10 Tips on Claiming Charitable Donations
1. Gift to a registered charitable organization.
If you want to claim a charitable contribution, you must have made a donation during the tax year to a registered charitable organization or other qualified donee and submit a valid donation receipt with your tax return.
2. Determine which spouse should claim the donation.
Gifts may be claimed either by the person who made the gift or by the spouse or common-law partner of the person who made the gift. Calculate the claim on Schedule 9 Donations and Gifts, and add the amount to the non-refundable credits on Schedule 1 Federal Tax, line 349.
3. Know your limits.
The maximum that may be claimed is 75% of an individual’s net income for the year. Net income is used to calculate certain federal and provincial or territorial non-refundable tax credits. Net income includes income from all sources: employment, pension, interest, dividends, capital gains and business LESS certain deductions like RRSP contributions, carrying charges and employment expenses.
4. Carry forward.
Donations exceeding your annual donation claim limit can be carried forward and claimed in any of the five subsequent years.
5. Determine the eligible amount you can claim.
If you receive a benefit of some kind in return for your donation that exceeds $75 or 10% of the gift value, you can only deduct the eligible amount. The eligible amount is the fair market value of the gift minus any advantage (benefit) gained by the taxpayer as a result of the gift. Examples of advantage you may receive in return for your contribution include merchandise, tickets to an event or other goods and services. If the advantage exceeds 80% of the gift value, then the eligible amount of the gift will be nil.
6. Donate appreciated securities instead of cash.
Donations of publicly listed securities are generally receipted at fair market value on the date of the donation. The entire value is eligible for a deduction. In addition to the tax credit, NO tax on any capital gain applies to gifts of publicly-listed securities given to charities. The disposition is entered on Form T1170 Capital Gains on Gifts of Certain Capital Property.
7. Ensure Cultural and Eco-Gifts are properly certified.
Cultural gifts and ecological gifts must be certified as such to be eligible for the credit. The key thing to remember with cultural gifts is that the receiving institution must already be designated to receive the property before the tax incentives apply. Designation is granted by the Canadian Cultural Property Export Review Board. Eco-Gifts must be approved and certified by the Minister of the Environment under the Canadian Ecological Gift Program.
8. Consider benefits of gifting Real Estate.
In addition to the normal gifting limits (e.g. 75% of net income per annum and 5 year carry forward provision), gifts of capital property (e.g. Real Estate) get the additional benefits of having an amount added to the annual contribution limit of 75% of net income. The additional amount equals 25% of the taxable gain arising from the gift, and/or 25% of the recaptured CCA. This “bump” up in the donor’s contribution limit permits more credits being claimed in the year of the gift.
9. Donating Flow-Through Shares.
The 2011 budget eliminated part of the tax benefit that existed where a Canadian taxpayer buys a Flow -Through Share then donates it to charity. The taxpayer continues to benefit from the deduction for the eligible exploration expenses flowed through from the corporation and the charitable donation tax credit, but is now going to be taxed on the capital gain equal to the lesser of the FMV and the original cost of the shares. Despite the new rule, donating Flow -Through Shares is still a tax effective way to make a donation.
10. Company’s that donate can receive a deduction.
Company donations are treated as tax deductions whereas individual and trust donations are treated as tax credits. A deduction reduces taxable income for companies and the limits for the deduction are the same as above for individuals.Sources: The Knowledge Bureau, PDGC Network.
First-time donor’s super credit (FDSC)
New Rules of Charitable Tax Policy
In order to encourage charitable giving by new donors, the 2013 Federal Budget proposes to introduce a temporary First-time Donor’s Super Credit on up to $1,000 of monetary donations, which would be available to an individual if neither the individual nor the individual’s spouse or common-law partner has claimed the Charitable Donation Tax Credit (CDTC) or the FDSC in any taxation year after 2007.
The new 25% super credit will be added to the existing charitable donation tax credit, resulting in a tax credit rate of 40% on the first $200 of donations and 54% on the next $800. The new credit applies to donations made after budget day and before 2018. The maximum limit of $1,000 applies to both individuals and couples, so that there is no doubling of the credit for couples. As this is a one-time credit, donors may want to carry forward and not claim smaller donations until the $1,000 threshold is reached.
