How to Donate to Charity Tax Efficiently

Giving to causes that align with your values yields one of the best returns on investment for your money. I previously described how to give more effectively to boost your impact and satisfaction. So, giving is an essential financial skill and should be a deliberate part of your financial plan. The other aspect of donating to charity is how to do so tax efficiently. There are charity tax credits, tax deductions, and other tax-saving ways to donate.

donation tax savings

Developing a tax-efficient donation strategy means that more money is available to give directly to the causes that you are trying to support. It could even mean more money for you, if done optimally. Yes, the Government does some good things to support our society with your tax dollars.

If you want to leave the Government a tip, then the Tax-Martyr-Blog is down the hall on the left. If you want to become a better financial steward and direct the impact of your financial power, then read on.


Is it a registered charity in Canada?

The first considerations with a donation are whether the charity aligns with your core values and how efficiently the donation translates into impact. The next question is whether it is a registered charity. That means that it is recognized by the CRA as a legitimate organization. You can do a search on the CRA site.

This is important for several reasons. To be claimed on your income tax filing, you need a receipt with the charity’s registration number on it. Importantly, a registered charity must also meet some minimum standards. Basically, they must have an organized governance that ensures that they are doing public good, acting as a charity (not a business disguised as a charity), obeying the law, and using the appropriate people to administer the funds. Essentially, it provides some piece of mind in addition to the tax benefits.

Should I give personally or from my business?

The answer depends on your income level, province, and the amount of the donation. Sometimes, there is a net benefit at low personal incomes to give personally. At higher incomes, the personal tax credits often do not offset the tax bill. In that case, it may be better to donate via your business instead – where the net tax bill is zero.

Whether you have the cash personally, or in your corporation, doesn’t really matter. If it is optimal to give personally, you could pay yourself a bonus or salary. That would be an expense for the business and shift the tax from the business income to you personally. So, you should consider which route is most tax-efficient. To do that, you must understand how personal donations and corporate donations are taxed.

Taxes & Credits for Personal Donations to Charity


Donating Cash

When you cash donate personally, you must pay the tax on the income. However, that is counterbalanced by tax credits. So, you could donate more knowing that you will be made whole at tax time as long as you have the cash flow to buffer that in the interim. Or you could give your planned amount and pocket the eventual tax reduction. Unfortunately, tax credits may not fully offset the tax cost depending on the donation size, your income, and your province.

Tax credits are at a fixed rate that is applied against the taxes owed. That rate is set at the lowest tax bracket for the first $200 donated. So, it is like that $200 donation was made from your lowest taxed income. For donations over $200, the 29% Federal tax rate is used for the credit. That is a bonus for those with an income below ~$165K. You could pay tax in the 20% bracket and get a 29% credit. Unfortunately, the other part of the tax you pay is provincial. Some provinces are generous, and others are stingy.

Alberta is the most generous, with a credit higher than the top provincial tax rate. Manitoba, Saskatchewan, PEI, and Nova Scotia are also generous, applying the top rate to donations over $200. Quebec and BC are fair, allowing the top credit rate to be applied against income that was taxed at the top rate. Ontario, New Brunswick, and Newfoundland are stingy with tax credits below their top tax rates.


Donating appreciated stock or other securities.

If you donate appreciated securities, then there is a larger benefit. You do not pay any tax on the capital gain plus you get the full tax credit to deduct against your regular income. This could be stocks, bonds, ETFs, or mutual funds that you donate “in kind” (without selling).


Alternative Minimum Tax Changes for 2024

For really large donations in 2024 and beyond, be aware of the alternative minimum tax changes. If planning a large personal donation of appreciated stock and you have minimal regular income, then AMT could apply. You may want to consider doing it in 2023. If after 2023, then 30% of the capital gain will count as income for AMT calculations. Plus, the personal tax credit on donations when applied to AMT will be cut in half. Seems like a short-sighted punishment of philanthropy, but the Government has already spent the money.

Here are the details. It is unlikely to apply to many individuals. For example, those with a total income under $173K are excluded. Donations in the year of death are also excluded. It is also important to remember that AMT only applies to individuals. Not corporations. Another reason to donate appreciated stock from your corporation if you have that option. More on that later.

If it is likely to apply to you and you want to beat the changes but dispense the money over time rather than all now. Then, a donor-advised fund would be an option.


Charitable donation personal tax credit estimation calculator.

