Did you know there are over 82,000 registered charities in Canada?  If you have ever thought of incorporating charitable giving as part of your planning strategies, you know that this requires as much thought as any other aspect of your financial plan. There is an array of options available.  Some things to consider include:

• Maximizing charitable donations for the current taxation year;
• Determining the nature of the gift - cash, securities such as stocks, bonds and mutual fund units or the proceeds from a life insurance policy;
• Planning legacy donations;
• Structuring donations - Trusts versus private foundations and other strategies;
• Choosing charitable organizations to support, and evaluating how those charities utilize donor funds;
• Involving family members in charitable giving plans.

 

Maximizing Charitable Donations

• Tax receipts from donations registered charities can be applied against income tax payable for the current taxation year in the form of a federal tax credit, or can be carried forward for up to 5 years.
• The tax credit is 17% for the first $200 and 29% on donations to a registered charity over $200 and up to a maximum of 75% of net income.  There are provincial credits available as well.
• Spouses can pool their donations to benefit the spouse with the higher tax bill, either in the current year, or carried forward for up to 5 years.

 

The Nature of the Gift

Donations of Securities

• In 2006 the Government eliminated the capital gains on securities (stocks, bonds, mutual funds) if they were donated in kind - ownership transferred - to a registered charity.
• Donors received a tax receipt equivalent to the market value of the securities when sold, less transaction fees, and an immediate tax savings to the donor on any capital gains, 50% of which would otherwise be taxed at their marginal tax rate upon disposition.

Life Insurance

• There are a number of ways to use either new or existing life insurance in charitable giving strategies. To discuss, contact us or contact your life insurance agent or broker.

 

Legacy Donations: Tax benefits - now or later?

• Charitable donations made to the organizations named as beneficiaries in the will, either as stated amounts or a portion of the residual, can be made after the estate is settled.  The Estate then receives a tax receipt to be applied against final taxes owing.
• Gifts made upon estate settlement often involve the liquidation of assets, triggering a capital gain for the estate. Furthermore, these assets, if left in the estate, are subject to probate.
• It may in fact be more advantageous to make a series of gifts during one's lifetime. Gifts made during a person's lifetime can generate tax credits in the year in which they are given and are not subject to probate.

 

Structuring Donations

• Donors may choose to establish a testamentary trust - a trust created on the day a person passes away - to manage assets and make disbursements to registered charities.
• Charitable Remainder Trusts allow donors to continue receiving income from property while they are living, while the charity will eventually receive the property. Private foundations may be the choice of some donors with significant assets to disburse.
• Donor directed funds are a cost-effective alternative to trusts or foundations. They can be set up a number of ways and allow donors to establish an asset pool and support their favourite charities with income from invested assets while continuing to control how assets are managed.

 

Choosing Charitable Organizations to Support

• Donors should not be afraid to ask questions of the charities they are interested in supporting.
• Find out how money is raised, how it is invested, and how it is used.
• By law, registered charitable organizations must file an annual Registered Charity Information Return (T3010A) with Canada Revenue Agency that can be viewed online going back several years.

 

Charitable Giving Plans - A Family Decision

• It is very important to discuss charitable giving intentions with family members to ensure everyone is clear on their intentions.
• Engage family members on major decisions involving family assets. Open family discussions can introduce younger family members to giving and volunteering and create philanthropic traditions that bond the family.