Read more on this topic:
March 21, 2013 Federal Budget – How it affects you and the charitable and not-for-profit sector, PriceWaterhouseCoopers LLP
Globalphilanthropy.ca, 2013 Canadian Federal Budget – How will it affect the Canadian charitable sector?, Mark Bloomberg
Source: CI Invesments Newsletter, 2013 Federal Budget, Jerry Rubin.
The 10 Myths of Holiday Giving
The run-up to the Holidays is a time when many Canadians choose to give to charity, but for many people the decision is still a difficult one, wondering: “Can I afford it? Will my gift make a difference? And how can I be sure my gift will even go to a charity?”
To help you decide we’ve pulled together some of the more widely circulating myths around giving to charity. Here are the 12 myths of Holiday giving.
1. Myth: We can’t trust anyone anymore who asks us for money, they’re all just bogus
Reality: It’s easy to check if a charity is real: look for the charity registration number on any literature and ask questions about who the collector works for. Yes, there are some people out there who are trying to take advantage of our goodwill, but they are few in number and they are being brought to justice.
2. Myth: It’s pointless giving to charity, most of your donation goes on administration costs
Reality: Most charities are well run and do things as efficiently as possible. Delivering programmes means charities need buildings and staff, most of whom are frontline, but this often gets mistaken for being administration.
3. Myth: Fundraising costs wipe out most of our donations before they even get to the charity
Reality: For the vast majority of smaller charities fundraising is purely voluntary and there are no costs or fees for fundraisers. The ratio of fundraising costs to fundraising revenues is used by the Canada Revenue Agency (CRA) as a starting point when assessing a charity’s fundraising performance. Ratios below 35% are not likely to raise any questions or concerns from CRA.
4. Myth: Charities are just big businesses now, there’s no point giving to them
Reality: Not really. The biggest fundraising charities in Canada, or the Major 100, account for 37% of donations received. Though be small in number, this group of large charities often shape how Canadians view all charities – a result of their mailings, posters and press stories.
5. Myth: There are far too many charities anyway – they’re just wastefully duplicating what each other does.
Reality: There are a lot of charities: over 85,000 across Canada. And yes, there is overlap. Many people in charities are working to reduce this. But do you really want to start closing down any of the parent teacher associations or playgroups and nurseries? Like many other charities, these are local and specific to the people who use them. And many are supported by their members’ contributions.
6. Myth: We’re letting government off the hook by giving to charity – we will just end up paying for things that our taxes should be paying for
Reality: Charities often supplement the provision that our taxes pay for, such as buying equipment in schools or funding new or innovative medical procedures or research. Many charities work to prevent problems from happening – early intervention – that if not addressed end up costing the state even more down the line. So there is an enlightened self-interest in giving to charity.
7. Myth: Most people aren’t rich enough to give the sort of gift that would make a difference anyway
Reality: According to GIV3, the average level of giving in Canada is 0.7% of income. The top 15% wealthy Canadians give less at 0.5%. It is important to remember that small donations can make a big difference, particularly to small charities. It helps even more if donations are planned, or regular, so charities can be certain about their resources.
But we’ll leave Margaret Mead to have the final word on this one: “A small group of thoughtful people could change the world. Indeed, it’s the only thing that ever has.”
8. Myth: Rich people don’t give, so why should I?
Reality: Despite all the banker-bashing and the like in the media, the reality is that rich people do give to charity. According to Imagine Canada’s 2007 report called Caring Canadians; those who give the most are more likely than others to be older, to have higher household incomes and more formal education, to be married or widowed, and to be religiously active. Although donors with higher household incomes tend to donate larger amounts in absolute terms, those with lower incomes give more when their donations are expressed as a percentage of total income.
9. Myth: Charity doesn’t begin at home anymore; my money goes overseas
Reality: According to Imagine Canada’s 2007 report called Caring Canadians; just 6% of donations go to international organizations.
10. Myth: Giving to charity won’t make us any happier
Reality: Research suggests that giving time and money to good causes makes us feel happier, although it might be the case that happier people give. Although giving to charity isn’t perceived to be a substitute for receiving, the two often work well together – which is why ethical gifts or products such as charity Christmas cards are so popular.Adapted from an article by Karl Wilding, the head of research at the National Council for Voluntary Organisations (NCVO), UK.