You can see the combined effect of donation type, size, income level, and province in the calculator below. You can change it to your province, donation, and income level to get a sense of your situation. If you have a net tax refund, then it may be best to donate personally (if giving cash). If you are giving appreciated stock, then it is great. However, if you also have appreciated stock in your corporation, there is a super-sized benefit to consider.

Donating to Charity Via a Business

If the personal tax/credit balance is unfavorable, then it is better to donate directly from your business. The best way to do that is a donation of appreciated stock, if you are able. More on that later. Let’s assume that you don’t have appreciated stock or that the receiving charity isn’t set up to accept it. Then you are stuck donating cash.

The good news is that a donation to a registered charity by your business is considered an expense. That means it is deducted dollar for dollar against your business’s income and there is no tax on it. Clean and effective. Just be sure to get an official tax receipt for your accountant to use while preparing your business’s tax filing.

A comparison of donating directly from a business compared to giving a bonus and donating personally is shown below. It uses Ontario tax rates to illustrate for someone with a moderate vs high personal income.

charity tax benefits

Donation of Appreciated Stock from a Corporation

For cash, whether it is better to give directly from the business or to pay a bonus and donate personally depends on your income level and province. However, if you have appreciated stock in your corporation, then donating that usually wins. Most major charities allow you to donate publicly traded securities “in kind” (without selling them).


What is an appreciated security?

Appreciated stock could be shares in a stock or ETF that has significant unrealized capital gains. For example, if five years ago, I luckily bought shares of Apple, I would be sitting on a big capital gain. If I didn’t rely on luck, and bought a globally diversified index ETF, then I would still have a large unrealized capital gain. Most major Canadian registered charities can accept donations of publicly traded shares.

It is also possible to donate appreciated shares of a private company. However, that is more complicated because you must have the fair market value determined and the charity needs to be able to sell them to get the money.

If you have multiple securities to choose from to donate, pick the ones with the largest percentage of unrealized capital gains. That will maximize the reduction of the corporate tax liability and maximize your personal tax savings too! You don’t have to donate all of your shares of a stock. Just donate the amount that adds up to your planned generosity. For example, if I wanted to donate $10K from my sample portfolio below, I would donate 400 shares of XGRO.

donating appreciated securities

Notice that I have 4 different asset allocation EFTs in the above example. Years down the road, you may have a large gain in your favorite asset allocation ETF. Perhaps, start buying a different one with the same equity:bond mix moving forward. That would give you options to strategically donate from the higher gain holding to live generously and get the triple tax benefit.


The double tax benefit to your corporation.

You get a tax receipt for the full value of the shares donated. That is directly deductible as an expense against your corporation’s income. That can be deducted against investment income (usually taxed at ~50%). The deduction can be carried forward up to five years, if you don’t have that much investment income in one year. If you still can’t use it to get a 50% tax break, you could still apply it against active corporate income (taxed at 12-29%). Either way is a major tax savings.

Plus, there is no tax on the capital gain. One less tax liability in your corporation. But wait, it gets even better!


The massive tax benefit to you. That makes for triple benefits.

The full amount of the capital gain gets credited to your corporation’s capital dividend account (CDA). Normally, when you realize a capital gain, only half goes to your CDA. Your CDA allows you to give a tax-free capital dividend. “Tax-free” is a major tax savings compared to regularly taxed income or dividends. It is the most tax-efficient way to move money out of a corporation.

To give the capital dividend, you must have your accountant file a special election. So, they may charge a fee. That is usually way less than the tax, but you would want to make sure the dividend is large enough to justify the cost. Regardless, donating appreciated stock from your corporation doubles the rate at which you’ll get there!

corporation charity donations

Giving to Non-Registered Causes

There are plenty of reasons why you may want to give to help others that are not a registered charity. It could be to help a local athlete or event. If considering doing this through your business, then the organization should be arms-length and of no personal benefit whatsoever.

It should also be public and reasonable to defend as promotion. For example, publicly supporting a local athlete or team that you don’t have any family members on might be reasonable. Particularly if health and wellness promotion is part of your practice or making connections to the community improves your business profile. Giving to your kid’s sports team or a club that you are going to use and get a break is probably not defensible. I would want to pass two tests before doing this. First, would be discussing with my accountant and the second would be how this would look as a headline in the news.

Reasonable promotion is considered a business expense. So, at least you would be helping with pre-tax money. The other way to help a non-registered cause is to provide goods or services at a discount. There is no tax-benefit to that, but again it is helping without paying tax first.

