Gift Planning

Guidelines for the Use of Treasurers of Congregations and Local Mission Units

Historically, when a person donated appreciated securities (shares or mutual funds) to a charity they paid capital gains tax on 75% of the appreciated amount. This was reduced to 50% on February 19, 1997, to 25% on October 18, 2000, and eliminated on May 3, 2006.

Why would a donor want to make a gift of listed securities?

Everyone with appreciated securities must dispose of them at one time or another and, if they keep the money for themselves, pay capital gains taxes on 50% of the appreciated amount. Giving the securities to charities eliminates the capital gains taxes and the donor receives a charitable donation tax receipt for the full market value of the securities.

Some donors may wish to use gifts of securities to fulfil a pledge or other cash commitment to the church (e.g. a pledge to a local capital campaign), saving them from depleting their cash on hand.

In some instances, the tax receipt for a dividend-paying stock that is not performing well could be worth more to the donor than the shares themselves.

Example:

In 2005 John and Mary Jones, who live in Ontario, pledged $20,000 ($10,000 per year over two years) to their local church-building campaign. Now, in the second year of this commitment, they find that they want some money for a vacation, but are also mindful of their pledge.

They have 200 shares that originally cost $40, and in June 2006 are worth $100 per share.

The value of the stock in June 2006 is $20,000. If they sell 100 shares at $100 for $10,000 to pay for their vacation, the capital gain on the stock is $60 per share ($6,000), of which 50% ($3,000) is taxable.

If they give 100 shares of the stock to the church, none of it is taxable and they receive a charitable donation tax receipt of $10,000.

Their solution: Give the stock to the church to fulfill their pledge and save the cash in the bank for their vacation.

Also, John and Mary will receive two types of tax savings:

1. $4,600 tax credit or deduction (46%* of $10,000)
2. Almost 14% of additional savings because no capital gains tax needs to be paid on disposition of the stock. Capital gains taxes would be $1,380 (46%* of $3,000 taxable capital gain).

The total tax savings for them would be 60% if they gave the gift of appreciated securities.

If they gave cash, the tax benefit would be only 46%.

*In this example, we have assumed a combined federal and provincial tax savings and income tax rate of 46%, the highest rate in Ontario including surtaxes. As all provinces and territories differ, please tailor to your own circumstances.

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Points to Note:

1. The security must be a listed security (i.e. shares, mutual funds, bonds, bills, warrants and futures that are listed on a prescribed stock exchange). Unlisted stock in a private company does not qualify under this provision. The United Church will only accept securities listed on registered stock exchanges.
2. The security, and not the proceeds from the sale, must be given in order to be eligible for the capital gains exemption.
3. The church issues an "in kind" charitable donation tax receipt when it has received this type of gift. To issue an "in kind" receipt, simply issue your usual charitable donation receipt with a note on the receipt that this is an "in kind gift of X number of shares of XYZ Company, valued at $X per share on X date."
4. The value of the receipt is the value of the security on the day it is received by the church, or the church's broker, notwithstanding the value at any other time in the transaction. This raises some timing issues which are of the utmost seriousness to the donor and the church. Most notably, the value of the stock could decrease by the time the church receives the gift, causing ill will with the donor. An electronic transfer of securities usually takes about three business days, but delays can occur, whether the stock is book-based or in certificate form. A clerk in the brokerage firm could delay the process by several days or weeks. It is important for the broker to stay on top of the transaction.
5. As with all gifts, it is the right of the church to refuse to accept gifts of listed securities when not in keeping with investment policies of The United Church of Canada.
6. Donors should understand that the church will usually convert the securities to cash soon after receiving them. However, the church is under no obligation to follow the instructions and/or advice of the donor on the handling of the security after the gift has been made.
7. While a gift of securities can be received by a congregation without the assistance of the Regional Gift Planner, we invite and encourage congregations to consult with their Planner for two reasons:
   1. they can help you facilitate the process
   2. if appropriate, they will ensure the donor is recognized as a Planned Giver. This is important because it formally recognizes the donor, allows us to say "thank you," and, if the donor chooses not to remain anonymous, sets an example for other congregants.

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Procedure:

First of all, the donor or the Regional Gift Planner should check with the local congregation to ensure that they are agreeable to receiving a gift of securities. There is no reason not to be, but the treasurer may be unfamiliar with this type of gift.

Local congregations will need a brokerage account to receive a gift of securities. This is the trustees' responsibility. They can

• open a brokerage account with a discount arm of a bank or brokerage firm
• open an account with an online investing firm such as RBC Action Direct
• ask their local bank manager if the bank can receive the transaction for them and convert the gift into cash in their account via the discount brokerage

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Steps:

1. The donor informs the treasurer of the local church or mission unit that he or she would like to make a gift of securities. (The donor could use the sample letter of direction found below. Note that this sample letter assumes the securities will be transferred electronically. The letter will need to be revised if the donor has the actual share certificates. See (2) below.)
2. Having received the consent of the treasurer to receive this type of gift, the donor informs their stockbroker that they would like "X" security transferred to the church's brokerage account.
   OR
   If the security is in certificate form, it is recommended that the treasurer work closely with the congregation's broker or bank to determine the procedures by which the broker or bank will receive the share certificates. Where all parties are known to each other, it can be as simple as the donor endorsing the shares and filling out the "Power of Attorney" on the back, or providing a separate Power of Attorney for Securities, naming the congregation as the transferee and the congregation's broker or bank as their appointee to assign and transfer the shares. The power of attorney must be witnessed and guaranteed by a bank or trust company. The signature must correspond with the name(s) as written upon the face of the certificates(s) in every particular without any change whatsoever.
3. Again, the amount of the charitable donation tax receipt will equal the value of the security as the closing market price on the date the gift was received in the church's brokerage account, notwithstanding its value at any other time. (The treasurer may want to document the gift for the donor by using the sample letter attached.
   (Again, if the actual share certificates are given to the congregation the letter will have to be revised.)
4. The donor will later turn all of this over to his or her accountant for the next tax return, making sure to remind the accountant that there is no taxable capital gain on the appreciated amount of the gift of shares.

NOTE: If the congregation does not want to open a brokerage account to redeem the securities, The United Church of Canada Foundation will accept the electronic transfer of shares on behalf of the congregation. The Foundation will charge an administrative fee of 1/10 of 1% (minimum $35) of the value of the securities for this service. Please visit The United Church of Canada Foundation* for more information.

You and your interested donors can view more information at "One Gift. Many Thanks."*

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Sample Letters

Congregation to a Donor Documenting the Gift of Securities

PLEASE NOTE: If the gift is for something other than a donor's annual pledge, and if the donor would like to be recognized as a Special Gifts Leader, please send a copy of this letter to your Gift Planner. A copy of this letter will be sent to Toronto and the donor will receive a certificate and pin to recognize their gift. Questions may be directed to your planner.

• Download the sample letter [RTF: 1 p/6 KB]

Donor's Letter of Direction

A sample letter from a donor to a church treasurer detailing what the gift of securities consists of, how is to be used by the church, and how to contact the donor's broker.

• Download the sample letter [RTF: 1 p/7 KB]