By: Matthew Getzler, Partner - Tax
As we all adjust to life in the midst of the COVID-19 pandemic, many have been donating time and/or money to help those in need. Last week, Jack Dorsey, the CEO of Twitter and Square, announced that he is putting $1 billion of his Square equity into a fund that will directly provide coronavirus relief. What an unbelievable gesture.
The tax lawyer in me, though, hopes (but is sure) he got proper tax advice to structure this gift in the most tax-efficient manner. And hopefully everyone else, no matter the size of the donation, is also getting proper tax advice when applicable.
Generally, donations to registered charities in Canada can be claimed as a tax credit against income. Where an individual is earning income at the top marginal tax bracket, the value of that tax credit is more than 50 cents for every dollar donated. A $1,000 donation would, thus, ultimately cost the taxpayer less than $500 while the recipient gets the whole $1,000.
Additional tax savings arise where an individual donates certain securities instead of cash. In addition to the tax credit mentioned above, any underlying growth in value of the securities is exempt from tax. So, for example, if the taxpayer donated shares of Apple to a registered charity he or she bought for $1 that are now worth $1,000, not only would the taxpayer obtain a $1,000 charitable donation tax credit (worth in excess of $500 to him/her), but the capital gains tax that would have otherwise arisen on a disposition of those Apple shares (in excess of $250) is no longer owing by the taxpayer. As a result, the donation of $1,000 can actually cost the taxpayer less than $250. If one were inclined to make a donation that costed him or her $500 after-tax (i.e., if a $1,000 cash donation were made), he or she could potentially double his or her donation by donating certain securities, making an even greater impact with his or her gift while leaving him or her in the same after-tax position.
This is just one of several tax-efficient ways to donate. Given these circumstances, hopefully more people are inspired to give back financially right now through any dollar amount.
For more information, please contact Matthew Getzler