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Strategies for tsunami donations

"Dad, how many people live in the world?" my son Winston asked.

"Oh, six billion," I replied.

"Did you count yourself?" he asked, as though I alone could make a difference.

In fact, thousands of individual Canadians have made a difference by donating more than $50-million to the tsunami relief effort. Tax savings are not the real reason most people have donated. But if you're looking to help, there are some things to keep in mind this week.

When to help

Individuals will be able to make donations to the tsunami relief effort until Jan. 11 and claim those donations in the 2004 tax year if they choose. The donations must be cash, cheque, money order, or by credit card, and must be directed exclusively toward the tsunami relief effort. You'll find a list of eligible charities on-line at http://www.acdi-cida.gc.ca, or by calling the Canadian International Development Agency at 1-800-230-6349.

How to help

If you're not sure where to get the cash to donate, or how to make a last-minute donation, let me share some ideas with you.

Borrow to donate. Donate by using your credit card or a line of credit. You'll get back as much as 46 cents (Canada-wide average) for each dollar donated when you file your tax return for 2004, thanks to the donation credit. These tax savings may come back as a tax refund, which can then be used to pay down the debt incurred to make the donation.

Borrow to donate, then invest in a labour-sponsored investment fund (LSIF). You can free up some cash to pay down the debt by investing in a LSIF. You'll get a double tax benefit: a donation credit, and a LSIF credit (worth up to 30 per cent of the amount invested; varies by province). The LSIF credit can be claimed in 2004 if you make the investment by March 1. If you contribute to your registered retirement savings plan to make that LSIF investment, you can add tax savings from the RRSP deduction to the list, making a triple tax benefit. The resulting refund can be used to pay down the debt incurred to make the donation.

Take dividends from your corporation. Consider taking dividends from the corporation today to make a donation. There will be no tax owing on the dividend until you file your tax return in the spring of 2006 -- a potential 16-month deferral of tax.

Take a shareholder loan. Consider borrowing from your company to make a donation. This will generally provide more tax relief than having the company make the donation. You'll have to pay back that loan within one year following the current tax year-end of the company in order to avoid being taxed on that loan.

Donate on-line. You can donate on-line at http://www.canadahelps.org as late as 11:59 p.m. on Jan. 11, and receive your donation receipt by e-mail immediately.

tcestnick@aic.com



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