When Giving Is Good for Business: Donating Private Company Shares (Part 2)
In Part One, I introduced you to Keith and Edward, who contacted me to help them donate $100K of private company shares. Although complex rules apply, with proper planning and professional advice, this gift planning strategy can be a tax efficient way to support charity.
How to Donate Private Company Shares
The process of donating private company shares to Abundance Canada varies, however here are the steps that Keith and Edward took:
- The corporation approved Keith and Edward each donating 50 non-voting preferred shares to Abundance Canada.
- The corporation then approved purchasing those donated shares back from Abundance Canada at $1,000 per share.
- Abundance Canada agreed to accept the donation of the private company shares from Keith and Edward and then sold the shares back to the corporation.
- When Abundance Canada received a cheque from the corporation for $100,000, they issued a $50,000 donation receipt to both Keith and Edward for their donation of private company shares.
Keith and Edward used the $50,000 from the sale of their donated shares to fund their Generosity Plans™ at Abundance Canada.
Benefits of Donating Private Company Shares
Keith and Edward each claimed a $50,000 Lifetime Capital Gain Exemption (LCGE) against the capital gain on their donated private company shares. With no taxable capital gain to report, they could use their $50,000 charitable receipt as a tax credit against other personal income tax owing.
When their corporation redeemed the shares from Abundance Canada, it realized a refund from its refundable dividend tax on hand (RDTOH) pool. This provided an additional benefit to existing shareholders.
The Giving Goes On
Keith & Edward’s generosity story continues today. They keep in regular contact with Abundance Canada to discuss their respective Generosity Plans™ and to disburse funds to their favourite charities. The brothers plan to donate more private company shares in the future.
Do you own shares in a qualified CCPC? Is there excess cash inside the corporation? Talk to your professional advisor today and see if donating private company shares is a gift planning strategy that works for you.
Contributed by Kevin Davidson
Gift Planning Consultant