Tax Efficient Charitable Giving Decision Tree

Putting together the variables, this is the approach that I take to charitable giving. It combines the financial and non-financial factors to consider. I hope that you find this both helpful and motivating to make giving a deliberate part of your financial life. You benefit and so do causes that you value. Maximize that through good financial stewardship. Note that there is much more below than described in this post. Giving effectively is a skill that you must spend time on and practice regularly to master. Fortunately, that process is likely to yield its own dividends.

ultimate donations tax guide

45 comments

  1. Good topic! So just to clarify, if the receiver is a registered Charity, a corporate cash donation doesn’t have to pass the “promotion” test?

  2. Can you donate directly to a charity from an RRSP withdrawal, so that you don’t have to pay taxes on the amount donated from the RRSP? I’m retirement age and I would like to make a donation to my church from my RRSP.

    1. Hey Heather,

      Thanks for asking a great question. You can donate to a charity from your RRSP/RRIF withdrawal. The advantage is that there is not withholding tax on the withdrawal if done directly (so the charity gets the full amount) if you have your financial institution file a form T1213. You get a tax receipt for the donation. You would still have to report the withdrawal as income, but the tax credit will help offset the taxes generated. The calculator in the post above can get an idea of how much that is (it may be a bonus in a low tax bracket or a slight amount of net tax in a high tax bracket depending on province). I agree with your notion that it is best to give money while alive. That is how we roll too. However, another advantage of giving via an RRSP is at death. If you name a charity as the beneficiary of your RRSP with your financial institution, then it is also excluded from your estate and probate.
      -LD

    1. Hey John. Good question. Donating appreciated stock via a corp is easily the winner due to the triple benefits. There really isn’t an advantage to it from a TFSA or RRSP – cash would be the same as appreciated security. I both cases using the registered accounts, you would get a tax receipt that would give you tax credits. For a TFSA, that would reduce your tax bill because the tax credits are applied your other income and the TFSA withdrawal generates no tax. For an RRSP/RRIF, there would be taxable income generated and the credits applied against that. From an RRSP donations are taxed as income rather than capital gains (so no advantage of securities over cash). The calculator in the post helps estimate whether that would be a net tax reduction or not.
      -LD

  3. Thanks for a very informative post! I knew that donating equities was a thing, but no idea of the extent of benefits to corporate giving (especially as I now have only passive income there).
    Are you aware of any way to donate an amount to one entity that would then be divided amongst a number of registered charities?
    We support a number of charitable organizations, some in smaller amounts.
    Thanks again for an excellent post.

    1. Thanks David. A number of the big charitable foundations then donate to smaller entities. That is common with religious foundations or The United Way for example. Another way is to use a donor-advised fund. You donate to that fund, get the tax receipt now, and then can advise where it subsequently gets donated to over time. With a donor-advised fund you don’t have total direct control over where the money goes and there are fees. So, we haven’t gone that route.
      -LD

  4. Mark, I thought of a way to possibly further supercharge donating appreciated securities from a Corp. You could repurchase the same number of shares the same day in your personal taxable account. So you maintain market exposure, but the shares are now in a more tax friendly environment from an income point of view than if you repurchased the shares in the Corp account, as well as having reduced Corp bloat a bit by donating the Corp shares. You still have the other advantages of Corp deduction against passive income and the full value of the donation being credited to your CDA account. Unless there’s some rule against doing this, but I imagine not?

    1. Hey Grant,

      No rule to stop that. I think the main limiter would be that you’d need to have some cash in your taxable account to buy with. It does illustrate a couple of important points. If you have personal cash that you are thinking of donating, but also have some appreciated stock in your corp – donate the stock from the corp. Removes tax liability, get some money out tax-free (although you’d need to wait to file a special election first for the capital dividend). Personal after-tax cash is precious to invest since the tax-liability from capital gains starts fresh and the tax drag is often lower moving forward. This is actually how we’ve played it when faced with the dilemma of where to donate from.
      Mark

  5. When personal assets are transferred to a corporation, it is possible to defer taxes on unrealized cap gains with a section 85 rollover. In my experience, there is an accounting and legal cost to such a rollover.

    Donation of assets with unrealized cap gains is more favorable from a corporation than personally, due to the effect on the CDA. If the planned donation is large enough to overcome the increased costs of section 85 rollover, might it make sense to transfer personal assets with unrealized cap gains to a corp via such a rollover, and then donate from the corp?

