5 methods to reap the benefits of tax advantages when donating to charity


Jamie Golombek: Think about these items earlier than Dec. 31 to take advantage of, tax-wise, of your charitable donations in 2022

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Most Canadians have contributed to a charity or not-for-profit group this yr regardless of a difficult financial surroundings, excessive inflation and rising rates of interest.

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Certainly, 71 per cent say they’ve contributed, primarily by giving cash (51 per cent) or making a bodily donation, comparable to clothes, home items or meals (48 per cent), in keeping with a brand new Canadian Imperial Financial institution of Commerce ballot performed by Maru Public Opinion. The highest motive given by those that didn’t donate was that they couldn’t afford it (60 per cent), whereas solely 22 per cent cited mistrust in how charities used monetary contributions.

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Most donors desire to help native causes and actively search out charities the place they assume their donations will make a distinction. Social-service (33 per cent) and well being organizations (30 per cent) prime the listing, adopted by animal welfare and wildlife preservation charities (21 per cent), little one and youth help (18 per cent), native and worldwide discount of poverty charities (18 per cent), and non secular organizations (18 per cent).

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However of highest relevance to this columnist is that the ballot discovered most Canadians lack a strong understanding of the tax advantages related to charitable contributions, notably these associated to donating publicly traded securities.

The survey discovered that simply 42 per cent have a powerful understanding of the tax advantages related to making charitable donations, but 51 per cent mentioned the flexibility to obtain a tax credit score will increase the chance they may donate.

Solely 31 per cent mentioned they’re conscious of the tax benefit in donating publicly traded securities “in-kind,” and simply seven per cent have made the sort of donation. Maybe not surprisingly, higher-income Canadians had been nearly twice as doubtless (12 per cent) to make donations of appreciated securities.

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With this ballot information in thoughts, listed below are 5 issues to think about earlier than Dec. 31 to take advantage of, tax-wise, of your charitable donations in 2022.

Perceive the tax advantages of donations

Giving money, both by cheques, bank card or on-line fee, is simple and, as with every sort of donation, lets you obtain a tax receipt to say each federal and provincial non-refundable tax credit.

On the federal aspect, you get a credit score of 15 per cent for the primary $200 of annual charitable donations. The credit score fee jumps to 29 per cent for cumulative donations above $200 (or 33 per cent if in case you have revenue topic to the highest 33-per-cent federal fee, which is revenue of greater than $221,708 in 2022). Parallel provincial credit work equally, offering most Canadians with a minimal mixed federal/provincial tax credit score value no less than 40 per cent for donations above $200 yearly.

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Donate appreciated securities in-kind

In-kind donations of publicly traded shares, mutual funds or segregated funds to a registered charity offer you a tax receipt equal to the truthful market worth (FMV) of the securities or funds being donated, and can help you keep away from paying capital positive aspects tax on any accrued achieve.

An identical rule applies to the donation of securities obtained by the train of worker inventory choices. You could possibly keep away from paying tax on worker inventory possibility advantages by donating the obtained securities in-kind to a charity inside 30 days of train.

Donate depreciated securities

To this point, 2022 has not been form to equities, making December the perfect time for tax-loss promoting. Another could also be to think about donating these securities with accrued capital losses to charity. You’ll get a receipt for the FMV of the shares being donated, and you should use the capital loss triggered on the donation to offset another capital positive aspects realized in 2022.

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Understand that in contrast to appreciated securities, you don’t really should donate your loss securities in-kind to make use of the loss. You possibly can promote them after which donate the money.

Any unused web capital loss in 2022 will also be carried again as much as three years (or carried ahead indefinitely) to be utilized in opposition to taxable capital positive aspects in these years. Maybe it’s value taking one final have a look at your 2019 tax return to see for those who reported any capital positive aspects that yr, since 2022 is your final likelihood to hold again a loss to that yr to get well taxes paid on these positive aspects.

Donate RRSP/RRIF withdrawals

Any funds withdrawn out of your registered retirement financial savings plan (RRSP) or registered retirement revenue fund (RRIF) are taxable within the yr of withdrawal at your marginal tax fee. Relying in your province and tax bracket, donating your RRSP/RRIF withdrawal to charity can typically end in a donation receipt value extra in tax credit than the tax you’ll face on that withdrawal, which can scale back tax on different revenue.

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Think about a donor-advised fund

Lastly, take into account establishing a donor-advised fund (DAF) as an alternative choice to organising your individual personal basis. DAFs are helpful for those who’re not fairly certain the place to donate this yr, however nonetheless wish to declare a charitable tax credit score for 2022.

DAFs are provided by some public foundations, comparable to neighborhood foundations or these affiliated with main monetary establishments or funding administration corporations. They permit a donor to arrange a fund throughout the bigger, public basis.

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The donor opens their fund by giving for free money (or appreciated securities) to the DAF and will get an instantaneous donation receipt. The funds can develop contained in the DAF tax free, and every year the donor can suggest distributions (usually a minimal of 5 per cent of the typical FMV of their fund every year) to be comprised of the DAF to any of the 86,023 registered charities or certified donees in Canada.

The most important benefit of a DAF is that the donor doesn’t have to fret concerning the administrative particulars of operating a personal basis, or any document maintaining. The muse will course of all donation requests and switch the funds to the charities chosen, in addition to observe the DAF and supply common updates on the fund’s efficiency.

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A DAF additionally supplies confidentiality. Whereas you’ll be able to search for all the main points and monetary data of any personal basis on Canada Income Company’s web site, for those who set up a DAF, your particular person fund data, together with that you just also have a DAF, is stored personal and isn’t searchable by most people.

Jamie Golombek, CPA, CA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Non-public Wealth in Toronto. Jamie.Golombek@cibc.com

Observe: The CIBC survey was performed by Maru Public Opinion, utilizing its pattern and information assortment specialists at Maru/Blue, on Nov. 28-29, 2022, amongst a random collection of 1,515 Canadian adults who’re Maru Voice Canada on-line panelists. The info was weighted to match the inhabitants Census information. For comparability functions, a chance pattern of this dimension has an estimated margin of error of +/-2.5 per cent, 19 instances out of 20.


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