Charitable Giving Takes on a New Look

Charitable gifting is about to change. As you may know, currently you can donate cash and receive preferential tax treatment.  For every dollar you donate over $200 you would get a tax deduction of $0.437.  In 2006, the benefits of donating stocks in-kind became substantial because if you donate the stock in-kind to a charity the capital gains of that stock become non-taxable to you but you still receive the full charitable tax deduction.

Projected to come into effect in 2017, the donation of Real Estate profits and profits from the sale of private companies will receive the same tax benefit that are currently available to public shares. This  change could be a game changer for tax planning, strategic gifting and estate planning.

So how does this work?

Let’s assume you want to donate $10,000 and your income tax rate is 40%.

	Share sale then Donation in cash	Share Donation in-kind
Purchase Price	$10,000	$10,000
Sale Price	$20,000	$20,000
Taxable amt of gain	$5,000	$5,000
Tax owing	$2,000	$0
Donation amt	$10,000	$10,000
Tax Deduction on Donation	$4,370	$4,370
Net amount to you	$12,370	$14,370

So as you can see, by changing the way the funds are donated you can be more efficient in your giving. You could donate the extra $2,000 OR use it for other purposes.

Creating your own charitable foundation

A question we have been asked often is “I would like to make a donation and receive a tax receipt in this tax year, but I have not decided where I would like to make the donation to, or if I want to donate all of the funds at once. What should I do?” One of the most cost effective ways of doing this is to set up a donor advised fund with a foundation.

How it works:

1. You donate the funds to the foundation,
2. You get the charitable receipt in the year you donate the funds to the foundation, and
3. They hold the funds until they hear from you and you direct them to donate the funds to an eligible charity.

Other Benefits:

1. Beneficiary of a Will – If you have allocated funds to be donated to a charity in your Will, what happens if you change your mind or that charity ceases to exist? You need to spend money on changing your Will. Designating the foundation as the Charity of choice means you can change your charities as often as you would like with the foundation without having to change your Will – saving you legal costs.
2. You control when and where the funds get allocated.
3. Low Cost – There is no cost to set up the fund and with some foundations there is no cost to provide instructions.
4. Stock donations – These foundations are usually set up to take stock donations for charitable giving.

There are several factors to consider when deciding which donor advised foundation to choose. If you would like more information on this or other charitable strategies, give us a call.