More and more the news covers stories about the ultra-rich giving away their wealth, namely Bill Gates and Warren Buffet. Even Canada’s own Paul Martin has established a charitable foundation which benefits First Nations peoples. The same can be said for many of Canada’s leading families.
There is no doubt there is a growing income gap between ‘staff’ and ‘management’, the middle class, the rich and the ultra-rich.
The growing poverty in third world countries is an ever-challenging world problem.
Moreover, in recent years there has been a considerable reduction in government spending for charities and public institutions. The ones we are most familiar with and that affect us the most are hospitals, health care and education.
An environment of philanthropy
All these factors have come together to create the perfect environment for philanthropy.
Philanthropy has become a pervasive part of our local culture, from collecting bottles for the LCBO for cash to donate to leukemia, to school fundraisers, to appreciating the musician in the subway.
There are many ways to give to charity:
• The annual gift
• A gift from your estate
• Establishing your own private foundation
Annual charitable donations
The annual gift is the donation to those charities we each participate in every year. It is the drive to build a new wing on a hospital, children’s charities, research for cures, the arts, world charities and much, much more. For each charitable donation you make you receive a charitable tax receipt which can be used to reduce annual income tax.
The tax benefits of annual charitable donations
A gift donated to a registered charity may be eligible for a charitable tax credit. Often a charitable gift is used to redirect tax dollars to a specific cause. Planned charitable gifts represent a large portion of many charities’ annual revenue. These gifts pay for much needed research, public assistance and community support.
The federal tax credit for charitable donations is equal to:
• 15 per cent of the first $200
• 29 per cent of the balance
The limit for an annual charitable gift is 75 per cent of net income.
Donating publicly-listed securities, mutual funds or segregated funds to a registered charity offers tax advantages over donating cash. Consult your financial or professional advisor for more information.
The tax benefits of charitable donations from your estate
A gift from your estate is a long term gift. It can be made with assets from your estate or life insurance.
If you are not sure which charity you would like to benefit today you can opt to use a Community Foundation to manage your capital donation to a various charities. The Community Foundation will make annual donations to your choice of charities. If the need arises the Community Foundation can redirect your donation.
Seeking advice from your professional advisors (lawyer and accountant) is essential for determining the structure of the donation from your estate.
Tax Benefits of Estate Charitable Donations
The eligible amount of charitable gifts in the year of death include any annual gift as well as those gifts the individual bequeathed in the will. The amount claimed must be the lesser of 100 per cent of the deceased person’s net income; and, under proposed changes, the eligible amount of the gift(s) donated in the year of death (including gifts by will), plus the unclaimed portion of the eligible amount of any gifts made in the five years before the year of death.
Any excess can be claimed on the return for the previous year (up to 100 per cent of the deceased’s net income for that year).
See the CRA publication Gifts and Income Tax 2011.
Private Charitable Foundations
In the majority of situations, the reason a donor establishes a private foundation is the individual was personally involved in philanthropy. A private foundation offers flexibility and gives the donor an opportunity to engage their families directly in charitable giving.
Generally, the individual is at the stage of life when they have time to devote to the foundation work and would like to be involved directly with the projects. Experience has taught them they have more control when it comes to decisions regarding grants to charities and collaboration with other funders. And of course, there is the tax incentive.
There are many motivations for donating to charities. Putting aside the tax incentive, it is our desire to give back to the community and to society.