For Your Consideration

Joel Lazer, CPA, CA, CIRPTax

On previous occasions we have discussed donations.  The Income Tax Act allows a tax credit as opposed to a deduction.  This means for donations over $250 you will receive a benefit as though you were in the highest income tax bracket.  You will save 46% of the donation amount.  The remainder of this article will assume your donations exceed $250.

Donations can be given in cash, property or services.  If you give a cash donation of $1,000 your income taxes will be reduced by $460.  If you were to give property that has a fair market value of $1,000 you will benefit by the tax reduction; you will also have to deal with the disposition of the property.  If the disposition gives rise to a $1,000 capital gain there will be some tax payable.  If you are in the highest tax bracket the benefit of the donation will be cut in half.  If there is a trading gain which is normal income and if you are in the highest income tax bracket, the benefit of the donation is completely offset by the taxes payable.

If you give services, the fair value of the services is usually included in income.   The donation benefit is reduced by the tax on your income.  Again, if you are in the highest tax bracket there will be no net benefit to you, just to the charity.

As with most rules in the Income Tax Act, there are exceptions.  If you were to donate publicly traded shares you will get the benefit of the donation for the fair value of the shares.  The exception is, there is no requirement to include any capital gain on the disposition of those shares in your income.  There would be no reduction of your benefit.  Assuming the shares had a nominal or no tax cost, the difference between selling the shares and donating the proceeds or between donating the shares and the charity selling the shares, is $230.

You might like to check if you have any publicly traded shares with accrued gains which could be used to fulfill donations you might like to make before the end of the year.  If you purchased and are still holding flow-through shares, check those as well.

Tax Free Savings Accounts

We have previously written about tax-free savings accounts.  In January the individual limit will be in excess of $15,000.  Many options are available, other than standard savings accounts, for TFSA investments.  If you would like to move funds between accounts, be careful not to over contribute.  There are penalties.  The way it works is, the investment limit is increased by withdrawals but not until the calendar year subsequent to the withdrawal.  This means a simple transfer could easily result in an over-contribution.  Now would be a good time to plan for next year.

Lazer Grant Trade Mission to Israel

February 26, 2011, is the departure date.  The program is being formulated and promises to be an awesome experience.  A preview meeting is scheduled for Wednesday, November 3, 6:30 in the evening, at our offices.  Please join us to see the plans, join the excitement and have your questions answered.