares after 30 days.
    • FMV upon exercise is $100,000
    • Exercise price is 60,000
    • Income from stock option exercise is $40,000
    • Taxable income after deduction is $20,000
    • Tax on income from exercise* is 10,700
    • Cost of donation:
      • Donation is $100,000
      • Tax on income from exercise is $10,700
      • Tax savings from donation** is 50,400
      • Total cost is $60,300
  • Third column list the numbers for when you exercise and donate shares in 30 days.
    • FMV upon exercise is $100,000
    • Exercise price is 60,000
    • Income from stock option exercise is $40,000
    • Taxable income after deduction is $0
    • Tax on income from exercise* is $0
    • Cost of donation
      • Donation is $100,000
      • Tax on income from exercise is 0
      • Tax savings from donation** is 50,400
      • Total cost is $49,600

* Assumes 50% of income from exercise is taxable, at a rate of 53.5% in ON in 2021 assuming the donor pays tax at the top marginal rate.

** 50.4% x donation amount, which assumes that $200 of donations have already been made in the year and taxable income is >$220,000.]

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