Greater Giving
- Details
- Created: Saturday, 12 August 2006 17:58
- Written by Tom Lipp
Did you know that recently the federal government made it better for us to give to registered charities?
Here’s how it works. If we own any marketable securities such as stocks, mutual funds or flow-through shares and donate them directly to the charity then we pay no tax on the capital gain and get a donation receipt for the full amount of the gift.
In Alberta there is an extra bonus. The tax credit from the charitable donation exceeds our marginal tax rate. Now what does that mean? Well, it means that there is more of a “tax write off” (a tax benefit) to give to charity than from any other deduction – in most cases. Sometimes this is not true when qualify for other benefits such as child tax or old age benefits.
In Alberta a person earning $35,000 pays marginal taxes at 25% but gets a charitable tax benefit (ignoring the first $200) of 42%.
Thus we have two tax reasons to give to charity: Avoid taxable capital gains and reduce our income taxes payable.
Recommended tax strategy? Give generously to registered charities. Obviously the government is well aware of this fact, but as we have seen from the recent budget change, the governments want us to give to charities.
Perhaps they are realizing that the churches and privately operated institutions are more effective in distributing social benefits than government agencies.
Thus we have two tax reasons to give to charity: Avoid taxable capital gains and reduce our income taxes payable.
But there is another matter about charitable gifting that disturbs me. I hesitate to write about it because I know good people have used this tax reduction technique.
Nevertheless, I feel I must mention it because of pressure from above. (You know what I mean.) During the past two years or so I have come across special trusts and donation techniques whereby people can reduce their taxes in spectacular ways.
Here’s how it works. You donate say $1000 to a specific registered charity set up to handle these plans and receive a charitable donation receipt for $3000 (again ignore the first $200), or some high multiple of the gift. Now watch the math. You get back about $1260 in taxes ($3000 times 42%). You are ahead by $260. How does that work you ask? Well as it was explained to me once, the specific registered charities accept your donation at bulk wholesale and then give you a receipt for the full retail value.
There are complicated trust arrangements if you choose to designate a charity not linked to these transactions. These particular charities have a large contingency fund set aside to pay for lawyers to defend them in court should CRA (Revenue Canada) ever challenges the process. I don’t like it even though it works (so far). Usually the charities are not Christian but just milquetoast secular (e.g. sports and recreation organizations). Thus they divert your giving from blue chip heavenly investments to planet earth charities with no everlasting benefits.
Secondly it subverts the intent of charitable giving. Are we giving for personal benefit or to help others? Refer to the General Rule in Interpretation Bulletin 110R3 from CCRA.
Let’s keep taxes as low as possible but don’t manipulate the system, even if it seems to be legal, just to pay less tax.
Thirdly it goes beyond being a good manager to abusing the tax system. What kinds of example are Christians being if they enjoy government benefits but use elaborate methods to minimize taxes? Fourthly hyper-aggressive tax planning tools often pay promoters a very healthy commission.
Don’t get me wrong. Let’s keep taxes as low as possible but don’t manipulate the system, even if it seems to be legal, just to pay less tax.
Now let’s forget about taxes altogether The Bible gives us some serious advice about giving to charity. Think long and hard about what David said. He was a man “after God’s own heart”. I will not give my God “that which costs me nothing” (I Chronicles 21:24). Let’s be careful that our love of tax benefits doesn’t pollute our worship and decrease our blessings from God Almighty.
