Charitable Gifting

Charitable Gifting

The Christmas decorations are up and the countdown started. At this time of year, we get bombarded with opportunities to donate money to worthwhile causes. Many of us are inundated with pleas to help others at such a giving time of year and while our hearts may be in the right place, we also must face the realities of budgeting for giving gifts to our friends and family.

The good news is, according to Statistics Canada, Canadian tax filers gave more to charity in 2001, continuing a decade-long trend of growth in charitable donations. In fact, 5.5 million tax filers reported donations of $5.5 billion in 2001. That figure is up about 1.4% from the previous year when tax filers contributed $5.44 billion.

Why donate to charities?

As current Canadian governments continue to place a greater priority on fiscal responsibility, universities, charities, and other non-profit causes are made to suffer. Yet, our social safety net is one of the very reasons that Canada is considered one of the best places in the world to live. How do we balance social responsibility with fiscal responsibility? I emphasize that we all have responsibilities to our social well being and collective culture.

According to the Canadian Center for Philanthropy, the top motivators for giving are:

  1. They have compassion for a cause they personally believe in.
  2. They have been personally affected or know someone that has been personally affected by the cause the organization supports.
  3. They feel they owe something to the community
  4. To fulfil religious obligations or beliefs
  5. To get an income tax credit.

According to the most recent National Survey of Giving, Volunteering and Participating, 78% of Canadians make direct financial donations. The average donation is dropping and last report shows that the average donation per year is about $200 per person.

Where does the money go?

Almost half of all the donations went to religious organizations. 20% of all donations went to health organizations, 10% went to social service organizations and the rest was spread among fundraising, philanthropy and volunteerism organizations.

How can you make a difference?

There are a number of ways to give to a charity.

  1. Lifetime giving. We can make direct cash donations to charitable organizations through causes like walk-a-thons, telethons, golf tournaments, etc. While only 11% of Canadians give to charities to get a tax credit, it is a good idea to try to get a tax receipt for your contribution. Your first $200 of charitable donations qualify for a 17% federal tax credit (23.4% federal/provincial combined). After $200, you will get a credit of 29% (36% federal/provincial combined).
  2. Giving “in kind.” Tax laws allow for reduced capital gains taxes for gifts of appreciated assets to a charity. Simply put, if you want to donate property other than cash such as capital property you may benefit donating the property in kind rather than cashing it out and donating cash. Check with an accountant about how the tax rules relate to you specifically.
  3. Charitable gift annuity. One of the tools to provide for charitable gifting is the life annuity. You can use annuities to provide charitable gifts while you are living or after you pass away. The annuity can provide you with a steady stream of income while you designate part of the capital upon death, to the designated charity. In this case, the goal is to provide for a charity without giving up the ability to produce income.
  4. Charitable life insurance. Let’s say your wish is to leave a legacy of $100,000 for a chosen cause foundation, or educational institution, but you don’t want to give up that kind of money now, as it will impact your standard of living or ability to produce income through retirement.You can put a life insurance policy in place that will pay $100,000 to the chosen charity by naming it the beneficiary of the proceeds. You can then claim the annual cost of the insurance policy as a charitable donation, even though the money is only gifted upon your death.

    Alternatively, you could defer the use of the charitable credits if your estate has a large potential tax liability (RRSP/RRIF, pending capital gains on an appreciated asset, etc.). In this case, you might name your estate as beneficiary on the life insurance policy (instead of the charity), and then name the charitable institution in your will as a beneficiary of your estate in the amount of $100,000. Your estate, then, claims a total of $100,000 in charitable donations for the year of death.

  5. The gift of time. While every Charity needs financial resources, it also needs manpower and time. If you are in a situation where you can not contribute financially, then get out there and volunteer your time and energy to support these worthwhile causes.

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