    Also, transfer of assets would result in less exposure to probate fees. OTOH, investment income – other than Canadian stocks – tends to be taxed a bit more in a corp than personally. And there is the costs and complexity of a corp to consider.

    1. Thanks Park. That is a really interesting idea. I have never thought of it, but will definitely look into it some more. Very interesting. Maybe as a large one time maneuver with the plan to donate and use the CDA right away. Thanks for bringing it up!
      Mark

  6. About the section 85 rollover idea, Tim Cestnick has an article in the Globe and Mail Nov 29/23, where he describes it. He also points out that corporation aren’t subject to AMT.

  7. Two other points that might be relevant to some. First of all, if you take out salary/bonus to fund donations personally, that might result in RRSP/IPP room. OTOH, if donations come from the corp, that helps to keep corp assets down. And keeping corp assets down might help, when it comes to the passive income limits.

    1. Thanks Park. Good points. If you don’t have appreciated securities in the corp to donate. Then, that would be an interesting strategy to move some money out of the corp as salary to donate and benefit from the RRSP/IPP room generate. I like it.
      -LD

  8. I’m not an accountant, so feel free to point out any mistakes.

    When I looked at your figure on corporate giving, what I noticed was that if you gave with investment income, you get about a 50% tax deduction. But if you invest with active business income, you get a 12-27% tax deduction. So my initial reaction was that it’s preferable to use corporate investment income, as opposed to active business income.

    But active business income will eventually be taxed personally. And there’s a reasonable chance that it will be taxed at a rate equivalent approximately to your personal marginal tax rate minus the tax paid on your active business income. When you donate money taxed at the active business rate, you lose the tax deferral. But you miss that later personal taxation on the active business income. If you assume top personal tax rates, the effective deduction isn’t 12-27%, but is instead around 53.5%.

    Another point to consider about corporate giving is foreign dividends. In a CCPC, foreign dividends have their uses. You can claim expenses against investment income derived from foreign dividends, but that doesn’t work as well, when it comes to investment income coming from domestic (eligible) dividends. However, foreign dividends in a CCPC result in materially greater taxation than they would personally. When you retire though, the expenses in your CCPC may decrease, so the need for foreign dividends may be less. At that time, you could consider donating foreign stocks to charity.

    1. Hey Park.

      I have been grappling with these thoughts also. I think what it really comes down to is that what will ultimately prove optimal when a corporation is in the mix comes down to tax deferral. For example, using the deduction against investment income is 50% vs 12-27% active in the current year (then personal dividends later). So, more tax deferral from the current year when used against investment income. However, whether that ultimately proves better depends on the personal tax rate that you defer to in the future being lower than currently (or donating and deducting personally). Even with the major bonus of the full CDA, it is still usually tax deferral because you pay out less salary or dividend in the current year. But, eventually you will have to move the money out. Using donations at the late stage of the corporation for the final liquidation could help with that I guess. Corporate tax deferral is pretty powerful overall though – especially if you can dividend split over age 65 and have a lower future tax rate.

      The point about foreign vs Canadian dividends is also interesting. We have been clinging onto our Canadian securities in our corp and donating from our foreign ones. The potential downside to that would be if we let it disrupt our asset allocation too much from a concentration/risk management standpoint. Still, the “optimal” Canada/US mix is pretty forgiving from the historical data. So, maybe not a huge deal over time.

      I think this is where the mix of having a good financial projection and the tax planning meet up. That way you can at least take a stab at smoothing out the taxes over time. It won’t be perfect because of all of the variables, but probably better than ignoring.
      Mark

    2. https://www.hrblock.ca/blog/charitable-donations-and-your-taxes-answering-all-your-questions

      Above is a link from H&R Block on provincial tax credits, which gives more detail on what LD described.

      My question is whether it’s better to give personally vs. with active business income in a corp vs. with investment income in a corp.

      Assume tax rate on active business income is 12% (small business rate). Assume personal tax rate if 53.5%. Assume tax rate on investment income in a corp is 50.17%. Assume personal tax credits approximate a tax deduction in amount. Assume a $1000 donation. That donation was considerably more expensive using active business income than personal income, and a little more expensive with corporate investment income than personal income.

