Donation of Covered Flow Through Shares

Janet and Ron donate a total of $50,000 each year to local Manitoba charities. As a result of their philanthropy, the couple receives $50,000 in donation tax receipts from the receiving charities. By submitting these donation receipts with their tax returns, the $50,000 of charitable donations provides them with a $25,000 tax savings at the highest marginal tax rate of 50%, meaning their cost of making $50,000 in charitable gifts was $25,000 (or a 50% after-tax cost of giving).

Janet and Ron were introduced to the concept of a Personal Covered Flow Through at a charity fundraising event. They explored the idea further with their accountant and found they would be eligible to participate in this gifting strategy , which could increase the impact of their philanthropy in the following ways:

Reduce Cost of Giving

They reduced their cost of giving from 50% to 5% as they had sufficient taxable income to facilitate this level of flow through participation. As a result, the after-tax cost to make $50,000 in gifts was reduced from $25,000 down to $2,500.

Increase Giving

Alternatively, Janet & Ron could have opted to keep their current $25,000 cost of giving and instead increased the size of their gift from $50,000 up to $500,000, depending on how much their level of taxable income could support. 

Separate Philanthropy from Tax Planning

Regardless of their choice to reduce the cost of giving or increase the impact at a level cost, participation allows Janet and Ron to separate their philanthropic tax planning from their charitable giving. Participation in a flow-through transaction would provide a donation tax receipt for the year of participation with proceeds from their participation deposited into a Donor Advised Fund (“DAF”) at GiftPact Foundation, allowing the family the flexibility to make distributions to their chosen charities on their own schedule. They can also add to the DAF to build a charitable fund for the next generation. With the charitable tax receipt in hand, they can avoid the “December rush” and take the time to support their charities on their own schedule.

Be a savvy philanthropist

Once Janet & Ron completed their donation flow through transaction with their flow through provider, their DAF received the $50,000 and was readily available to distribute to charities of their choice in the future.
In the end, the couple was very pleased to have an after-tax cost of only $2,500 instead of their usual $25,000 to generate this level of charitable capital. They can now focus on planning how they can use these savings to increase the impact of their charitable gifts in the coming year. They plan to consult their accountant to see if they can participate in future Covered Flow Through arrangements to continue their charitable legacy. 

How you structure your charitable gift is often just as important as the amount you give, both for the charity and for you as the donor. In-kind securities donations are a smart and tax-effective alternative to a cash gift.

If you would like to learn more about donor-advised funds and how GiftPact Foundation can maximize the impact of your charitable giving, please get in touch.

The information in this article is for illustration purposes only. It is obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is for informational and educational purposes and is not intended to provide specific advice, including, without limitation, investment, financial, tax or legal matters. This article is published by GiftPact Foundation Inc. (“GiftPact”), and unless indicated otherwise, all views expressed in this article are those of GiftPact. The views expressed herein are subject to change without notice as tax policies and regulations change over time.