How to make the most of your charitable giving come tax time
If your inbox was bursting this week with a deluge of email solicitations from dozens of charities, you're not alone. Indeed, nearly every major charity seemed to have sent out a request for funds on "Giving Tuesday," the name given to the first Tuesday after U.S. Thanksgiving.
This day was conceived five years ago as an initiative of New York's 92nd Street Y to counter-balance the shopping frenzy associated with Black Friday and Cyber Monday, with the goal of redirecting shoppers'attention from conspicuous consumption to generosity. According to analysis by Blackbaud, Inc. a cloud software company whose systems process a majority of the online donations made in the U.S. on Giving Tuesday, donations in the United States jumped 53 per cent online in the first year and 90 per cent in the second. This week, on Giving Tuesday the company processed more than US$60.9 million from over 7,200 charitable organizations. Online donations were up again for the sixth year running, at a 28 per cent increase this year.
And although we don't celebrate U.S. Thanksgiving in Canada, we have certainly embraced both Black Friday and Giving Tuesday here too. According to CanadaHelps, which markets itself as "Canada's platform for donating and fundraising," online donations increased here 169 per cent in the first year of Giving Tuesday and another 75 per cent in the second.
This week, the Angus Reid Institute, a not-for-profit research foundation, in partnership with CHIMP: Charitable Impact Foundation, which operates donor advised funds to facilitate gifts to other registered charities, released a new study in which Canadians were surveyed about how we are feeling about our level of charitable giving.
While most of us feel comfortable with our level of contribution, nearly onein-three Canadians (30 per cent) - the equivalent of more than eight million adults - say they feel they should be donating more to charity. Very few say they are donating too much.
The survey showed that three-quarters of Canadians have donated to at least one charitable cause over the past two years and that Canadians are more likely (57 per cent) to have given in response to a prompt from an organization than on their own initiative. That being said, four-in-ten (43 per cent) give on an ongoing basis to at least one charity.
So, if you haven't already maxed out your charitable giving this past Tuesday, you still have just under a month to go before the Dec. 31 donation deadline. Here's a few tips to consider.
DONATION TAX CREDIT
Charitable donations attract both federal and provincial non-refundable tax credits. On the federal side, you get a credit of 15 per cent for the first $200 of annual charitable donations. The federal credit rate jumps to 29 per cent for cumulative donations above $200. Donors who have income subject to the 33 per cent top federal rate (for income over $202,800) and who donate more than $200 annually benefit from a 33 per cent tax credit on such donations.
Parallel provincial credits work similarly, although not all provinces have adopted their top tax rate as their top provincial donation credit rate.
TAX GAIN DONATING
With just a month left of 2017 and with the substantial unrealized gains building up in many Canadians'non-registered stock portfolios, now is a great time to think about "tax-gain donating." While you might be more familiar with the concept of tax-loss selling, which involves crystallizing a capital loss in 2017 so it can be used to shelter capital gains you've realized this year or in the prior three calendar years, tax-gain donating involves crystallizing those winning stocks or mutual funds by donating them "in-kind" to charity.
Donations of publicly traded shares, mutual funds or segregated funds to a registered charity not only get you a tax receipt equal to the fair market value of the securities or funds being donated, but also allow you to avoid paying capital gains tax on any accrued gain on the shares or funds donated.
Even if you want to hold on to that winning stock in the hope of enjoying further capital appreciation, you can simply take the funds that you were going to use for the donation and buy back the securities you just donated "in-kind." That way, you get the donation tax receipt, pay no tax on the capital gain to date and bump up your adjusted cost base of the security repurchased back up to fair market value, reducing your ultimate tax bill on a future sale.
One final reminder: this month is the last chance for "first-time donors" to take advantage of the temporary First-Time Donor's Super Credit, which provides an additional 25 per cent nonrefundable tax credit on up to $1,000 of donations. A firsttime donor is someone who hasn't claimed a donation credit after 2007. If you're married or living common law, neither you nor your spouse qualify if either of you has made a donation after 2007. The FDSC can only be claimed once and expires at the end of this year.
The FDSC could be particularly helpful if you're a recent graduate who's starting her first job and who may have never claimed a donation credit in prior years'tax returns since the combination of the basic personal credit, along with your tuition credit, were sufficient to reduce your tax payable to zero while in school.