Demutualization strategy with a tax-saving twist: by donating shares, you cut your tax bill in half, support your favourite charity, and get a charitable tax credit

The demutualization of five of Canada's major insurers affects an estimated 2.5 million policyholders.

If you're among them, you might want to consider the following demutualization strategy.

If you take shares rather than cash when your insurance company converts into a shareholder-owned corporation, donating your stock to your favourite charity can provide you with tax relief. Here's how it works:

If you sold your shares directly, you would have to pay tax on 75% of any capital gains you realized. Because the insurance shares were received at zero cost, the entire amount would be capital gains.

Alternatively, if you donate your shares by transferring ownership to a registered charity, you are required to include only 37.5% of the capital gains in your taxable income.

That can mean substantial savings. You cut your tax bill in half, support your favourite charity, and get a charitable tax credit for the full value of your shares.

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