Donation Strategies for Charitable Giving

Whether your motivation for charitable giving is to reduce your income tax, or for the personal satisfaction of giving back to your community, there are many ways you can go about giving. You are likely familiar with giving to charity through a cash donation or a systematic deposit, but did you know you can also donate in these ways:

Gifts of capital property or securities

Gifting of capital property allows you to transfer assets at the fair market value (FMV), without having to pay any capital gain on the increase of value. It also allows the flexibility of determining how much of the disposition you want to consider as a realized capital gain, and which part would count as the donation, depending on what is the most advantageous to you. Your accountant can help you determine this.

For the donation of securities, there is no tax on capital gains on donations of qualified securities (securities listed on a stock exchange, share or unit of a mutual fund, an interest in a segregated fund, and certain government or government-guaranteed debt obligations). This also applies where the gift of securities is made in the will.

Registered plans

This is one of the easiest ways to donate, as it simply involves changing the beneficiary on a RRSP, RRIF or TFSA (not available in Quebec). This strategy is ideal for people with no heirs, or sufficient funds in other sources to leave to their heirs. The tax credit received helps offset the tax on the disposition, so the entire amount goes to the charity tax free. It also allows the proceeds to pass to the charity outside of the estate, which may eliminate probate fees on the proceeds.

Gift annuities/insured annuities

These solutions are ideal if you are looking to make a sizeable donation to a charity while also increasing your income. In the gift annuity model, you make a large donation, and the charity uses a portion of the money to buy an annuity for you and the remainder of the lump sum goes to the charity. In the insured annuity model, you buy the annuity yourself, and the portion of the increased after-tax income pays for premiums on a life insurance policy in the charities name or can be gifted directly to the charity during your lifetime.

Insurance

Here you would name the charity as a beneficiary on a personally-owned insurance policy to help magnify the amount of your gift. You can either make the charity the owner of an existing policy during your lifetime to get immediate tax relief from future premiums paid (and the FMV of an existing policy), or you can own your own policy and the tax relief based on the death benefit will go to your estate. The charity will receive the proceeds tax free. 

Private Foundations/donor-advised funds

For wealthy families that intend to make significant charitable donations, you may consider a private foundation, which is a corporation or trust established as a vehicle for charitable giving. It allows your family to receive the tax benefit once the money is moved into the foundation, while having the ability to disperse the donations to charities over time. You get to make decisions as a collective on where money should go and have full control on the disbursements. It requires a fair amount of cost and oversight, and all donations made are a matter of the public records that are filed by the foundation, which can often lead to an influx of solicitation calls from other charitable organizations.

If the cost and oversight of a private foundation is too burdensome for you, you may consider a Donor-Advised Fund which still gives you the ability to determine the charities that will receive the proceeds over time. While a donor-advised fund does not offer all the freedom of decision making that a private foundation does, the oversight is much easier, the set-up is much faster and requires less capital, and the actual donations to charities can be kept private if you choose.

It's best to reach out to your advisor to determine which giving strategy is right for you.

Be well Advised.