Kevin Greenard: Plan your charitable donations

Kevin Greenard

Many of us are fortunate enough to be in a position to give back to society. Many individuals choose to demonstrate their philanthropic support through monetary contributions while others choose to dedicate their time by serving on boards, volunteering and other charitable actions. With thousands of registered charities in Canada, there are many options available to individuals wishing to make a charitable impact.

One of the questions we ask clients is if they have charitable intentions. We also talk about charities they may be considering and how they would like to support them. The reason we ask this is to ensure we know if it is a registered charity or a non-profit organization. From a tax standpoint, only a registered charity in good standing with CRA is able to issue official donation receipts.

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Having all of this information enables us to provide proactive strategies. Eligible donations are considered non-refundable tax credits. When we know our clients are making significant donations, we may adjust other components of their financial plan. Donation strategies should be integrated into both the current financial plan and long-term estate plan. In nearly every case we have reviewed, our clients are able to give more if they create a strategy on how they make their donations.

The number of charities is growing and they are becoming increasingly sophisticated in their campaigning techniques. As more charities chase donor dollars, the landscape is getting more competitive. Appeals from charitable causes seem to be consuming more time and energy than ever, leading to terms such as “donor fatigue.”

Similar to investing, we advise our clients to do their homework before they give. We feel that individuals with a limited amount to allocate to charities are best to plan their donations. We also encourage individuals with powers of attorney to review donations being made. We also understand that donations cannot always be planned, for example giving additional funds to individuals/groups affected by a natural disaster or other unforeseen event.

Your portfolio manager should be able to assist with the planning activity and should include making calculations of your tax savings, based on specific donation amounts. You can then decide how to allocate the donations to a charity or among a number of charities. Planning your donations often enables you to obtain the best tax breaks for the dollars you donate. This planning may allow you to make even greater donations in the future.

There are many different strategies for making significant donations, including donating insurance, setting up a charitable remainder trust and specific bequests in your will.

Below, we have mapped out two commonly used strategies: Donating securities and leaving your RRSP or RRIF to charity.

Benefits of donating securities

Most well-established charitable organizations have an account with a financial institution and accept donations of securities (publicly traded shares or mutual fund units) known as a gift in kind.

The reason charities have these types of accounts is to facility another method of receiving donations. Most of our large-client donations to charities are facilitated through the transfer of shares of publicly traded companies. If certain types of capital property, including publicly traded securities, are donated to a registered charity, then it is eligible for an inclusion rate of zero on any capital gain realized on such gifts.

Essentially, if you gift publicly traded securities that have appreciated significantly over the years, you will not have to pay tax on the capital gains. Another primary benefit of given publicly traded securities is that it is assessed at its fair market value which is used for purposes of determining the donation tax receipt you receive.

Shares are best transferred electronically from the donor’s investment account to the charity’s brokerage account. To transfer securities electronically, an investor will generally have to provide the financial institution with appropriate written instructions that may be referred to as a letter of authorization (LOA). Different firms may have additional or alternative requirements. Most Portfolio Managers will be able to assist you in drafting your LOA.

Let’s assume that an individual owns 1,000 shares of a company with significant unrealized gains. The individual may choose to donate only a portion of these shares, say 100 shares. Alternatively, the individual may decide to donate all of their shares over a number of years. This provides the ability to support a charity on an ongoing basis while also dealing with a security that has a significant unrealized gain.

Most financial firms will complete in-kind security transfers to a registered charity on a complimentary basis (with no fees or commissions). If you are planning to sell some stocks, and if you are also planning to make donations, it makes sense to consider contributing shares in-kind to your favourite charity. It is important to note that certain other types of property can be donated to charity and have the same tax preferred treatment. It is best to check with your tax advisor and portfolio manager prior to making the donation.

Leaving your RRSP or RRIF to charity

Couples have the ability to name each other the beneficiary on their Registered Retirement Savings Plans (RRSP) and Registered Retirement Income Funds (RRIF). One of the main benefits of this is on the first passing, the RRSP or RRIF can be rolled into the surviving spouse’s registered account on a tax deferred basis.

For singles and surviving spouses, planning your estate to avoid a large tax bill becomes more challenging. Naming the beneficiaries of your RRSP and RRIF accounts should involve some strategy and should be integrated into your overall estate plan.

If you have charitable intentions, then your RRSP and RRIF accounts can be a source of funds for this purpose. One way to avoid paying Canada Revenue Agency nearly half of your registered account is to gift your RRSP or RRIF to charity.

We will use Mr. Wilson as an example, with $1,000,000 in his RRIF account. If Mr. Wilson were to name the estate as the beneficiary and pass away with other taxable income plus the RRIF, about $498,000 would be paid to Canada Revenue Agency and $14,000 in probate costs. The estate would net out $488,000.

If Mr. Wilson instead chose to name four charities as beneficiaries on his RRIF then the outcome would be considerably different. Each of the four charities would each receive a cheque for $250,000 and CRA would not receive any tax revenue with respect to the RRIF account.

Before implementing any strategy noted in our columns, we recommend that individuals consult with their professional advisers. As we mentioned in an earlier article, if you have made significant charitable donations then these are considered non-refundable tax credits. Your portfolio manager should be made aware of these to ensure that any adjustments to taxable income (i.e. registered account withdrawals) can be factored in prior to the end of the year.

Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director of wealth management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timescolonist.com. Call 250-389-2138. greenardgroup.com

Kevin Greenard returns on Jan. 3

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