Tom Plunkett - ScotiaMcLeod Calgary

By: Tom Plunkett - Scotiamcleod Calgary  09-12-2011
Keywords: Tax

If you are contemplating a charitable donation, or if you have already committed to an annual giving campaign, you want to be aware of the various ways of making your contributions as tax efficiently as possible. You can increase your tax efficiency whether you are contributing to a university, to the United Way or to your local church and boys’ group.

You can make your contribution to one recipient or a group of recipients by donating:

For example, let’s say you want to contribute $1000 to the University of Calgary.  You must come up with that $1000 cash from somewhere. You can source that cash either from your income or your savings account, or you can donate securities from your investment account.  Below you can compare the after tax result from each choice:

  • These examples assume that you, the donor, have a Marginal tax rate of 39%

Case 1: Donate $1000 cash

(-)  Donate $1000 cash
(+) Receive $386 tax credit
(=) $614 out of pocket

Case 2: Donate $1000 of stock which cost $500 originally (-). Donate the $500 shares (now valued at $1000)

(+)    Receive $386 tax credit
(-)    Pay capital gains tax of $48.75 ($500 gain x 39% x 25% inclusion rate)
(=)    $162.75 out of pocket

Case 3: Sell $500 shares for $1000, then donate the $1000 cash

(-)    Pay capital gains tax of $97.50 ($500 gain x 39% x 50% inclusion rate)
(-)    Donate proceeds of the $500 shares (proceeds equal $1000)
(+)    Receive $386 tax credit
(=)    $211.50 out of pocket

Case 4: Buy $1000 flow-through shares, then donate them at $1000

(-)    Invest $1000 in flow-through shares
(+)    Receive income tax deduction of $390 (cost of shares is now $0)

Donate shares at $1000 market value
(+)    Receive $386 tax credit
(-)    Pay capital gains tax of $97.50 ($1000 gain x 39% x 25%)
(=)    $321 out of pocket

While cases 1-4 are listed in order of simplicity, the order of benefit to you would be:

Case 2 - Most beneficial to you
Case 3 - The next most beneficial
Case 4 - For reasons of market risk during hold periods
Case 1 - Least beneficial   

Tom and Isabelle work with many clients who want to deliver securities to their favorite charities easily, and we work with several charities who want to turn those securities into cash.
The information in this article was current at 06 Dec 2011

Keywords: Tax

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