It’s better to give than receive, or so the saying goes. But when it comes to managing your wealth, the good news is you can do both.
That’s because our governments offer generous tax incentives to encourage you to make charitable donations. So you can make the world a better place by supporting your favorite charity and get some help with your tax planning.
It’s a great way to share your good fortune with others and leave a legacy for future generations.
It costs Canadian taxpayers about $5 billion a year for federal and provincial tax incentives to encourage giving to registered charities, including humanitarian, religious and educational organizations.
Canadians are giving less
And Canadians need the encouragement. A recent study by the Fraser Institute found that giving dropped to a 10-year low in 2014, the most recent year that complete data was available.
Just 21 per cent of Canadians claimed charitable donations on their tax returns, down from 25 per cent in 2004. The size of the average donation also dropped. By comparison, American givers were two and a half times more generous than Canadians.
At PWL, we encourage philanthropy not just because of the tax benefits but because we believe it’s important to give back.
Governments offer generous charitable tax credits
Of course, each person decides for themselves whether they want to give, how much and to which charitable cause. But charitable donation tax credits are available to everyone as long as you’re giving to a charity recognized by the Canadian Revenue Agency.
The tax credit calculation is a bit complicated, but for every dollar you give, you get back around 50 cents — depending on your province of residence and marginal tax rate. In other words, your favourite charity gets every penny you donate and you get tax savings that add up to half of what you give.
But it gets better. You don’t have to donate cash. You can also give other assets to registered charities, including publicly traded securities such as individual stocks and bonds as well as exchange traded funds and mutual funds.
Can give securities to charities
When you give these type of securities, you can get even more tax relief for your buck. First, you get the charitable donation tax credit based on the fair market value of the securities. Second, any capital gains accrued on those securities is eliminated.
And that’s why donating shares with large capital gains is one of the preferred methods of giving for our clients at PWL.
And it doesn’t end at shares. You can also get a tax credit and the elimination of the capital gain on a donation of ecologically sensitive land to a qualified organization.
Special tax incentives in Quebec
In Quebec, there are also tax incentives for donations to registered art and cultural organizations.
Wherever, you decide to give, it makes sense to take the time to consider how your giving can do the most good and produce the most tax savings, so you can give even more next year.