A Gift from the Canada Revenue Agency

Donating Flow Through Shares to Persephone Theatre

There is a new way to donate to your favorite charity that can dramatically reduce the net cost to the donor. I would like to discuss the advantages of how a gift of shares, more specifically flow through shares, can be a significant advantage to you.

In the past when shares of publicly traded companies were sold the difference between the cost of the shares and the proceeds of disposition were subject to income tax. In the last Federal budget (May 2006) capital gains taxes were eliminated when shares were donated to a registered charity. This can provide a significant benefit when there is a large capital gain in the shares.

Flow through shares have a distinct advantage for this purpose. An investment in flow through shares provides a tax deduction called Canadian Exploration Expense usually equal to the amount of the investment. This tax deduction results in significant tax savings for the individual, and because of this deduction the adjusted cost base of the shares is nil. Also this will result in an automatic capital gain when the shares are sold or donated.

Now by donating the shares to the registered charity, the investor/donor will get a donation credit of 44% of the value of the shares on the day the charity receives the shares. After the first $200 of donation everyone gets the same percentage donation credit regardless of the income tax bracket.

Here are the mechanics

  1. You must either have or open an investment account with an investment advisor who deals in flow through shares.
  2. There are many types of flow through shares so you need to discuss the attributes and the risks that are associated with the purchase of flow through shares with your advisor.
  3. You will need to purchase an amount of flow through shares that meets your gifting objective. Remember you will have to write a cheque for the entire purchase of flow through shares and your tax benefits come later.
  4. You will sign the donation forms so that when the shares can be transferred to the charity you will also get your charitable receipt.
  5. This will likely result in an income tax refund, you have 2 choices – wait until you complete your 2007 income tax or apply to CRA for a income tax waiver.

Here is a simple chart of how the deductions work.

Flow through share and Donation Tax analysis for an investor/donor in the province of Saskatchewan

Tax Bracket (marginal tax rate) 35% 44%
Amount of Investment $5,000 $5,000
Tax Savings from CEE 1,750 2,200
Tax on Capital Gain 0 0
Tax Credit from Donation 2,200 2,200
Net Cost to Investor/Donor $1,050 $600

Assumptions

  1. Taxpayer was an individual
  2. Trading price of the shares at time of donation was the same as the original purchase price
  3. The taxpayer is already making donations in the year of at least $200

Flow through shares require a thorough discussion and there are risks involved. Flow through shares generally involve an investment in junior resource exploration companies which are inherently risky. For further information talk to your investment/tax advisor or call me.

Alan Cruickshank Vice President, Union Securities Ltd. 306-343-5225

The views expressed herein are only those of the author and not necessarily those of Union Securities Ltd

Make your donation today and make this dream a reality.

For more information call 384-2126.

Horizontal rule

[ New Theatre | A Closer Look | Be a Part of the Act | Image Gallery |
  Media Centre ]