— By Jonathan Beauchesne, COPA Director for Quebec
The end of the year 2021 is already upon us. Any year that ends means that we must prepare our taxes to optimize them. We want to do our part for the community, but can we ensure that the deductions taken from our hard-earned income are allocated to causes we care about? If COPA’s mission is one of those causes, it is entirely possible to support it financially while reducing your tax liability. The best of both worlds!
Indeed, COPA has an entity that is recognized as a charitable organization, the Flight Safety Foundation (COPA-FSF). This entity contributes, for example, to the General Aviation Safety Program on which COPA works jointly with Transport Canada.
The most popular donation is a cash donation. Such a donation entitles you to a tax credit equivalent to about 50% of your donation, with a few percent depending on your income level and province of residence. That’s not bad at all!
Did you know that other forms of gifts are recognized by Canadian tax law? In the December 2020 COPA magazine, we mainly covered the donation of securities with unrealized gain and the donation of life insurance policies. We invite you to consult this article or to contact COPA if you wish to review the tax advantages surrounding this type of donation. This year, we will focus on other types of donations: the donation of shares of a private company (yours for example) and the donation of objects.
Donation of shares in a private company
It is possible to donate the shares you hold in a private company. This can be securities of your own company. The most common way is to freeze the value of the shares you wish to donate and then make the donation. The company then buys the stock back from the charity, such as COPA-FSF. You can also plan to donate your private company shares at the time of the sale of the company in order to include the donation in your transaction. You should indicate this to the buyer at the time of negotiation.
It should be noted that this type of donation will trigger a taxable capital gain for the donor, unlike the donation of shares in a public corporation, which does not. It should also be noted that the capital gain and the donation tax credit will generally be triggered when the shares are redeemed by the private corporation. This requirement generally satisfies the donee, as it provides an incentive to redeem the shares quickly. After all, the charity, such as COPA-FSF, wants to have funds to finance its activities, not to be a shareholder of a private company.
If the individual donor has tax attributes to use (e.g., tax losses, tax credit carryforwards), another strategy can be employed. Rather than donating the shares to the organization, the corporation can first buy back the shares from the donor, triggering a taxable dividend for the donor at the personal level. This taxable dividend allows the donor to use their tax attributes. Then, the following year, the donor makes the desired donation with the money received from the private company and benefits from the donation tax credit, to be used against other income. A simple way to optimize your personal tax situation while meeting your philanthropic objectives!
If you are not the sole shareholder, you should ensure that the gift of shares is authorized by the shareholders’ agreement, if applicable, and that the corporation has the necessary liquidity to repurchase the shares within a reasonable time.
Donation of objects
You can also donate objects such as personal property, depreciable property such as real estate, or works of art. Donations of certain types of cultural property are subject to specific rules, but provide access to additional tax incentives.
When donating objects, the CRA recommends using the services of a professional appraiser or valuator, or any person certified in the field of appraisal, if the fair market value of the donated property cannot be clearly and objectively established.
Immediate or deferred donation
It is important to note that the strategies described in this article can be applied during your lifetime and/or at your death. All you have to do is plan your taxes and your estate with the help of the professionals who are involved in your situation.
As you can see, you can give immediately and/or upon your death to COPA while reducing your tax liability. The association has all the tools in place to help you complete your gift easily. Contact COPA quickly to finalize your year-end taxes.