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Do you donate? Are you a philanthropist? Do you want to contribute to the charity of your choice in a more tax efficient manner? Are you concerned about leaving some money at some point to a charity after you’ve passed on and you also want to leave as much as possible to your kids?
We’re covering a few important tips about donating money today. Obviously, these strategies are best suited if you’re making significant donations, but even if you’re donating 5 or 10 thousand dollars, these strategies can absolutely be used to benefit YOU personally in a much more tax efficient manner.
Generally, this is how it works; you want to donate some money to your favorite charity foundation. You’ll pull out your checkbook, write a check. Then the charity gets the money and the because you donated, you will get a tax credit also knows as a donation credit. You get roughly half of the money given back. I am rounding numbers to keep it simple. You get roughly half of that back on income tax depending on the province you live in.
Now a much better way to do it and what we like to emphasize is if you want to donate shares in kind, you avoid the capital gains on the shares that you’ve donated. In addition, you get the full tax credit for the actual amount given.
Let’s go through an example. You take a share of a publicly traded security that you own in your personal portfolio and then you donate that in kind through a transfer of securities. That share you will avoid the capital gains on it. The capital gains tax is generally about 25 percent of any and all gains, so if you donate the portion of your portfolio that’s got the most gains, you could be donating for twenty five cents on the dollar. We do it all the time. You want to structure a portion of your portfolio, if your intent is to be giving or contributing to charity foundation either on an annual basis, every five years, every 10 years and/or in your will & estate plan.
What you want to do is set up an investment vehicle that has a diminishing ACB (adjusted cost basis) and an average cost base that goes down annually. The perfect example for this would be a REIT (Real Estate Investment Trust.) It could be a publicly traded REIT or a private REIT. They pay out income. They reduce your ACB, so if you have a $10 share today and you get 8% tax efficient income, your ACB goes down to $9.20.
⭐Link to Alternative Assets Classes video (Private REITs) – https://robtetrault.com/what-are-alternative-asset-classes/
If you do this for a few years. Next thing you know here, your ACB is at zero. When your ACB is at zero, you then flip it around, donate that share to the charity, the foundation or the organization of your choice. Essentially, your total cost to donate a full dollar to your charity will only cost you $0.25. You avoid the capital gains tax and you get the full tax credit on the way out. Voilà! Your charity is excited and pumped! You’re excited because you’re able to donate way more than you could before and now everyone is happy with the outcome.
There is also another way you could do it. You could look at some tax planning strategies through insurance to then leave some money to the charitable cause of your choice through legacy giving. These kinds of strategies are very efficient. Some of them are simple and easy to implement, but there’s a good chance that nobody has ever told you about this. Hopefully you put that to good use.
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⭐Link to Alternative Assets Classes video (Private REITs) – https://robtetrault.com/what-are-alternative-asset-classes/
⭐Link to IPP (Individual Pension Plan) video – https://robtetrault.com/whats-an-ipp-individual-pension-plan-and-who-is-it-for/
If you’d like to schedule a call with me and discuss further on charitable giving or anything related to your portfolio management, just click the button below and I’d be happy to help.
