How to Donate 10 Times More with the Donation Flow-Through Strategy

Have you ever wondered how people donate millions to a charity, like to a large hospital, or have their name as a charitable foundation?

Do they actually give away that much money?

Or, do they have a method to do it? 

The truth is – it’s often an effective tax plan that people use to donate 10 times more, and it’s called the Donation Flow-Through Strategy.

In my latest YouTube video and podcast episode I’m going to teach you this strategy, so you too can become a philanthropist, without giving away a lot of money.

Your charitable foundation can survive 100 years after you are gone still donating to your causes. It’s the ultimate status symbol of the rich & famous.

Here’s what you’ll learn:

• Why am I talking about donations when the cost of living is so high?
• What if $5,000 would give you a $50,000 donation to a cause important to you?
• What is a “flow-through share”?
• What is the “Donation Flow-Through Strategy”?
• How does it work?
• Who does it work for?
• How big or small a donation does it work for?
• Can you use a holding corporation for it?
• What creative tax strategies can you do?
• How will the revised Alternative Minimum Tax (AMT) in 2024 affect this strategy?
• Why is a personal charitable foundation a perfect fit for the “Donation Flow-Through Strategy”?
• How does a “Donation Plan” benefit you?

 Why I am talking about donations when the cost of living is so high?

• “The Compounding Life” (podcast).
• Growth outlook for many years gives you an abundant life.
• With an abundant life, you feel grateful.
• Give back – Others are much worse off than you.
• Our community.
• “Bottom Billion” globally.

What if $5,000 would give you a $50,000 donation to a cause important to you?

Think big! Life is compounding.

Many people donate modest amounts every year.

Instead of donating $500/year, donate $5,000 once & use a tax strategy to make it $50,000.

“Donation Flow-Through Strategy” lets you donate 10 times more. (E.g., $5,000 of your money = $50,000 donation.)

One large donation OR contribute to your personal charitable foundation.

Your foundation can contribute $2,500/year (5%/year) forever for you.

Reducing your after-tax cost of giving amplifies charitable impact.

What is a “flow-through share”?

• Flow-through share: A type of common share that permits the initial purchaser to claim a tax deduction equal to the amount invested.
• Book value of investment is zero.
• Full proceeds are a capital gain when you sell.
• Shares of a mining company exploring for new minerals.
• They transfer exploration tax credits to investors.
• Federal tax credit doubled from 15% to 30% for critical minerals.
• Finding minerals needed for future energy projects.

What is the “Donation Flow-Through Strategy”?

• Strategy to make your donations up to 10 times larger.
• Invest in a flow-through share.
• Contribute share to a charity.
• Get 90% of your investment back in tax refunds.

How does it work?

1. You subscribe to flow-through share issue, accessing tax benefits.
2. You donate shares to a registered Canadian charity or charitable foundation of your choice.
3. Charity immediately sells the shares to a predetermined institutional end buyer.
4. Charity receives funds and issues a donation tax receipt to you.

Who does it work for?

Accredited investor. One of:

• Net income over $200,000 for last 2 years.
• Net income with spouse over $300,000 for last 2 years.
• $1 million in financial assets.
• $5 million in net assets (including real estate).
• Client of an independent portfolio manager (ICPM) – Our clients.

Taxable income over $350,000 for maximum benefit.

• Able to invest or borrow 2.6x donation temporarily.

Corporations with significant investment income.

• Taxable income should be 5.5 times donation.
• Able to invest or borrow 5x donation for a day.

How big or small a donation does it work for?

Minimum investment $35,000 (varies)

• Donation from minimum investment $5-10,000 (varies)

Maximum 75% of taxable income.

• Individuals can carry forward donations up to 5 years.
• Corporations can carry back non-capital loss from donations over 75% of income for up to 3 years.

What creative tax strategies can you do?

Use in a high-income year:

• Large bonus, stock option, or investment capital gain.

Allows you to trigger a large capital gain.

• Investment with large gain you would like to sell.
• Mutual fund, stock or rental property.

Allows you to withdraw large amount from RRSP.

• Withdraw from RRSP or RRIF to avoid OAS clawback or to do the “8-year GIS Strategy”.

Any large tax bill can be an opportunity.

• Don’t make CRA your beneficiary!

Summary for an Individual

• Cash available 434% of donation.
• Get 170% refunded same day.
• Carry 264% of donation for up to a year.

If you pay tax instalments, you can reduce them.

Then get a tax refund of 287% of the donation.

23% ahead.

• Following year, pay 33% tax.
• Net cost of donation 10%.

Example of Donation Flow-Through Strategy

Important Details

Typical cost of giving:

Individual                                  10%

Holding corporation                 15%

Operating corporation             24%

Tax refunds could be a year later:

• Best offerings in the first half of year.
• All expenses (CEE) renounced as of December 31.
• If you pay tax instalments, reduce them instead of waiting for refund.

Only accredited investors get same day tax refund.

Normally, flow-through shares have a 120-day minimum hold.

Corporations should pay out all investment income in dividends every year. Pay personal tax, instead of 50.17% tax in corporation.

Why is a personal charitable foundation a perfect fit for the “Donation Flow-Through Strategy”?

• Instead of one large donation, contribute to your personal charitable foundation.
• Your foundation contributes to charities for you forever.
• Personal charitable foundation
• The “ultimate status symbol” of the wealthy.
• Can setup & manage easily.

See my recent post: “The Ultimate Status Symbol & Making a Difference in the World”.

Picture it…

“Your name Charitable Foundation”

Contributing to the causes most important to you.

Surviving 100+ years after you are gone. 

Benefits of a Charitable Foundation

• “Donor-Advised Fund”.
• Get full tax credit now.
• Stay invested. You may be able to control investments.
• Donate 5%+/year.
• Good for a high-income year.
• Get family involved in donation committee. (Financial education for your kids.)
• Other people can donate to your foundation.
• Can exist long after you are gone. Leave a legacy.
• Confidential donations with public foundation.
• Perfect fit for Donation Flow-Through Strategy.

How will the revised Alternative Minimum Tax (AMT) in 2024 affect this strategy?

• Government thinks people avoid tax  by donating.
• Hopefully still 10% cost of giving.
• Proportion of flow-through shares for immediate sale should be higher and shares donated lower.
• Today, 10% cost of donation is roughly if you donate 10% of your income.
• With new AMT, probably closer to 6% of your taxable income (assuming ordinary income).

Results will vary much more based on the client.

Depends on amounts & types of income, deductions/credits.

Applies to individuals only – Not corporations.

Tax-Efficient Donations

• Registered charity #: 9 numbers + RR + 0001.
• Non-Canadian charity – Ask about Canadian affiliate.

Non-refundable tax credit:

First $200: Lowest tax bracket 20%

Above $200: Highest tax bracket 50%

Above $200: Highest tax bracket 54% for income >$220,000

• Combine: Usually claim on higher income spouse.
• Can carry forward up to 5 years.
• Maximum 75% of net income.
• Year of death: Maximum 100% of net income.

 Benefits of a “Donation Plan”

• “Donation Flow-Through Strategy” can be your Donation Plan
• Choose 1-3 causes important to you.

Donate a larger amount to causes important to you.

May still want to give for family or friend requests.

Make a difference.

• Get a good feeling from giving back.
• Say “no” to all telemarketers. (Avoid giving token amounts to get rid of telemarketers. / Tell them you have a Donation Plan.)
• Your charitable foundation can make all your donations.

Ed