      If what is said in the previous paragraph is true, then it would make sense to take active business income or corporate investment income out of the corp to make a donation personally. So you could take out $1000 of active business income or $1000 of corporate investment income both in the form of salary, and you would get a higher tax deduction from the resultant personal donation. But despite taking money out of the corp, you’d end up in the same situation as if you’d left the money in the corp. You made a $1000 donation and you paid no tax on that $1000, regardless of strategy.

      The problem is that in the second last paragraph, I ignored the fact that $1000 in the corp is not the same as $1000 personally. Part of that $1000 in the corporation is owned by the CRA, who’ve lent you money in the form of a tax deferral. You don’t pay tax on money that you’ve borrowed, but that also means you don’t get a deduction.

      So from what I can see, it doesn’t make much of a difference whether you make donations from active business income or with corporate investment income or personally. The following are exceptions to what I just wrote. LD very correctly points out that donating appreciated securities is better in a corp than personally, which also raises the question of transferring appreciated personally owned securities to the corp. And if you take money out of a corp in the form of salary to pay for donations, you could get RRSP, IPP and CPP room. Finally, donations from the corp can decrease corporate assets, which might help with passive income rules.

      Please correct me where I’m wrong.

      1. My conclusion is whether you donate directly from the corp or indirectly from the corp using income taken out of the corp, taxation is similar in the end. This ignores donation of appreciated securities or RRSP/IPP consequences. It also ignores tax differences between credits and deductions, although those differences should be small.

        Assume you take out salary from the corp to make a personal donation. Assume you use the RRSP room generated by the salary. You’ll get a tax deduction on the RRSP contribution. You’ll also get less tax credits, because your taxable income was decreased by the RRSP contribution. However, your donation to charity will be less, because some of the money you took out of the corp ends up in your RRSP/IPP.

        You can subdivide corporate donations into donations using active business income or donations using corporate investment income. My conclusion was that it didn’t make much difference, which subdivision you used to make the donation.

        Similarly, personal donations can be subdivided into money taken out of the corp to make a personal donation versus a personal donation made from money not originating in the corp. Salary taken out of the corp will result in tax credits that come close to eliminating the tax on the salary. If you use money not originating in the corp, you’ll also get tax credits that come close to eliminating the tax on that money. In each case, you end up making a donation and paying close to no tax on the money used to make the donation.

        However, if you took out salary from the corp to make a donation, you’ll have decreased corporate assets. But if you made a personal donation from money originating outside the corp, you’ll have decreased personal assets. The decrease in personal assets will be the same as the decrease in corporate assets. But the decrease in corporate assets might decrease passive income, and that might increase active business income taxed at the small business rate. OTOH, when you take money of of the corp to make a donation, you’ve lost the tax deferral associated with retaining active business income in the corp.

        Once again, please correct me where I’m wrong.

        1. Yep. That is pretty much my take. If it is cash, corp or personal – the tax is the same or very similar. Any chance to decompress a corp tax efficiently is good. I also like that I have less steps just giving directly from my corp. If appreciated stock, then that is better than cash.
          Mark

        2. A $1000 donation from active business income isn’t the same as a $1000 donation personally. That $1000 from ABI includes money that the CRA has loaned to you in the form of a tax deferral. Whether $1000 of ABI is donated or $1000 of personal money is donated, you’ll end up at the same place on a posttax basis. That loan from the CRA is tax neutral, when it comes to making donations; you don’t pay tax on it, but you don’t get a deduction. If you donate active business income though, you will lose the loan from the CRA; the tax deferral is gone.

          Overall, I think the most tax efficient way to make a donation is probably from appreciated securities in the corp. There’s no loss of tax deferral. You have the CDA advantage when donating appreciated securities from a corp. You decrease corporate assets, which can help with passive income limits. This paragraph is a simplification, because as LD very correctly has pointed out, it depends on your personal income, province etc.

          At least for me, an unresolved question is whether to donate appreciated Canadian stock or appreciated foreign stock.

          Once again, correct me where I’m wrong.

          1. I think we are saying the same thing.

            In terms of what to donate. We usually donate something that has done really well. Both to maximize the advantage of donating something with a larger capital gain and it helps with rebalancing by getting some out of our portfolio. That is how we approach it.
            -LD

        3. About donating appreciated Canadian stocks versus appreciated foreign stocks in a corp, these are my thoughts. The tax consequences of donating either are the same. But such donations will change the Canadian/foreign split in your asset allocation. However, what you donate will change your dividends. With foreign stock donation, you’ll have less foreign dividends; with Canadian stock donation, you’ll have less Canadian dividends. Canadian dividends are taxed basically the same inside and outside of the corp; this assumes Canadian dividends are taken out of the corp. But foreign dividends are taxed more heavily inside the corp than personally. This assumes the foreign dividends are taken out of the corp; if they stay in the corp, then tax might be more or sometimes less than it would personally. Foreign dividends can be readily used to pay corporate expenses. But that’s not true of eligible (Canadian) dividends. When my accountant went over this with me, it was clear that you could use eligible dividends to pay expenses, but you’d lose the more favorable taxation of Canadian dividends.

