This is a guest post from Carey Vandenberg who is a Financial Planner with Partners In Planning Financial Services Ltd and C.E. Vandenberg & Associates Inc. Carey primarily works with clients in the Greater Vancouver area although he has clients in Alberta, Saskatchewan and Ontario as well as the U.S. and abroad. He has been serving in this capacity since 1987.
If you give to charity or church on a regular or substantial basis ($5,000 or more per year) the following is something that you should seriously consider to replace your current mode of giving, namely writing a cheque and only getting the donation tax credit. Using this strategy will still put the same amount of cash in the hands of your designated charity or church, however it can cost you a lot less.
First, I must state at the outset that the tax savings does depend on your province of residence, your marginal tax rate, your advisor and what investment that you ultimately use for this purpose. That will be between you and your Financial Advisor.
What I call the “Double Dip Donation Strategy” starts with the investment in a “Super Flow Through Share” offering. This can save you up to $6,180 on a minimum $10,000 investment. In other words, you are out of pocket approximately $3,800.
Flow through shares are nothing new. They have been a huge part of the Canadian economy for over 50 years, longer than RRSP’s. However, unlike RRSP contributions you must make a Flow Through Share investment before December 31st to have the tax deductions and credits apply to the current tax year.
If you simply want the tax savings and hold the investment for yourself then you can stop there. You will have made a $10,000 investment for a net cost of only $3,820. If you choose to take a second step and use your investment as a charitable donation you will save up to an additional $4,370. The $6,180 tax savings for investing and then $4,370 tax savings for donating.
For the donation part however, you will have to wait for the flow through shares to convert to a mutual fund. It is at this time you can gift the shares to the charity and the can be simultaneously sold for cash by the charity.
In other words you have received just over $10,000 back in tax savings and the charity or church you have given to has received $10,000 in cash. This of course assumes that the flow through share offering you have participated in is worth the same amount.
For a regular giver to a charitable cause or church this is considerably better than simply donating cash which produces a total tax savings of only $4,370.
I use the “Super Flow Through Share Donation Strategy” myself and will continue to do so for years to follow or until the government changes the tax rules. Multiply the tax savings by the number of years you will have breath and we are talking potentially hundreds of thousands of dollars in extra dollars for your (or your kids).
Note: The above tax saving figures are based on the highest tax bracket in BC ($123,000+ of taxable income). The tax savings are still very compelling at the over $70,000 taxable income level and can still be attractive for taxable incomes over $38,000.
Editors Note: Flow through shares are very volatile with a very high probability of decreasing in value.
Disclaimer: Carey Vandenberg is a Financial Planner with Partners In Planning Financial Services Ltd (PIPFS). The views expressed have not been endorsed by PIPFS. The information contained does not constitute an offer or solicitation to buy or sell any investment fund, security or other product or service. This is not intended to provide specific financial, investment, tax, legal or accounting advice for you, and should not be relied upon in that regard. You should not act or rely on the information without seeking the advice of a professional.