5 Ways To Improve Your Family’s Philanthropy This Thanksgiving
With holidays and year-end tax deadlines looming, this is the time of year when donors reflect on which causes are most important to them, give generously where possible and plan for the year ahead.
Thanksgiving … presents a wonderful opportunity to engage in meaningful conversations about values, wealth, philanthropy and legacy with family members. The holiday not only inspires feelings of gratitude and generosity, but also often offers a chance for multiple generations to come together in one place. Donors can take advantage of this rare occasion to reflect on their family’s philanthropic values and to plan their giving for the year ahead. Here are some ideas to get the conversation started:
Facilitate an annual appeal “round robin”
Ask family members to bring a few of the annual appeals they receive in the mail to a family get-together. Take turns sorting through the solicitations and allow each family member to discuss whether or not they feel inclined to give to each organization. This activity will provide insight into family members’ diverse motivations for giving and will illuminate the causes that are most important to you as a family. This exercise can also help you formulate a deliberate plan for strategically responding to various requests that will bring added confidence to your giving.
Share your legacy plans
We all want to leave our mark on the world, yet we don’t always take the time to articulate what we want our legacy to be. This robs us of valuable opportunities to prepare our heirs to carry out our philanthropic wishes after death. So, whether you intend to make bequests to particular organizations, designate a portion of your estate to be distributed to charity, or hope your family will carry on your philanthropic practices, it is important to share your desires and expectations with your family.
Start a new philanthropic tradition
Top of mind for many parents is the question, “How do we raise charitable children?” Establishing family giving rituals, especially around the holidays, is a great way to instill philanthropic values in children. For instance, set aside a small pool of funds that the kids can use to give to charities of their choosing. You might also consider making a donation together as a family in honor of a loved one. Many families volunteer together as a way of teaching children about community need.
Articulate your family’s philanthropic values..
..by developing a family giving mission statement—a few sentences that describe the goals you are trying to achieve through your charitable giving (e.g. “protecting the environment” or “ending hunger in our city”). Allow everyone to write down their own vision and share it with the rest of the family. Use the discussion that ensues to reach consensus around the shared principles that you believe should guide your giving. The resulting mission statement can then be consulted for future giving decisions.
Reinforce positive money messages
The holidays bring out our most generous selves, but the hyper-consumerism with which they are associated can also convey unhealthy messages about money. How you talk about and spend money makes a powerful statement. Use the holidays as an opportunity to intentionally link your values with your spending and to have honest conversations about wealth and giving back.
Philanthropy is a powerful tool for strengthening family ties. This Thanksgiving, let charity begin at home.Article by Betsy Brill, Forbes.com, Investing, November 2011
Women Drive Philanthropic Decisions in Wealthy Households
According to the recent 2011 Study of High-Net-Worth Women’s Philanthropy, women share or control 90% of HNW household decisions on charitable giving.
Until the release of this study we didn’t have a good picture of the differences men and women have in regard to giving; but the fifth study undertaken by Bank of America and The Centre on Philanthropy at Indiana University gives us some insight.
Highlights from the study
As women create and control a growing share of wealth in the US, their philanthropic influence is increasing.
- Women are more likely to have an annual strategy for their giving then men.
- Women spend more time researching the charities they give to.
- More women are completely risk averse with regard to their philanthropic investments.
- Women are more highly motivated by their desire to see an impact from their giving.
“Through this research, we can better understand and further quantify the power and influence of women’s philanthropy in (the US). Women’s role in shaping lives, communities and, by extension, the world through their philanthropy is critical to our collective well-being.”*
Takeaways for advisors
- Be sure you understand what role philanthropy plays in your clients’ family and who the key decision maker is in regard to charitable gifts?
- Determine if your client, their spouse or other family member is volunteering at a charitable organization?
- Talk to your clients about Philanthropy.
For more information on the report – click here.*Claire Costello and Ramsay H. Slugg of U.S. Trust, Bank of America, Family Foundation Advisor, Civic Research Institute 2012.
DAF or Private Foundation?Considering the differences between two charitable giving vehicles
People who have dreamed of starting their own foundation, may find that their wish can been has been granted. For only $25,000, clients can set up an fund that provides the “advantages of a private foundation but with none of the administrative burdens—and at a fraction of the cost of running a typical family foundation.”
