Main Street: The Backbone of the Economy and
Charitable Organizations
In the last blog, Sophie’s Legacy, we discussed how Registered Retirement Investments can transform estate planning. As soon as potential donors have access to the FUNDING matters Power Donor Experience (PDX) and the GIFTABUALTOR, their calculus can change.
Simply put, most people don’t know how to make tax-efficient donations. When they have the proper tools to understand how to do this, they’re much more willing to donate to the charitable organizations that need their help. Today, we’ll talk about small business shares, and how a man named Joe made a $1million donation to his favourite charity and still found a way to benefit his family.
How Donating Capital Assets Can Benefit Everyone
As of December 2017, the Canadian economy totaled 1.2 million employer businesses. Of these, 97.9 percent were small businesses, 1.9 percent were medium-sized businesses, and 0.2 percent were large businesses. More than half of Canada’s small businesses are concentrated in Ontario and Quebec (440,306 and 249,685 respectively).
According to Trevor R. Parry M.A. LL. B LL.M (Tax) CLU TEP, an Ontario lawyer focusing on tax, most of the taxes are paid by small business owners, and they should be able to direct their taxable capital gains to benefit their communities — not only in taxes but also in charitable giving. Trevor suggests, the gift of shares could be both a living tax plan and a testamentary one. In the first case, the business owner would gift shares of the company to a charity.
As the entrepreneur owns those shares personally, the gift will result in creating a Charitable Donation Tax Credit which is particularly useful as they are likely exposed to some top-rate taxation (53.53% in Ontario).
Joe’s Story
In Joe’s case, he and his advisor decided that it was the right time to make a significant donation to his favourite university. How much was that donation? $1,000,000.
Here’s a screenshot of the GIFTABULATOR with the information about his $1,000,000 donation plugged in.
As you can see, his asset is not only worth 4 times as much today, but he also generated a significant tax credit and reduced his tax to only $137,719. In the end, he made a $1,000,000 donation while only paying $558,448.
Final thoughts
Overall, the success of the economy and charitable organizations is based on the backbone of small businesses. With the guidance of financial advisors, prospective donors can wisely create tax-efficient lasting legacies for the communities that they serve.