One of the greatest things I have seen in the last ten years is the example set by the world’s richest families when it comes to philanthropy. Warren Buffet, Bill Gates and even the young and enormously rich Mark Zuckerberg have all pledged to give away most of their fortunes, amounting to tens of billions of dollars, to charities. Many others have followed their lead. You are probably not a billionaire, but you can emulate these gods of giving in your own way. Not only will your charity of choice benefit, but so will you. The Government of Canada has made philanthropy one of the most tax effective things you can do with your money. I am talking, if you haven’t guessed yet, about giving away securities, specifically, securities that have gone up in value1. Here’s how it works.
Say you have committed to make a gift of $5,600 to your favourite charity. You could write a cheque in which case, if you are in the top tax bracket, you will get a tax credit worth about 53.5% of your gift, or just about $3,000. Your charity gets $5,600, and it only cost you $2,600. Not bad, and you can see the math in Scenario I below.
But now imagine that you bought 100 shares of Brookfield Asset Management for $16/share in 2007. You are of course thrilled that your $1,600 investment is now worth $5,600. Brookfield has gone up no less than 250% in the last 10 or so years. You decide to donate the 100 shares to your charity. You still get the tax credit for $3,000, but on top of that, you avoid the capital gains tax on the shares completely. Since the shares have gone up $4,000 since you bought them, you would normally pay a capital gains tax of about $1,070 on the sale. But the Government of Canada has graciously decided to waive all capital gains taxes on gifts of securities. You don’t have to pay the $1,070. That is a savings to you, and together with the $3,000 tax credit you get for the gift, will result in a total reduction in taxes of $4,070. Your charity got $5,600 and it only cost you $1,530. In effect, the government paid $4,070 or 73% of your gift. You can see this more clearly below in Scenario 2.
We love the fact that many of our clients are actively involved in donating to and raising money for their favourite causes. After the sharp rise in equities over the last nine or so years, they can give in a highly tax effective manner, and get a real bang for their bucks. You can too.
|1Value||When you sell a stock at a loss, you’re not able to claim the capital loss if you or a family member re-purchase the same stock within 30 days, which is called a “superficial loss”. Instead, the loss that would have been claimed on the old shares is added to the cost basis of the new shares, resulting in a lower capital gain when (if) the new shares are eventually sold at a profit. Taking advantage of this rule deliberately can allow for moving capital losses from one person to another.|