          There’s several moving parts here, so there’s no clear winner. For me, I think it makes sense to donate foreign stocks in the corp. But there will be many people who will correctly make a different decision.

          I completely agree with LD about donating the most appreciated stocks, all other things being equal. This gives the greatest tax advantage and will very likely be useful in maintaining your desired asset allocation.

          1. Wrt to your comment about leaving foreign dividends in the Corp or taking them out, wouldn’t you always be better off taking them out (assuming you need the money) in order to empty the nTDTOH account to prevent erosion by inflation?

          2. Hey Grant. That is what I thinking – unless you are paying out enough non-elgible dividends to live on regardless. During accumulation years, that could come at the expense of using some salary though which is not optimal.

            Plus, the nRDTOH with foreign dividend income is less efficient. So, if you really wanted to prioritize taxes, then that would make sense to decrease your foreign dividend stocks. Personally, I really don’t focus on that aspect. More on which capital gains I can milk by donating and keeping my asset allocation in check. I’ve been selling or donating US equity lately just based on that.
            Mark

          3. What LD says about donating assets with greatest appreciation and what maintains planned asset allocation makes sense. But impact on dividends is a point to consider, as it can have long term tax consequences, even more so in a CCPC. On that theme, US stocks tend to result in less dividends than nonUS stocks.

  9. One advantage of American taxation is the ability to use tax lots. There are no tax lots in Canada, but the following is an approximation to them.

    Assume you’re investing in Canadian stocks over the next 30 years in your CCPC. Assume you’re an index investor. The three ETFs VCN, XIC and ZCN invest in Canadian stocks and are close to interchangeable.

    For the first 10 years, invest in VCN. For the next 10 years, invest in XIC. For the last 10 years, invest in ZCN.

    This gives flexibility. For donation purposes, you could use VCN, which likely has the largest unrealized cap gains. But if you need income from your portfolio and cap gains harvest, use ZCN, as it will likely have the lowest cap gains.

    1. Totally! Great minds think alike. I am actually planning to write an article on doing that with the asset allocation ETFs. Flexibility to choose what to sell vs donate and harvest gains vs losses.
      Mark

        1. That’s true for a personal taxable account, but with a Canadian Corporate account (which many Canadian doctors have most of their non registered money) in, I think in most circumstances it’s better not to tax loss harvest as you reduce the CDA account when you do that. For similar reasons, when you need income from your Corporate account, it’s better to have a security with a larger capital gain, as when you realize the gain, you create a larger capital dividend which is the most efficient way to extract money from the Corporate account. Mark, please correct me if that’s not right, but I think that’s the way it’d work.

          1. Yes. Generally, capital gains are great in a corporation and keeping the CDA positive to use is beneficial. So, generally capital gains harvesting or donating appreciated securities is more common. There is one time when I have used tax-loss harvesting in a corporation, but it is very niche. We realized gains, paid out the CDA as a capital dividend. Then after that, (by luck) the markets dropped and we had losses. I harvested those and applied them backwards to negate the corporate taxes on the capital gain the following year. Long after the CDA had been emptied. However, that is only really a shift for a year or two because I’ll want to get my CDA back positive again to use it.

            Even with a personal taxable account, tax-loss harvesting is really just tax-deferral. So, the ultimate outcome depends on your future tax-rate being lower than the current one from which you are deferring. That often works out as long as you don’t build a massive portfolio that will bump you into higher tax brackets later. Or the government raises the inclusion rate or the marginal rate for a given income level. I don’t bother with it. In the US, it is more advantageous because you can use some losses against your regular income.
            Mark

  10. I’ve looked into the tax consequences of investing in charities outside Canada. The most important information for me was that you can use American sourced income to donate to American charities. For most people, that would put a significant limit on donations to American charities.

