Ah tax time – are we all having fun with less than 2 weeks to the April 30 deadline? Some are having a few surprises with the various government payments that were made during this pandemic and are now facing an unexpected tax bill. So let’s think about strategies for 2021 that may help to alleviate your future tax bills. This strategy centres around charitable donations. I previously wrote about philanthropy and how it is a means by which a family can rally around a cause and better understand the benefits and responsibilities that wealth can bring.  Article on philanthropy

There is a Canadian tax strategy that may allow you to extend your donated dollars and more effectively make donations.  If you donate publicly traded securities directly to a charity, did you know that you do not have to pay any tax on the gains related to these donated appreciated securities?  This would include any type of publicly traded securities.  This means that for the same after tax out of pocket to you, for each $ 1, you could make a donation of $ 1.25, a 25% increase in the amount that you could otherwise donate.  Most charities are now able to accommodate its donors to donate securities to them.

For a variation on this theme of donating appreciated securities, there is a plan that I have seen whereby you purchase flow through shares and then donate those flow through shares. These are complicated and may bear some tax risk. Consult your tax and investment advisor about these types investments before you buy them.

A flow through share is a special type of security that when you buy the share, it entitles the buyer to generally deduct an amount equal to the amount that paid for that security.  If you bought a share for $1 and got a $1 writeoff, then you would:

1. have a deduction of $ 1 which would save you taxes of up to $ 0.54 of tax

2. own shares with a tax cost of $ 0.  Therefore on a future disposition, any proceeds that you receive would be treated as a capital gain.

This means that if you donate your previously purchased flow through shares in certain circumstances, then you may not pay any capital gains tax on the donation of that flow through share to a charity. The government changed the rules for donations of flow through shares in 2011.  For these securities purchased after March 2011, the donor would pay the normal capital gains tax and would not be entitled to the nil tax on capital gains of donated securities that would otherwise be available. So this type of investment to purchase a flow through share and then a subsequent donation of that share may have some tax risk.

Please consult your tax advisor before making this type of donation.

Learn, consider, apply!!