As our personal tax year draws to close, thoughts of saving taxes are not necessarily at the front of our minds but in many cases it should be. Once December 31 has passed, there is only one way that you can reduce your personal tax burden for the 2006 year and that is by contributing to your RRSP. If a contribution to your RRSP is not possible or does not make sense tax wise, then you may be left with a tax bill that you did not expect.
2006 has been a good year for many Canadians. The economy has been booming, the stock market has done well and spending is up. A common practice by many investors over the years was to sell stocks that have gone down in value (and have little or no chance of going back up again) in order that profits made on other investments sold could be offset. If you have no "dog" stocks which results in this tactic not being an option, then implementing something else before December 31, is all you can do.
One of these "have to do before December 31" options is to make a donation. There are many good organizations that would greatly benefit from additional funding from us. You can always donate cash but there is a better option that some of us should consider. That option is to donate an individual stock to a charitable organization. Let's use the example of you wanting to donate $1,000 to your church. If you have an investment portfolio that holds a stock in it which you bought for say $100 and is now worth $1,000, you have the option of selling your stock, paying the tax personally and then donating the left over dollars to your church. Depending on your tax bracket, this could result in the church getting only $570-$900.
A more beneficial option would be to donate the actual stock to your church. Your stock broker would transfer your shares to a brokerage account held in the name of your church and thus they would receive your stock at the full $1,000. This allows the church to give you a donation receipt for $1,000 yet with the new tax rules, you do not have to report any gain on your personal tax return.
The ending result is that your church has your stock which they can sell or keep, you have a donation receipt for $1,000 that cost you only $100 - the amount you originally spent for the shares. Not a bad deal since your tax burden just decreased due to the donation receipt!
Philanthropy is one of the cornerstones of a democratic society and so I urge you to think about those less fortunate than us. Obviously the government has since they are making it easier and more beneficial for us to help out our charities. There are some rules to all of the above options so be sure to speak with your professional tax advisor before rather than after you undertake this type of donation.
This article was written by Gabrielle Loren -- a partner with Loren & Company, CGA's located in North Vancouver, BC and can be reached at firstname.lastname@example.org, at 604-904-3807 or check out their website at www.loren.bc.ca