As another year comes to a close, you may find your mailbox flooded with requests for charitable donations. There’s a good reason so many charities make year–end requests. According to a 2018 report from the Rideau Hall Foundation and Imagine Canada called Thirty Years of Giving in Canada, individual Canadians gave an estimated $14.3 billion to charities and non-profits in 2014, with the biggest chunk of those donations coming in at year-end.
Giving to charity is a great way to have a meaningful impact on the causes that matter to you and your family. It can also provide you with significant tax benefits if you take advantage of federal and provincial government tax incentives. Regardless of what drives you to give, it’s important to make it part of your overall financial plan. Giving strategically ensures you’ll maximize both your money’s impact and the tax benefits.
Which way to give, how much to give, and when to give are all important questions that can be overwhelming to answer on your own. Whether you’ve given in the past or this is your first year, here are some helpful things to consider:
Ways to give
When you make a cash donation to a qualifying charity, you’re eligible for federal and provincial tax credits that will reduce the income tax you owe. In general, your federal tax credit will be 15% of the first $200 of donations and 29% of any additional donations. All provinces have similar credits, which fluctuate between 4% and 24%. You can use the CRA’s online tool to calculate your charitable donation tax credits.
- Investment Securities
When you donate investment securities such as stocks, bonds, and mutual funds you don’t have to pay capital gains tax on securities that have increased in value, you get a tax receipt for the full market value, and the charity gets the full value of the securities. This makes securities a more impactful and efficient way to give than cash.
- Life Insurance
For those who make regular monthly or annual donations to the same charity, giving life insurance can be a good way to finance a large donation with a relatively small cash outlay. By naming the charity as the owner and beneficiary of a new or existing insurance policy, the premiums you pay are eligible for the donation credit each year and the charity will receive a lump sum on your death.
This is a great option for an insurance policy you have that you no longer need. Rather than terminate the policy, you can gift it to a charity and receive a donation tax credit equal to the fair market value of your policy at the time of transfer.
How much to give
Deciding how much to give can be difficult. The amount you should give will depend on your budget, income, priorities, and financial goals. Before you start writing cheques, it’s important to understand how charitable giving fits into your overall financial plan, particularly your short and long-term tax planning. Davis Rea or your accountant can run models for various options you’re considering. You’ll want to see the estimated tax benefits for the current year as well as the impact your giving will have on both you and your chosen charities over the long term.
No donation is too small, whether you gift $200 or $200,000 your generosity will make a big difference to the lives of others. This is also an excellent way to involve your kids in your family’s finances as it provides a platform to discuss your values, the importance of giving back, and long-term financial planning.
When to give
Donations must be made by December 31st, 2019 in order to be eligible for tax credits on your 2019 tax return. You don’t, however, have to claim your donations in the year that you make them. If you donate over $200, you’re eligible to carry forward that amount and claim it on any return in the next five years. Again, this is where you’ll want to consult your financial planner or accountant to see when it’s most beneficial to claim your credits.
Remember, charitable giving doesn’t have to be an afterthought that has you scrambling to write cheques at the end of each year. It should be a strategic part of your big-picture financial plan. Davis Rea can help you design a charitable giving plan that fits your goals and values, ensuring your money has a lasting impact. To discuss your options, please contact our financial planning team.