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27 FEATURE ARTICLE David Truong CIWM, F.Pl., M. Fisc. Advisor, Expertise Center National Bank Private Banking 1859 PHILANTHROPY: HOW TO GIVE Making a donation is a personal action people take for a cause they hold dear. But this doesn't mean it can't be planned: there is strong demand for philanthropy planning to maximize the effectiveness of the donation, for both the donee, or recipient, and the donor. This article explores the differences between donations in cash and kind, and the benefit of making a donation through a corporation rather than personally. Personal donation The Income Tax Act and the Québec Taxation Act grant individuals an income tax credit for charitable donations, based on the eligible amount of the donation. The credit equals the total of the following amounts: 1 The donation must be calculated in Canadian dollars. This means the ACB may be different from the FMV depending on the exchange rate, if the donation is made in US dollars, for example. 2018 Federal Québec Combined* First $200 15% 20% 32.53% The lesser of: 33% 25.75% 53.31% • The amount exceeding $200 • The portion of taxable income exceeding the highest income tax bracket (federal: $205,842; Québec: $104,765) The balance of the donations (the amount on which the first two rates do not apply) 29% 24% 48.22% * For Québec residents, the Québec abatement of 16.5% must be applied to the federal income tax credit. On the federal level, the charitable donation credit is limited to 75% of the taxpayer's net income (100% in the year of death). In Québec, the limit was repealed in 2016. An individual taxpayer can choose to defer the tax credit for up to five years. It is also possible to combine donations not used by the spouse in the five previous years, to claim a higher rate. Donation made by a corporation An individual who owns a corporation can also choose to donate through it. A corporation has no right to a tax credit but receives, instead, a deduction in income equal to the eligible amount of the donation. Depending on whether the corporation is eligible for the small business deduction, the savings could range from 13% to 26.5% (2021). For a management corporation, the rate is 50.17%. Finally, a corporation cannot give more than the equivalent of 75% of its taxable income. On the federal level, it can defer any surplus to the five subsequent tax years. The deferral period is 20 years in Québec. Donations in cash or kind? There are two basic ways to make donations to charities: donations in cash (actual cash, cheque, etc.) and donations in kind. The eligible amount of a donation in cash is its fair market value (FMV). Donations in kind, also called "non-cash donations," can include gift certificates or gift cards. They also include artworks, equipment, securities, cultural assets, and ecological gifts. It is the FMV of the gifted asset, less any consideration received, that constitutes the eligible amount of the donation. The most common donation in kind is probably a donation of shares or bonds. A contribution of services – that is, time, skills or effort – is not a donation in kind. Whether the donation is in cash or kind, there is a disposition of the asset and, based on its adjusted cost basis (ACB), 1 the disposition may incur a capital gain or loss. In general, if the donation generates a capital gain, the gain is cancelled. In the case of a capital loss, it remains available.

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