DECEMBER 15, 2007


Give like Santa and save (taxes) like Scrooge

Charitable donations make you feel good and reduce your tax bill

A few holiday charity gift-giving ideas

Give a goat Oxfam Canada allows you to buy a goat for a needy family for $58 (chickens are a bargain at $15 or you could splash out for a $120 donkey)

Teach a girl to fish Donors to the Canadian Harambee Education Society provide high school tuition to bright but disadvantaged girls in Kenya and Tanzania. Tuition fees are $450 per year — sponsors are encouraged to commit to the girl's full four-year high school education.

A leg up Microfinance is the buzzword in charity circles right now. The idea is you lend an entrepreneur in a developing country capital to get their business going. For instance, $100 to a Peruvian woman to buy a sewing machine to make clothes. The Mennonite Economic Development Associates of Canada (MEDA) is one organization that facilitates loans for Canadian micro-investors.

— Gillian Woodford

More and more doctors and their families are rediscovering the true meaning of the holidays and forfeiting gift exchanges in favour of charitable donations. If you're thinking of getting in on the act, look no further for inspiration than fellow MD and charity tour de force Dr Asha Seth.

Dr Seth is a trained ob/gyn who runs a family practice in Toronto. But the 35 years she's practised medicine in Toronto hardly begin to explain her compassion towards others.

She's personally donated around $250,000 to a list of charities that includes Hospital for Sick Children and Doctors Without Borders. Her fundraising efforts ring in much higher.

Dr Seth is very humble about it all. "That's my passion," she says. "It gives me personal satisfaction in helping to contribute to the bright future of others."

But don't forget: charity isn't just about the giving. Luckily your accountant's two favourite words — tax deductible — allow you to get something back besides that warm and fuzzy feeling.

The most straightforward approach is to simply make straight donations to charities and receive a tax receipt at the end of the year. But there are ways to maximize the benefit you get from your largesse.

If your charitable pledges fall into a smaller range, then $200 becomes an important checkpoint. Total donations under $200 are worth about 24% when provincial tax is factored in and 46% after that amount. So if you don't quite reach $200, you may want to consider combining donations from other years to get over that threshold. According to a KPMG example, a $100 donation above the $200 level for the year costs you only about $54 instead of about $77 below that level.

You can carry forward donations and claim the credit in any of the following five years. The maximum credit you can use in a year is 75% of your net income.

Another way to avoid missing the $200 mark is to lump the separate donations you and your spouse make together and claim them on one return.

A more creative way to maximize your charitable donations is to funnel stocks into your favourite charities. Let's assume that you have an investment portfolio and you're in the highest tax bracket, which, depending on your province, would be around 46%. A change in the 2006 federal budget means if you donate securities directly to charity, you don't have to pay capital gains tax.

Why does that matter?

"If you have securities (a) you don't have to come up with the cash to make the donation and (b) you're better off donating the security, not selling the security and then donating the cash," explains Aleem Janmohamed, an investment advisor at BMO Nesbitt Burns.

Let's say you bought a stock at $10,000 and it's worth $60,000 now. If you sell it, there's a capital gain of $50,000. The taxable portion of that is 50%, or $25,000. In the 46% tax bracket, you'll have to cough up $11,500.

That means if you wanted to use the $50,000 capital gain towards charity, it's really only worth $38,500 after tax. If you're sticking to your donation target, you're going to have to dip into another source to come up with the balance.

But instead, let's say you donate the stock itself to the charity. Your tax credit is still going to be $23,000 (46% of $50,000). With the new rules, you avoid paying a capital gains tax. That means it costs you only $27,000 to make the donation.

Charities aren't in the dark about this. They're actively seeking stock donors. "Not only are they aware of it, they are promoting and marketing it as a way to raise the funds," Mr Janmohamed says.

As for Dr Seth, she demurred when it came to talking about her tax situation. But it's a good bet her accountant is doing wonders with her tax return.



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