If you held a participating permanent life insurance policy with Canada Life, Manulife, Mutual of Canada or Sun Life up until 1999, chances are that you received a bunch of free shares in one or more of those companies that same year.
You see, those companies used to be owned by their policyholders. On March 2, 1999, the Department of Finance enacted Bill C-59, allowing large mutual life insurance companies to issue shares to the public - or "demutualize."
When they decided to list on the stock exchange, they needed to buy out their owners, the policyholders, by issuing them "demutualization" shares.
This came as a pleasant surprise to several million policyholders and many continued to hold onto them, waiting for a good idea on what to do with them. The wait may be over.
When you received those shares you received them at zero cost to you and, hence, they now have a zero cost base. What this means to you is that if you sell them, assuming they are outside your RRSP/RRIF, you will pay taxes on the taxable portion of the full value of the shares.
For example, let's say you have $10,000 worth of Manulife Financial demutualization shares (Symbol: MFC). Your cost base is zero because the shares were given to you by Manulife at no cost to you.
Your capital gain then is $10,000. Fifty per cent of your capital gain is taxable, so $5,000 falls as taxable income. If you happen to be in the top tax bracket of 43.7 per cent, you will pay around $2,185 in taxes.
In selling your shares, you will net $7,815 dollars after tax.
Here's a better idea that will allow you to do well by doing good: Donate the shares to your favourite charity.
You will immediately make your mark in the lives of others, Canada Revenue Agency will not assess capital gains tax and you'll also receive a charitable tax receipt that will increase your tax refund substantially.
Here are the numbers: $10,000 goes to the charity and $4,370 goes to you after filing your taxes.
That's a total value of $14,370 between you and your favourite charity, versus only $7,815 if you decide to sell it for yourself.
Put another way, the difference between $7,815 and a $4,370 tax refund is only $3,445! You're only really losing $3,445 in order to benefit the charity by $10,000. What a deal!
I've always believed that unexpected events represent opportunities to make a difference in the lives of others, so here's the deal: For those who have been lucky and patient enough to be holding onto demutualization shares since 1999, consider this article to be your invitation to make a difference in the worthwhile causes of the many community and religious organizations that you may care about.
Discuss this idea with your family, friends and financial advisors and prepare to make a difference.
The opinions expressed are those of Richard Vetter, BA, CFP, CLU, ChFC.
Vetter is a senior financial advisor with WealthSmart Financial Group in Richmond.
