Thinking Charitably

Let's take a look at a particularly tax-efficient method of benefiting your favourite cause

December 7, 2018 | Insight

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The fourth quarter of the year appears to be the most popular time for people to make charitable donations. U.S. studies have indicated that over a third of all donations are made in the fourth quarter with about half of that being done in December. It’s not clear whether that’s because people feel more generous around the holiday season or whether people are thinking more about their tax situations towards year end. Both factors likely have some influence.

As we approach year-end, it may be worth taking a look at a particularly tax-efficient method of benefiting your favourite cause – donating appreciated securities. But first, let’s review the basics.

You probably know that a tax credit is available when a charitable donation is made. Each province has its own rules but they are similar enough that we can use the Ontario rules for illustration. The credit on the first $200 of a donation is fairly small (about 20%) and will be ignored for the purpose of illustration. Larger donations yield a credit of about 46% and may rise to 50% for those with taxable incomes higher than roughly $205,000. So, for a high-income individual, a $10,000 cash donation costs about $5,000 after tax.

If that same individual instead gave $10,000 of securities from a non-registered account that have a tax cost of say, $3,000, the result is quite different. Although the tax credit is the same, the capital gain that would ordinarily attract tax of about $1,800 is deemed to be zero. That tax saving, when added to the $5,000 tax credit, means that the $10,000 donation only costs the individual about $3,200 after tax. Put another way, where a cash donation benefits the charity to the extent of about $2 for every $1 of after-tax cash donated, a donation of appreciated securities in this case benefits the charity to the extent of over $3 for every $1 of after-tax securities value donated. Of course, the benefits are greater for securities having a large unrealized capital gain and smaller for those having smaller unrealized gains.

For those investing through personal corporations, the mechanics are a bit different but the results are similar.

If you are interested in learning more about donating securities instead of cash to your favourite charity, please give us a call.

Results

We are pleased to share our latest results. In the table below, we have outlined Genova Private Management’s compound annual returns (net of fees) for periods ending September 30, 2018.

Investing like an owner continues to deliver long-term value for our clients.

AVG Annual Return to September 30, 2018 1 Year 3 Years 5 Years 10 Years Since Inception
Nov. 30, 2006
Genova Private Management Composite 21.2% 14.1% 15.8% 18.0% 13.7%
S&P 500 Total Return Index (C$) 22.3% 16.0% 19.3% 14.2% 9.8%
TSX Total Return Index 5.9% 9.7% 7.8% 6.3% 5.0%

The investment returns referenced above are indicative of our clients’ results as a whole. Returns for individual client accounts may vary.
The returns are computed using the time-weighted method and are expressed net of investment management fees.
Future results may differ from past results.