Charitable Donations: Non-Registered Asset Donations
Please follow the steps in the Charitable Donations: Overview article for enabling the charitable donations feature in your projections. The following provides details on donations from non-registered assets specifically.
In the year of the donation, Snap will either apply the tax credit that year or carry it forward up to 5 years to claim it in the most advantageous way. You will be able to view the donation amounts that have been carried forward each year as well as the donations that have been already claimed. Snap will also display a comparison of the total tax based on whether or not a donation has been made.
If a client is considering making a charitable donation and they own a stock or mutual fund that has had large gains, it may make sense for them to gift the stock or mutual fund directly to the charity rather than selling it, paying taxes on the capital gains and donating the proceeds of the sale. By gifting the stock or mutual fund directly, the charity is able to receive the total value of the stock/mutual fund, the donor does not realize any taxable capital gains (hence pays no tax on this) and they receive a tax receipt for the full value of the donation.
We will use a basic example to help demonstrate. We have a non-registered asset with an original balance of $100,000, an adjusted cost base (ACB) of $50,000, which is allocated to 100% equity at 0% rate of return for simplicity. Additionally, the portfolio settings have been updated to indicate the equity portion consists of 100% capital gain producing stock with 0% turnover each year.
Donations from non-registered assets can be made by clicking the value under the Donation column and entering the donation amount in the pop-up window. Click the dark blue checkmark to save the entry and run the scenario to update your projections. (You will not see the Donation column unless you enable Charitable Donations first.
In this example, the client has made a $50,000 donation and we have indicated an ACB of the donation of $0. The $100,000 account balance is now reduced to $50,000 and the ACB of the account after the donation is $50,000. You can hover your mouse over the Value column for the non-registered asset to view the ACB after the donation was made. If the client withdraws the remaining balance of $50,000 in 2027 for example for their own spending, there are no capital gains realized on this withdrawal since the ACB of the account is equal to the withdrawal amount. The Taxable Income in 2027 remains the same as the previous year, even with the withdrawal from the non-registered asset.
To show you the benefit of this type of donation and how it saves the client the taxes that would be owing on the growth of the non-registered account, here is the same example with a $50,000 donation but the ACB of the donation has been set to $50,000 instead of $0. Notice that after the donation the ACB of the non-registered asset goes to $0. Therefore, when the account is emptied in 2027 for personal use, the client realizes the capital gains on the remaining $50,000. Half of this is taxable and the client's taxable income increases by $25,000 that year to $125,000.
If you don't know the ACB of the donation, you can leave that field blank and the software will make an assumption for you. In this example, it would assume a value of $25,000 for the ACB of the donation, halfway between the full amount of $50,000 and $0. The assumption is will be dependent on the non-registered account asset mix and portfolio settings. Note that by default, capital gains producing equities are donated first.
How are non-registered asset donations shown in the report?
The Net Worth Projections table displays the asset balance for each account at the end of the year and this will reflect the donations from the non-registered assets.
The Cash Flow section of the report contains the Cash Flow Summary and Income Details. Since the donation is not part of the client's cash flow it is not shown on either of these sections of the report. You will not see an outflow from the non-registered account on either of these tables for the donation amount.