By understanding how Donor Advised Funds (DAFs) work, clients who previously limited their charity to annual giving might consider the advantages of a DAF; “and those who are struggling with the burdens of running their own private foundation may be encouraged to evaluate whether it makes sense to collapse the foundation into a DAF.
What is a DAF?
A DAF is a charitable gift fund set up with an independent public charity. Unlike a private foundation, which receives most of its funding from one donor or family, a public charity is funded by contributions from many individuals and corporations. The donors make irrevocable gifts —usually cash, securities, or mutual fund shares to their DAF. In exchange, they get a donation tax receipt and assume the role of adviser on their account. They can sometimes decide how the funds are invested and to the extent of the balance in their fund and the DAF sponsor distribution rules, and they can recommend grants to their favorite charities.
(Donors can name their fund as they wish; for example Jane Doe Family Foundation or Lawyers Against Diabetes.) They can request that a grant be made in the fund’s name or anonymously, on a onetime or a recurring basis. Their role as advisor on their fund gives them virtually all the flexibility they would have by running a private foundation but without all the administrative hassle.
Donor Advised Funds enable people of even modest means to set up a virtual private foundation.” If clients are planning to donate $1 million or more, you may be wondering why, they shouldn’t just establish their own foundation. Before you encourage them to do so, help them to understand the administrative work that running a foundation entails.
What is involved in running a private foundation?
First, they must create a legal entity (usually a trust or not-for-profit corporation). Then, application must be made to the Charities Directorate of the Canada Revenue Agency (CRA) which takes considerable resources and legal fees. To remain compliant with CRA, a foundation must distribute at least 3.5% percent of its assets every year; otherwise known as the Disbursement Quota (DQ) which is monitored through a compulsory year-end tax filing called the T-3010.
Another important consideration is privacy. The truth is that a private foundation isn’t really very private. The T-3010, “requires a foundation to list the names and addresses of officers and directors, along with details on how the endowment is invested and the name of every grant recipient and amount awarded. This return is available for public viewing and can be easily accessed through the CRA website. The donor’s personal beliefs (expressed through the political, religious, civic, and social charities chosen for funding) are exposed to the world.” In addition, board directors have the fiduciary responsibility for asset management, handling grant proposal submissions, and probably hiring of staff to keep books and records and perform grant due diligence. For some all this work makes running their own foundation a lot less glamorous.
Instead, clients can set up a DAF and still realize their charitable goals but without all these burdens. There are minimal set-up costs and annual expenses at Benefaction are limited to just 0.5 percent for charitable administration (excluding investment fees).
“The tax advantage to a DAF when donating appreciated securities, versus selling them and contributing the cash, is particularly compelling.” Since 2007, the taxable portion of the capital gain resulting from the gift of shares, rights and debt obligations traded on Canadian and certain foreign public exchanges is zero. This means that any tax from a capital gain owing from gifts of securities to charity is effectively eliminated. This change in legislation has proved to be a powerful incentive to give securities because now there are two key benefits to donors: the tax receipt which will result in a tax credit AND the donated securities are excluded from capital gains tax. Similar treatment of these tax benefits from donating listed securities was extended to private foundations in 2008, but private foundations are subject to complex excess business holdings regime rules which are essentially tests to qualify for provision.
All things considered, donor-advised funds are a very appealing vehicle for giving and their numbers are growing as people catch on to the flexibility they offer.Adapted from Take it for Granted, a CFA Magazine article published, Sept-Oct 2011.
A bequest (also known as a gift by will or a testamentary gift) is a revocable gift made by Will to a charitable beneficiary. There are four basic types of bequests:
- specific bequest (either a specific amount or a specific piece of property which is usually paid out before any residual gifts);
- residual bequest (a share or percentage of the residue of estate);
- contingent bequest (a “disaster clause” bequest that names an alternate beneficiary in case the terms of the original bequest cannot be met); or
- bequest subject to a trust (Will establishes a testamentary trust that is funded at death; typically provides lifetime income to one or more named beneficiaries and a future gift to one or more charities).
Since a bequest is revocable, it can be amended or revoked at any time by the donor. Click here for sample bequest wording for an existing or new BenefAction fund.
