During our lifetime, we often measure our success by our tangible accomplishments. While these are important, we can also influence the lives of others and have an impact on the communities where we live. The federal government is making it more attractive for Canadians to donate to their favourite charities. By eliminating capital gains tax on donations of publicly traded securities to charitable organizations, the government allows each of us to save even more taxes when we donate to registered charities.
Before the rule change, donors would sell their securities and pay tax on any capital gains. Now, individuals can donate the securities directly; fully avoid paying tax on capital gains; and potentially donate even more to theie favourite charity.
The following are some general tax saving strategies using charitable donations. For specific tax advice regarding your personal tax circumstances contact your tax advisor.
Donate Shares Prior to Selling Them
As described, by avoiding capital gains tax on the sale of shares donated to a registered charity, your tax net refund will be greater than if you had sold those shares and paid capital gains taxes. If you wish, this larger tax refund is available to you to make even larger donations to charity.
Donate Cash Received from Sale of Shares
For those wishing to hold their shares, tax relief can still be achieved if cash is donated to charity.
Planned Giving (Deferred Giving)
Planned Giving can also be referred to as deferred giving. Deferred giving means that you donate a specified asset today to receive income tax benefits, while the physical receipt of the asset by the charity is deferred for a period of time, often after your lifetime (and that of a surviving beneficiary, if you wish).
An example of this would be deeding to a charitable organization a remainder interest in your home while you retain full use of the property for life. The key feature of a planned gift is that it allows the donor to earn a tax benefit today and the charitable organization is assured of a physical donation tomorrow.
The Benefits of Planned or Deferred Giving
Some of the ways you can benefit financially through a planned gift.
- You receive an income tax deduction for a portion of the current value of your contribution. You’ll also avoid tax on long-term capital gains on gifts of appreciated property.
- You can potentially avoid investment responsibilities on the assets you donate.
Creating your own foundation provides you with a legacy of giving. Many fund companies have established programs that enable individuals to create their own foundations (see your financial planner or investment advisor for more information). Also,by involving your children in your personal foundation, you are passing on your most essential values – the importance of giving back to your community and helping those less fortunate.
None of the foregoing is to be considered tax advice. When contemplating a tax action consult with a qualified tax professional.
Strategies that involve the use of insurance and related products and services are offered by licensed representatives operating through our affiliated company, Burgeonvest Insurance Corporation.