Gifts from Holding Company

Benefits of a gift from a holding company:

Consider a donation to TCS of publicly traded securities from your corporation as opposed to cash to create hefty tax savings. Why? Because, gifts of securities can save more tax dollars than a cash offering. Any donation your corporation makes will be entitled to a tax deduction for the amount given. Your out-of-pocket cost can be as little as 22¢ for each dollar donated.

Legal name of TCS and charitable registration number:

Our legal name is: The Trinity College School Foundation. Our Canadian charitable registration number is: 831549746RR0001.

If you wish to direct your gift to a specific area or for a specific purpose, please contact David Fisher ’93 at 905-885-3217 ext. 1235 or dfisher@tcs.on.ca

Example:

Matthew has a holding company with a portfolio of publicly traded securities. One particular security has grown in share value from $40 each to $100.

He decides to donate $100,000 worth of these shares. The adjusted cost base on the shares is $40,000. So, donating the shares will trigger a $60,000 capital gain. Fortunately, his company won’t face any tax on that capital gain, instead it will be entitled to a tax deduction for the $100,000 donated. This will save it $46,000 in taxes assuming a 46% tax rate (varies by province).

In addition to the taxes saved from the deduction, the corporation saves $13,800 ($60,000 capital gain times 50% inclusion rate times 46% corporate tax rate) because the capital gain is tax-free. But there’s potentially even more. It’s called the “capital dividend account” or CDA.

If your company has a positive balance in its CDA, you can pay tax-free capital dividends to yourself as a shareholder, up to that amount. The CDA is increased by the tax-free portion of any capital gain realized by the corporation. So, back to our example, when Matthew’s company donates the shares, the full $60,000 capital gain on the disposition goes into the CDA since it was tax-free. This allows Matthew to pay himself $60,000 of tax-free capital dividends afterward. The tax that would have otherwise been owing on that dividend would be about $18,600 at a marginal tax rate of 31% (varies by province).

The total tax benefits from donating securities in this example are about $78,400 ($46,000 from the deduction, plus $13,800 from the tax-free capital gain, plus $18,600 from the tax-free capital dividend). On a $100,000 donation, the after-tax cost to Matthew is just $21,600 ($100,000 less $78,400).