When Giving Is Good for Business: Donating Private Company Shares (Part 1)
Edward & Keith always knew they wanted to work together. After earning their CPA designations, the brothers took the plunge and went into business together. They incorporated their accounting business, which qualified as a Canadian Controlled Private Corporation (CCPC). In time, the business became quite successful and the brothers were happy to give back to their community. They each supported a variety of charities out of their personal income.
Increasing Tax Efficiency and Generosity
One day, after reviewing their corporate financial statements, Edward and Keith realized that they had cash in the corporation that was not needed for business development purposes. They wondered whether they should use this excess cash to expand their support for charity beyond what they donated personally. Edward suggested they donate $100k of their preferred shares to charity and then the company would repurchase the shares from the charity. This would allow them to distribute cash out of the company in a tax efficient manner and increase support for the charities they cared about. Keith loved the idea!
In conducting some due diligence, Keith learned that Abundance Canada had extensive experience processing this type of in-kind donation. He contacted me to discuss how Abundance Canada could help them give more generously as well as facilitate a donation of private company shares.
Donating Private Company Shares
Donating private company shares in-kind has the potential to provide additional tax benefits for the corporation and shareholders beyond donating cash.
However, a series of complex rules apply. Anyone contemplating this type of gifting arrangement should complete the proper planning and seek out professional tax advice before initiating a donation of private company shares.
In Part Two, I will look at the process of donating Private Company Shares and how Edward and Keith’s decision to give generously provided additional support for their favourite charities, benefited them and their corporation.
Contributed by Kevin Davidson
Gift Planning Consultant