November 15, 2024

As the year comes to an end, some people donate impulsively, tapping their phones or giving cash while out shopping. Although all donations matter, especially with rising living costs, it might be better to plan and enhance the impact of your generosity.

Here are a few giving strategies to keep in mind that can benefit charity and potentially reduce your tax bill.

1. Giving appreciated securities is often preferable to making cash donations

Why? Well, not only you potentially benefit from a tax credit on your donation, but you also remove the embedded taxes owing within your donated security (and can replace it immediately).

2. Donor Advised Funds (DAFs) can be beneficial if you plan to give over time and grow the assets earmarked for charity

That is, if you can take advantage of the large tax credit by contributing future donations to your DAF as an upfront lump sum. Tax-free growth within a DAF ultimately might lead to greater wealth transfer to charity over time. 

Increase your wealth AND your giving

The 'Quantifying the Value of Tax Exemption' chart demonstrates the benefits of tax-free growth for wealth creation and charitable giving.

Suppose we have two Balanced portfolios (32% fixed income, 13% hedge strategies, 55% equity) with $1.0 million each. Portfolio A grows tax-free, while Portfolio B is subject to top marginal tax rates in British Columbia.* Assuming no spending from investments, our forecasts suggest Portfolio A will accumulate 58% more wealth over the next 20 years purely due to tax exemption. That means, over time, Portfolio A will have a bigger base from which to make charitable donations.

Quantifying the Value of Tax Exemption**

Source: CC&L Private Capital. *Glidepath chart shows 50th percentile forecasted wealth values using CC&L Private Capital forecasts as of February 29, 2024 market conditions (6.9% annualized rate of return over the next 20 years). Taxable account assumes top marginal tax rates in B.C. (53.5% tax on income, 26.8% on capital gains). Non-taxable account assumes zero tax. Analysis uses return data based on asset class indices that do not include fees or operating expenses; and it does not include management fees. Forecasted values are projections based on estimates of the range of returns for the applicable capital markets using CC&L Private Capital forecasts. The range of returns does not cover all possible outcomes. Data does not represent past performance and is not a promise or guarantee of actual or range of future results.

Additionally, if you have a RRIF and do not require annual distributions, you might consider donating your mandatory RRIF payments to charity in exchange for tax credits. Why? Because RRIF withdrawals are included in taxable income and are taxed at marginal rates. Depending on your unique tax situation and province, donation receipts from RRIF distributions to charity can offset (or more than offset) taxes owing on registered account withdrawals. ¹

For investors considering donating, make sure the organization you support has a CRA charitable registration number. This will be required for issuing a valid tax credit receipt for your donation.

Community needs are high

Recently, more Canadians have been relying on charitable services while fewer people are giving to charity. Why the disconnect?

According to CanadaHelps, an alarming 20% of Canadians relied on charitable services to meet their basic needs in 2023. ² At the same time, inflationary pressures and economic uncertainty have resulted in fewer people making charitable donations. The donor participation rate (i.e., percentage of households who claim charitable donations on tax returns) has continued to decline.

The good news? While fewer people are donating, the monetary size of donations (typically made by wealthy Canadians) has grown. From 2015 to the end of 2021, total dollars donated in Canada increased 14%. ³

'Tis the season

Charitable donations are mutually beneficial at any time of the year, and at year-end in particular. They are a great way to support causes meaningful to you. They may also reduce your tax bill as part of a tax-efficient donating strategy. Giving back gives back.

This post is for information only and not intended as investment advice. The views expressed are subject to change at any time.

¹ https://www.cibc.com/content/dam/personal_banking/advice_centre/tax-savings/charitable-giving-tax-tips-en.pdf

² “2024 Giving Report”, https://www.canadahelps.org/en/the-giving-report/#:~:text=The%20Giving%20Report%202024%20highlights%20insights%20and%20giving%20trends%20that)

³ Ibid

This material, including any attachments, is provided for informational purposes only. This material is intended for the use of the recipient only and no matter contained herein may be separately used, disseminated, distributed, reproduced or copied by any means, in whole or in part without express prior written consent of Connor, Clark & Lunn Private Capital Ltd. (“CC&L Private Capital”). Certain information contained herein is based on information obtained from third-party sources that CC&L Private Capital considers to be reliable While we consider such information to be reliable, CC&L Private Capital makes no representation as to, and accepts no responsibility for, the accuracy, fairness or completeness of such information produced by third parties and contained herein. All opinions, estimates and other information contained in this material constitute CC&L Private Capital’s best judgment as of the date of this material, and are subject to change without notice. This material has been prepared without regard to the particular individual financial, tax or personal circumstances and objectives of persons who receive it and nothing in this material constitutes legal, accounting, tax or individually tailored investment advice. Readers should consult with independent professionals such as tax, accounting or legal experts regarding their individual circumstances, as applicable. This information is not an offer to sell or a solicitation of an offer to buy any securities and is not to be used as a sales communication.