Charitable giving: donating securities versus cash

Two ways to give the same amount to the same charity, and one of them costs you materially less. The difference is whether you sell the investment first — and almost everyone sells first.

The mechanic

Sell the security first and donate the cash, and you get the identical receipt — but the sale realised the gain, and you owe tax on the taxable half. Same gift, same credit, and one route carries a tax bill the other does not.

The charity is indifferent. It receives the security and sells it, tax-exempt, for the same amount of money. The entire difference accrues to the donor, which is unusual enough to be worth acting on.

The credit itself

The donation credit is a credit, not a deduction — it reduces tax rather than income. It is a two-tier structure: a low rate on the first small slice of annual donations and a higher rate on the rest, so a larger gift is credited more efficiently than several small ones.

Unused donation credits carry forward five years, which is what makes concentrating gifts into a single year worthwhile: it clears the low-rate first tier once instead of annually. Spouses can also combine donations on one return for the same reason.

Giving at death

A donation made by will or by designating a charity as beneficiary generates a credit against the final return — the return that, as episode 84 showed, contains the entire deemed disposition and is therefore the highest-tax year of a lifetime. A credit is worth most in exactly that year.

Naming a charity as the beneficiary of a registered account is a particularly clean version: the account’s full value becomes income in the final return and the donation credit offsets it, so the gift is made largely out of tax that would have been paid anyway.

The two routes, compared

Priya — 54, Ontario, single. $118,000 salary, $410,000 in her RRSP and $88,000 in her TFSA, planning to retire at 63.

Priya holds $60,000 in non-registered investments at a marginal rate of 37.2%. Donating an appreciated holding in kind gives the same receipt as donating cash and eliminates the gain on it entirely.

Her estate triggers $130,797 of tax in the final year, which is the year a donation credit is worth the most. A gift by will of appreciated securities combines both effects: the gain is eliminated and the credit lands against the highest-rate income of her life.

What this is not

Giving is not a tax strategy — a donation always leaves you with less money than not donating. The mechanics above decide how much a gift you already intended to make actually costs you, which is a different question from whether to make it.

Which is why this is advisory rather than measured in the plan: a projection cannot model the composition of individual holdings, so it can flag the consideration and will not invent a dollar figure for it.

Next: emergency fund versus investing, and where the buffer should sit.

GlidePathEngine is an educational planning tool — not financial, investment, tax, or legal advice.