  11. https://www.msn.com/en-us/money/personalfinance/what-to-know-when-making-end-of-the-year-charitable-donations/ar-AA1m43R1#:~:text=The%20end%20of%20the%20calendar%20year%20is%20when,year%20%E2%80%94%20according%20to%20marketing%20agency%20Nonprofits%20Source.

    “Nonprofits get about 30% of their annual donations in December — including 10% in the final three days of the year”

    It makes sense to give your donation near the end of the tax year. That minimizes time between the donation and the tax benefit. And if you’re donating appreciated securities, then the end of the year is when appreciation is most likely to be greatest.

    1. We do our big donations a couple of times per year. December is one. The seasonal market tendency and knowing our financial position for the year is part of that.

      The other time for us is in the spring after personal tax season is behind us. Our corporate fiscal year end is July. So, May/June comes in at the tail of a good period of seasonality and shortly before corporate taxes.
      Mark

  12. The following summarizes my thoughts about tax efficient donations.

    All other things being equal, better to donate appreciated securities, as don’t have to pay cap gains tax
    All other things being equal, better to donate appreciated securities in corp than personally, d/t CDA advantage
    A corollary of above is that it might be advantageous to transfer appreciated securities to corp, d/t CDA advantage in corp. This would depend on cost of section 85 rollover. Also depends on tax credits vs. tax deductions
    That leads to next point. Decision about whether corporate vs. personally
    depends on tax credits vs. tax deductions
    The following assumes tax credits equals tax deductions. Effect is same whether your corp donates or whether you take out salary from corp to donate. Except salary generates RRSP/IPP/CPP room. But if you contribute to RRSP or CPP, that decreases donation. You could take out as salary 1.21 times more than you plan to donate, which would result in the same donation; I’m ignoring CPP. If it is possible to take out that extra 0.21 from the corp, you’d probably be better off than donating from corp.
    Is the salary strategy discussed in the last paragraph better than donating appreciated securities from the corp? If the appreciation on the donated securities is large enough, no. But if the appreciation is small, then the salary strategy of the last paragraph might be better.

    1. For the sake of completeness, the following point is relevant. Consider the scenario where the corp could donate or you could use investment income from outside the corp to donate. The corp donation has the advantage of keeping corp assets down, which can help with passive income limits. For most people, the difference would be small. But if the corp makes donations yearly for the next 30 years, the difference might be more than small.

    2. Another question is how much to give to charity. That’s a personal question, but there is a tax aspect to it. One strategy is to wait to give to charity until one’s death. Assume a CCPC will be wound down at that time. I assume that tax deductions will no longer relevant to charity, but donation tax credits will be. There may not be enough income to apply the donation tax credits to. From a taxation perspective, you may be better off donating more while you were alive. Another issue is AMT. If you’re planning to make a large donation in a one year period personally, AMT might be a problem for some. You might be better off spreading donations over a greater period of time. AMT would not be relevant to corporate donations though. Once again, a section 85 rollover might be useful to some, if you’re planning a large personal donation in a one year period.

      1. Giving while alive is important for more than just the tax reasons. You get to see how the money is deployed, the charity gets it sooner, and you can teach the next generation about giving well along the way.
        The AMT change introduces another interesting dynamic. As you mention, a corporation can side-step the issue completely. With the AMT changes, the exempt income level was raised to $173K. So, giving moderate regular amounts while alive along with using other income sources besides eligible dividends and capital gains may also help if you don’t have a corporation. Rather than the occasional massive chunk.
        -LD

          1. Definitely! And that applies to giving to family, friends, and non-registered causes too. An important part of estate planning. It is also where a good projection and financial plan is extremely helpful. That way you can give with confidence and fully enjoy it.
            -LD

  13. When it comes to tax efficient donations, one area of uncertainty for me is the effect of foreign withholding tax. Those taxes cause a loss of tax efficiency in an RRSP or TFSA, with the exception being US listed ETFs/stocks in an RRSP. When you personally get foreign dividends, you often can get a tax credit on the foreign withholding tax. What effect does that have on donation tax credits? Inside a CCPC, you can get a foreign non-business income tax credit on the foreign withholding tax. What effect does that have on ability to deduct donations? Tax integration of foreign dividends inside and outside a CCPC does not happen. Once again, what effect does that have on tax efficient donations to charity?

    The easiest way to skip the above is to donate appreciated securities, preferably from a CCPC. But there will be situations, where what is written in the preceding paragraph will be of importance.

Leave a Reply

Your email address will not be published. Required fields are marked *