Life Can Be Taxing  

Donate to charity or the taxman?

In 2008 Canadians gave over $8.1 billion to charities. We give to charity for many reasons including the desire to help our community and those in need. Giving to charity makes us feel good about ourselves. An added benefit to giving is the tax savings that result from our philanthropy. This article will examine a way to leverage our donations by significantly increasing the tax savings that result from the donations.

Since 2006 the rate of tax on appreciated stocks and other qualifying securities donated to registered charities is zero. That’s right! You pay no tax on the difference between your cost of the stock and its fair market value at time you donate that security to a charity. In addition to not paying tax on the gain you will also receive a tax receipt for the fair market value of the security.

Consider this example. Jim would like to donate $10,000 to his favorite charity. Jim holds a portfolio of stocks. Some of these stocks were bought recently and their market value if sold today would not be significantly higher than what Jim paid for them. However, Jim also holds 100 shares in ABC Co that currently trade at $100 per share so that if they were all sold today he would receive cash of $10,000. Jim bought these shares 5 years ago for $2,000. If he were to sell these shares today Jim would realize a taxable capital gain of $4,000 (only half the gain is taxable). At current BC tax rates Jim would pay as much as $1,748 in taxes on this sale. If Jim then takes his $10,000 of cash and donates it to his favorite charity he will receive a tax receipt for $10,000 which will provide him a tax credit of $4,370 (assuming he has already donated $200). The net benefit to Jim would be a tax savings of $2,622.

If instead Jim donated the ABC Co shares to his charity of choice he would still receive the same donation receipt but would pay no tax on the capital gain, resulting in net tax savings of $4,370. Jim’s charity could then sell the stock to realize the $10,000 cash and they would pay no tax on this transaction.

This is a simple example of how Jim can leverage the tax savings of his donation. The tax savings that can come with the gift of flow-through shares is even greater. In some instances larger savings can result if securities are donated by a corporation.

Before making the donation you will need to contact the charity to ensure they are set up to receive securities. For individuals already wishing to make a charitable donation the gift of securities is something that should not be overlooked. Donating stocks provides a method of helping your community and at the same time getting the most bang for you buck. After all who would your rather donate your money to - the ‘taxman’ or your favorite charity?

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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About the Author

Andrew Pitre is a Chartered Accountant with K. Hecht & Associates Inc. Andrew specializes in the area of accounting and tax for individuals and owner managed businesses. His areas of practice include year-end notice to reader and review engagement reports and associated corporate tax filings. In addition, Andrew's practice includes tax planning for individuals, corporations, and trusts.

Andrew graduated from the University of Victoria in 2005 with a degree in Economics. In 2005 he began his career in public accounting and in 2008 he obtained his Chartered Accountant designation. In 2010 Andrew completed the Canadian Institute of Chartered Accountants In-Depth Tax Course.

Andrew's interests include most water sports, snowboarding, squash, and hiking. He is the current President of the Kelowna CA association and treasurer of the West Kelowna Daybreak Rotary club.

Andrew can be reached at [email protected] or www.hecht.ca.

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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