Growing into God’s Future

How to maximize your tax benefits on donations

Background – Bob Neville

• Worked 33 years at Canada Revenue Agency• Last 15 years – Tax Specialist in Natural

Resources• Wendy Neville – Daughter – Chartered

Accountant (worked in public accounting for the past 7 years – working in personal tax)

Generalities

Federal• 15% of the first $200• 29% for excess amounts

Ontario• 6.05% on the first $200• 11.16% for excess amounts

Maximize your donation

• Put all donations on one tax return to minimize the rate on the first $200.

Donations

• Must be eligible donors– Ie. Must have donation slips with RR0001 after the

name• Must be paid within the calendar year (January 1

to December 31)• All donations are non-refundable (meaning in

order to get a refund on your tax return, you must have tax deducted or paid tax during the year)

• Donations can be carried forward up to 5 years

Capital Property Donations

• Shares or options of a public company• Land• Depreciable property

Donating Shares of Public Companies

• Many of the insurance companies have demutualization, where the insurer has now received shares, where the cost (or adjusted cost basis (ACB)) is $nil or close to zero.

• Capital gains will be significant• Donations can be made to minimize the tax on

the capital gain.

Example - shares

• Own Sunlife shares with a cost of $0• Pledge is $10,000• Sell shares with a fair market value of $10,000• If sell on own, you have a taxable capital gain

of $5,000 (50% of the capital gain)• Tax rate at the marginal rate of 41% (tax

owing - $2,050)

Example – shares cont’d

• Now only have $7,950 that you can donate• Non-refundable tax credit on donation $3,260– 41% (29% -federal & 11.16% ontario) x $7,950

Example shares - Donation

• Donate - Sunlife shares at FMV $10,000 for pledge

• If shares are donated to the charity, then – No taxable capital gain on shares (ie. Do not pay

$2,050 of tax)– Charity receives $10,000– You receive a donation slip for the full $10,000– You receive a non-refundable credit of $4,100– Note: you must not receive a benefit/advantage from donating (ie.

Receive something for it, this must be offset on the donation slip)

Donations in year of death

• Can be carried back 3 years against any income (to offset any tax owing)

• Other specific rules apply

Maximize Cash flow (personal approach)

• Donate close to the year end• Usage of donations for building fund– Stagger donations based on pledge, 1/6th in year

one, 2/6th in year two, and 3/6th in year 3

Government Support• Gift of $10,000• Refund $4000• Gift of $4000• Refund $1600• Gift of $ 1600• Refund $480• Gift of $480• Refund of $190• Gift of $190• Total gift from You $10,000• Total from Government $ 6,270

References• IT-288R2: Gifts of Capital Properties to a Charity

and Others– http://www.cra-arc.gc.ca/E/pub/tp/it288r2/

README.html• P113: Gifts and Income Tax–

http://www.cra-arc.gc.ca/E/pub/tg/p113/README.html

• T1170: Capital Gains on Gifts of Certain Capital Property– http://www.cra-arc.gc.ca/E/pbg/tf/t1170/

README.html