Everybody would like to be a philanthropist but it’s not always as simple as writing a cheque.
If you’re new to the philanthropy game or wondering if you’re being as efficient as possible with your financial contributions, we recommend meeting with a financial advisor who specializes in philanthropic planning.
The big question your advisor will have is, “what do you want to do.”
They’ll want to know your goals so they can formulate a strategic plan to get you there.
Which charity you support is often a very personal decision. If a member of your family has battled cancer, it’s likely that CancerCare Manitoba will be at the top of your list. Healthcare is one of the more popular causes in Manitoba but there are a wide range of others, including religion, poverty, education, animal welfare, and the environment.
There are often multiple ways of supporting a charity. Your advisor can help you determine the most efficient way to make your donation so your generosity can go further than you think.
It’s important to remember that you can make charitable donations either personally or through your personal corporation. When considering various causes, look at both options before making your decision.
For example, if you have an operating company, a holding company and a family trust all connected to each other, choosing the right source for the donation may have a significant impact on the donation’s tax efficiency.
A charitable donation and associated tax credit can only be made to a registered charity and some other organizations known as “qualified donees.” All qualified donees can issue tax receipts for contributions received, which can be claimed as Donation Tax Credits (“DTC”) on your personal tax return.
However, some worthy causes, such as your local community club, may not be registered charities. In this case, a personal contribution may not be used to reduce your taxable income. A contribution from your personal corporation, such as a sponsorship, may be used to reduce the corporation’s income by claiming it as an advertising expense.
Sponsoring an event has the additional benefit of advertising. For example, your corporation can sponsor a local hockey team for $5,000 and get your company’s name affiliated with the cause, which can lead to networking opportunities.
We recommend asking your accountant whether the expense is likely to be approved as there are several variables that may impact what the CRA will allow.
One often-underappreciated way of giving charitably is through donating shares in publicly-traded companies. Sheila Wilson-Kowal, portfolio manager at Cardinal Capital Management, says if you owned shares in the Royal Bank and sold them to free up money to make your donation, you’d have to pay a capital gains tax on the share price appreciation.
“That could be significant. If you simply donated the shares, you wouldn’t have to pay that capital gains tax. You can donate more if you go that route,” she says.
For example, if you bought $3,000 worth of RBC shares a few years ago and they had appreciated to $10,000 today, your net after-tax cost on donating them would be about $3,250.
If you donated the securities in-kind from a personal corporation, there would be no tax inclusion from the gain, so the holding corporation wouldn’t pay any tax. The corporation would deduct the value of the tax receipt from its taxable active business income and 100 per cent of the capital gain would be added to the balance of your capital dividend account, which would allow you to draw funds tax-free from the holding company at a later date.
By taking advantage of the opportunities to be more tax-efficient with your donations, you could give more to the causes that are dear to you with the same after-tax cost to your bottom line.
Let’s get to work and help you leave a legacy.
Cardinal Capital Management Inc.
400-1780 Wellington Avenue
Winnipeg
204.783.0716
Cardinal.ca