At death, there is a “deemed disposition” of all capital property owned. This means that for tax purposes property is treated as if it were disposed immediately before death. There may be capital gains or losses triggered by the deemed disposition. Capital gains taxes owing are payable on the final lifetime income tax return and losses can be used to offset gains. Any capital gains or losses that occur after death are recognized on the estate tax return.
Under the Income Tax Act, an individual who makes a gift by Will to a registered charity or other qualified donee (specific organizations that can also issue tax receipts) is deemed to have made a gift immediately before death. The gift generates a non-refundable tax credit that can be claimed against tax owing. Depending upon how it is structured, a bequest subject to a trust may not generate any tax savings on the final lifetime return.
A gift at death can be claimed against up to 100% of the individual’s net income on the final two lifetime tax returns. If the bequest is too large to claim on the final return, the surplus can be carried back to the previous tax year. The 100% contribution limit can eliminate tax on the final two lifetime returns if the charitable bequest is large enough.
If you have allocated a significant portion of your estate to charity in your will (rule of thumb is 25%), you may have a planning opportunity. If the bequest is too large to be claimed on the final two lifetime returns, a portion of the eligible tax credit will be lost. To utilize the tax credit, it may be prudent to give a gift during life. Splitting a large bequest into a lifetime gift and a bequest can help significantly increase total tax savings. When properly planned, you will have the satisfaction of giving during life without any change in your lifestyle.
Examples of Charitable Bequests
Mr. & Mrs. Griffin name a specific bequest of $50,000 in their Will for their favourite charity. When the second spouse dies, the bequest is paid out at the beginning of the estate administration process.
Residual Bequest for Legacy Fund
Steven and Wendy Jones name the Jones Family Fund at a public foundation as the residual beneficiary of Steven’s Will. The Jones Family Fund is established at the same time as their Wills are executed. The Fund is established to support charities or causes of interest to Mr. & Mrs. Jones as chosen by their two adult children. They have the option of partially funding the Fund during life for philanthropic and tax planning reasons.
Charitable Testamentary Trust
Chen and Betty Tsi have an adult daughter with a severe physical disability. Their Wills create a testamentary trust to provide support to the daughter for the balance of her life. When the daughter dies, the remaining capital in the trust will pay out a charity that provides community based nursing services.
Testamentary Private Foundation
Andrea Wilson establishes a testamentary trust in her Will that will exclusively support charities of her choice. When she dies the trust will be registered with Canada Revenue Agency as a private foundation by her trustees in her memory. The objectives and terms of the private foundation are incorporated into the Will.This article has been adapted by BenefAction with permission from the author, James Dunne, Wealth Advisor at ScotiaMcLeod in Toronto.
Budget 2012: No New Donation Incentives
No new measures to increase incentives for charitable giving.
Budget 2012 focuses largely on measures dealing with the perceived lack of transparency and accountability concerning charities devoting their resources to political activities. This will create new challenges for registered charities conducting political activities, but generally speaking the scope and impact of this budget is not as broad as that of 2011.
It is worth noting that Budget 2011 established a new House of Commons Standing Committee on Finance for the study of how current tax incentives for charitable donations might be improved. Alas we will have to wait until 2013, but the sector remains hopeful as Budget 2012 at least confirmed the Standing Committee will continue to review submissions.
Let’s have a quick look at one of those. The Canadian Association of Gift Planners (CAGP-ACPDP™) proposes encouraging and enabling Canadians to meet their philanthropic goals by supporting the following planned giving incentives:
• Stretch Charitable Tax Credit: This incentive is a broad measure in which increases in giving year on year receive increased tax recognition.
• Gifts of Real Estate: This incentive means that the capital gains realized on gifts of appreciated real estate would be exempt from tax.
• Gifts of Private Company Shares: This incentive extends the exemption from tax on capital gains realized on gifts of public company shares to the capital gains realized on the disposition of certain gifts of private company shares.Source: Carters.ca, Charity Law Bulletin No. 280, March 30th 2012; Miller Thomson, Charities and Not-for-Profit Newsletter, March 2012; CAGP-ACPDP™ Submission to the House of Commons Standing Committee on Finance Study on Tax Incentives for Charitable Donations.