So you have always wanted to make that page one list of charitable donors. The only problem is there are bills to pay, kids to put through college and other pressing financial issues to attend to.

Most of us give what we comfortably can to our favourite causes. There is a way, however, to dramatically boost your gifts to charity without putting yourself in the poor house.

The strategy has risks, but for the motivated donor, the opportunity to give a much larger donation may make those risks a bit more palatable.

This donation strategy combines two tax incentives that are available to all Canadians. The strategy relies on the use of flow through shares and the new (since May 2006) capital gains treatment accorded gifts to charity.

Let’s begin with flow through shares. An investor who buys flow through shares is purchasing part of a limited partnership that invests in shares of Canadian resource exploration companies. The shares are called “flow through” shares because the exploration tax incentives flow through to the investor.

The flow through share partnership generally provides the investor with a 100% deduction against taxable income. So $20,000 invested in flow through shares gives you a $20,000 tax deduction.

The limited partnership units are generally locked up for two years. At the end of two years the shares are rolled into a mutual fund that can be held or sold at its market value. Because you got a 100% write off at the beginning, these resulting mutual fund shares are now considered to have a zero cost base. Selling the mutual fund will get you a 100% capital gain on the whole of the sale proceeds.

Galloping to the tax rescue, however, is the capital gains tax treatment that is accorded gifts to charity.

The new rules around charitable gifts provide that capital property that is gifted directly to a charity is not subject to capital gains tax. In spite of this favourable treatment, you still get a tax receipt for the full amount of the contribution.

So here is the math on $20,000.

Give it straight to a charity and you get a $20,000 write off. That nets you, in the top tax bracket, about $9200 of tax refund. Your out of pocket cost on this gift is $10,800.

Let’s now try it using flow through shares.

(We’ll assume the “flow through” shares are worth $20,000 when they become liquid).

1) Buy $20,000 of flow through shares. You write off the $20,000, you get about $9200 back in tax.

2) After 2 years you get $20,000 out of the flow through partnership. You gift it to charity. You get back another $9200 in tax savings.

Your out of pocket cost is $1600 on this $20,000 gift.

There are risks:

First, Flow through shares carry risks because they are resource exploration stocks. Second, two years is a short time period and shares may be worth much less in two years if the resource sector takes a tail spin.

To use this strategy effectively, buy flow through shares in different sectors. Plan on doing it every year so the good years balance out the bad years, and make sure you give the shares directly to the charity.

Alan MacDonald is an investment advisor who helps high tech entrepreneurs make smart decisions about money. Contact Alan at Alan.Macdonald@RichardsonGMP.com