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28 lacible | Octobre 2018 In financial planning, we generally recommend donating an asset that has increased in value rather than disposing of it. 1- Personal donations Let's take the example of someone who has stock-listed securities with an FMV of $10,000 and an ACB of $2,000. To show the net difference between a cash and non-cash donation, we need a reference point. In this case, the reference point will be the net after-tax amount of the security before it is donated, at a tax rate of 53.31%, that is, $7,868. 2 To illustrate the impact of the charitable donation tax credit, we will assume that the person is taxed at the highest rate, that is, 53.31%. 3 ($200 X 32.53%) + (($10,000 – $200) X 53.31%) = $5,289. 4 Ditto. 2018 Personal Without donation Donation in cash financed by the sale of securities Donation in kind of stock-listed securities Value $10,000 $10,000 $10,000 Adjusted cost basis $2,000 $2,000 $2,000 Capital gain $8,000 $8,000 $8,000 Taxable capital gain $4,000 $4,000 $0 Income tax (53.31%) –$2,132 –$2,132 $0 Donation credit $0 $5,289 $5,289 Tax savings due to donation $0 $3,157 $5,289 Net value $7,868 $3,157 $5,289 Net value to the shareholder $7,868 $3,157 $5,289 Impoverishment due to donation n/a $4,711 $2,578 Donation in cash If the donation is made in cash, the individual 2 has to sell the stock-listed share, generating a tax burden of $2,132 at the end of the year, which will be offset by a charitable donation tax credit of $5,289. 3 For a donation of $10,000, the new personal net value is $3,157 and the net impoverishment is $4,711. Donation in kind If the donation is made in kind to a recognized donee, no income tax will be charged on the increase in value. That means that for a donation of $10,000, the new net value for the shareholder is equal to the charitable donation tax credit, that is $5,289, 4 but the net impoverishment is only $2,578. You can see that it is preferable to give a donation in kind than in cash if the asset has risen in value. 2- Donation by a corporation For a donation made by a corporation, you have to consider not only the refundable dividend tax on hand (RDTOH) and the capital dividend account (CDA), but also the shareholder's final net value. At the corporate income tax rate of 50.17%, the RDTOH rate of 30.67% and the non- eligible dividend rate of 44.89%, the new point of reference for our comparison is the net worth to the shareholder before making the donation, that is, $6,879. 2018 Corporation Without donation Donation in cash financed by the sale of securities Donation in kind of stock- listed securities Corporation Value $10,000 $10,000 $10,000 Adjusted cost basis $2,000 $2,000 $2,000 Capital gain $8,000 $8,000 $8,000 Taxable capital gain $4,000 $4,000 $0 Income taxes –$2,007 –$2,007 $0 Tax savings due to donation n/a $5,017 $5,017 Net value $7,993 $3,010 $5,017 CDA $4,000 $4,000 $8,000 RDTOH created $1,227 $1,227 $0 RDTOH lost $0 –$3,067 –$3,067 Shareholder Dividend paid $7,993 $3,010 $5,017 Net dividend after taxes $4,409 $1,660 $2,767 RDTOH recovery (loss) $677 –$1,015 –$1,692 CDA benefit $1,794 $1,794 $3,587 Net value to the shareholder $6,879 $2,439 $4,663 Impoverishment due to donation n/a $4,440 $2,217 FEATURE ARTICLE

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