It's no coincidence that some of the largest charitable donations in Canadian history have been made in the past few months. Barrick Gold chairman Peter Munk started the streak of mega-gifts in May with a $33.6-million donation to Toronto General Hospital, the largest amount given to a Canadian hospital. That same month, Maple Leaf Sports & Entertainment chairman Larry Tanenbaum announced a $50-million gift to the Jewish Foundation of Greater Toronto. Then, in October, real-estate developers Joseph and Wolf Lebovic broke Munk's record with a $50-million donation to the city's Mount Sinai Hospital.
While this avalanche of cash has a lot to do with good old-fashioned generosity, it also has a bit to do with some recent changes to Canadian tax law. And the best part is you don't have to have $50 million burning a hole in your pocket to take advantage of the new rules. No matter how much you have to give, there are some easy steps that you can take to start donating like the rich and famous.
First, think about giving stock instead of cash. The federal budget introduced this past May removed the capital gains tax on securities when they are given to a registered public charity. That means there's now a good incentive to donate stocks, instead of cash. If you sell a hundred company shares for cash and then donate the money, you'll pay tax on any capital gains you realized. But thanks to the recent changes, if you simply donate the shares straight to charity, you get a tax credit based on their value and don't have to pay tax on the capital gains. Registered charities are already exempt from capital gains tax, so the whole donation will go directly to the cause. “It's a no-brainer,” says James M. Parks, a Toronto-based tax lawyer with Cassels Brock & Blackwell LLP. “You hand the securities over. It's just far more tax effective.”
There are some caveats, though: the donation must be made to a registered public charity, so gifts to private foundations will still be taxed as usual. And arranging to donate securities can take more time and planning than just handing over a credit card on Dec. 31. “Most people just go to their broker or transfer agent and give instructions,” says Parks. “I've had some situations where it's taken weeks.” So it's important to start early to make sure your donation actually gets recorded in the tax year you want the credit for.
If you've got more than $1,000 to donate, a second option is to get involved with a local community foundation. Private foundations are still mostly the domain of only the richest families, who have generations of wealth to look after, but community foundations offer many of the same benefits to donors with more modest fortunes. Like private or family foundations, community foundations build permanent, endowed funds and use the income on their investments to make grants. (Note that although the annual payouts to charities will continue as long as the capital is generating interest, you'll only receive a tax credit for the original donation in the year it was made.) Depending on the amount you donate, you can choose to pool your donation in a larger fund, or endow a new fund of your own to support a specific cause or charity. “Flexibility is one very attractive feature of community foundations,” says Monica Patten, president and CEO of Community Foundations of Canada. “Donors can enjoy the benefits of being in philanthropy, no matter how much they give, without the burden.”
Each community foundation's investment committee manages the money for the long term, and its staff are in charge of figuring out where the proceeds can be spent most efficiently. The extra layer of administration has its costs, but it's much cheaper than starting your own private foundation, and it means that your donation will outlive you for years to come. With 155 community foundations managing almost $2.5 billion in assets across Canada–in causes ranging from adult literacy to wetlands conservation–there's almost certainly one to suit you.
Most Canadian banks have also introduced services to help investors integrate philanthropy into their financial planning. The newest is the Aqueduct Foundation, offered by ScotiaBank. Much like a community foundation, Aqueduct shuffles each donor's money into “donor-advised funds” in the foundation and then manages all the investments, handles the payouts to specified charities and maximizes the tax benefits. With a minimum starting donation of $250,000, it's not for everyone, but it offers superior flexibility and professional management.
“We have a number of donors who may not be sure what they're going to donate,” says Malcolm Burrows, head of philanthropic advisory services with Scotia Private Client Group. “They want it to be a 2006 tax receipt, but they're not really sure what they're going to do with it until 2007 or 2008. It's looking at the right asset to give at the right time, and maintaining flexibility about the ultimate destination.”
Finally, savvy donors should consider leaving a bequest in their will. It's a painless way to donate money that you may not have been able to give away while you were alive. “A lot of people find it rewarding to use their estate as a way to give back to the community,” says Ottawa-based Teri Kirk, vice-president of Imagine Canada, a charitable sector research and lobby group. “Especially if their spouses predecease them and they're asking, 'Do my children necessarily need this home?'”
Donating a portion of your estate to charity isn't just a nice legacy–there are some significant tax savings to be had. Normally, the charitable tax credits you receive for donations are capped at 75% of your income for the year. “You can't wipe out all of your tax by making charitable donations while you're alive,” says Parks. But in the year that you die, that rule is suspended. A large charitable donation is eligible for a tax credit that can not only wipe out all your income tax in the year that you die, but can also be applied to the previous year if your heirs refile that year's income tax. For seniors, who often have significant assets but modest income, the tax advantage can be considerable.
No matter how much you donate or what causes you support, the experts agree that the happiest and most fulfilled donors are those who have clear objectives and a sound plan. The wealthiest people make charitable giving a part of their overall financial planning. That's good advice for everyone who wants to leave a legacy, no matter what size.
“The big money and the smart money are those who have a sense of where they're going with their plans,” says Burrows. “It's not something that's done on the spur of the moment. The more planning and thought you put into it, the more tax savings you're going to get, but also the more satisfaction and greater benefit.”
By investigating all your options for donating to charity, the whole experience can be that much more rewarding–in every sense of the word.