Strategic Philanthropy

With tax freedom day behind us many Canadians start working for themselves and their communities in July. CRA has issued a new guide for charities: RC 206: Basic Guidelines for Maintainng Charitable Registration. In addition, many taxpayers are interested in speaking to their advisors on the subject well before the end of the year.

Following is an excerpt from the Tax Efficient Retirement Income Planning Course, dealing with this issue:

Facts on Canadian Philanthorpy

  • 5.7 million Canadians contributed $6.9 billion to charitable organizations in 2006
  • Statistics Canada reported that the total market value of stock held by Canadians at the end of 2006 was $1.4 trillion, an increase of $100 billion over the previous year
  • Approximately one-half of that market value represents unrealized capital gains, suggesting that the opportunity for many shareholders to donate stock and save tax is very significant
  • TD Economics estimates that the market value of stock held by Canadians in 10 years time could exceed $3 trillion, with as much as two-thirds of that in unrealized gains (tdeconomics.com).

Demographic Trends

  • Potential for philanthropy is immense: In Canada, between $15 and $20 trillion is expected to shift from parents to their children between now and middle of the century
  • Baby boom generation is having significant impact on the world of charitable giving: not content to simply write a cheque and move on, donors expect transparency and accountability - they want to be involved.
  • Many charities are revisiting the way they operate in order to attract these younger philanthropists

General Rules

At some point during the year many Canadians give to charities. Those gifts, usually of money, will be claimed on schedule 9 of the tax return. Unclaimed donations from the previous five years may also be claimed in the current year. Donations made through payroll deductions should also be claimed. These will show on the T4 slip. Generally you can claim all or part of your total donations, up to a limit of 75 percent of your net income reported on line 236. For the year a person dies and the year immediately prior year, this limit is 100 percent of the person's net income.

It is generally most beneficial to claim donations made by both spouses together on one tax return. This is because the first $200 of donations is eligible for only a 15 percent tax credit, while any additional donations attract a tax credit of 29 percent. Combining donations will ensure the couple is subjected to the 15 percent limit on the first $200 only once, not twice.

Donations made during the year do not have to be claimed on that years' return and may be carried forward to a subsequent year, up to five years. This may be of benefit, if, for example, you already have sufficient non-refundable tax credits to completely eliminate taxes payable.

Only donations made to Canadian registered charities and other qualified donees may be claimed. A registered charity will show its charity registration number on the receipt. The slip must also indicate the Web address of the CRA.

Click for more information and to registered in the Retirement Income Specialist program.