Tax Smart Charitable Giving

THURSDAY, JANUARY 19, 2023

Many of our clients donate to worthy causes throughout the year and should be sure to utilize the Charitable Donations Tax Credit.

For regular personal donations, you will receive a 53% tax credit (with some minor exemptions for very small donations).

For those making larger donations consider the benefits of donating appreciated stock.  By doing so, you save the full donation credit and in addition you avoid paying the capital gains tax.

For example, if you were to donate $10,000 in appreciated stock with a $2,000 cost base, you would receive a donation receipt for $5,300 as well as saving the entirety of your capital gains tax of $2,120 ($10,000 - $2,000 * 26.5%).  The process for making such donations is simpler than you might expect, provided you are donating to a larger charity that is used to receiving shares.  Brokers are used to making the transfers so the process of moving from your advisor account is simple.

The chart below compares the difference in total cost of a donation to you whether you sell shares and then donate versus directly donating shares to charity.

Another important question to answer is whether to donate personally or corporately. The answer depends on your particular situation. Donating personally will result in the 53% savings described above.

Corporate donations also result in tax savings, rather in the form of a deduction from income rather than credit. The charitable donation deduction savings will depend on the type of income that you earn since different types of income have different corporate tax rates.  Although the immediate savings are lower in corporation, a corporate donation allows an individual to preserve personal cash.  This has benefit to your long-term tax planning.  Some rules of thumb:

-       If most of your investment capital is in corporations then you usually are better to make a corporate donation. 

-       If you have significant personal assets on hand, then a corporate donation is only best if your planning to use appreciated stock.  If you are donating cash then a personal donation is generally best.

 Other items to consider:

-         donations to non-Canadian charities cannot exceed 75% of the income from that country. 

-       you can carry forward unused donations for up to 5 years so if you over contribute in a single year there is plenty of flexibility to take advantage of the deductions in future years.

 Please reach out if you have any questions!