Giving reflects our values and commitment to making a difference in the community – or worldwide. However, there are ways to help more by employing tax-effective giving strategies.
Types of gifts
No matter your level of wealth, there are two basic types of donations: ordinary gifts and exceptional gifts.
Most of us give ordinary gifts on an annual basis. These are routine gifts from income, often made in response to a solicitation from a charity. These gifts are typically made by cash, cheque or credit card, but there are strategies to make this giving more effective for you and your charities.
Exceptional gifts are rarer and larger. These gifts are typically derived from assets or your life savings. These gifts occur as a result of careful consideration and are facilitated by wealth and estate planning. They often coincide with noteworthy life events, for example, the sale of a major asset or business. As a result, there is a greater need and opportunity for planning.
Strategies for ordinary gifts
Consider giving through monthly pre-authorized payments to your favourite charities. All you need to provide is a cancelled cheque or credit card number to the charity. Consistent monthly payments help your cash flow, which means you can give more. It also provides the charity with regular cash flow and reduced fundraising costs.
Gift of flow-through shares
Resource flow-through shares provide a tax deduction when purchased by investors. These tax-effective investments can also be donated to charity. When these public securities vest, they can be donated to charity, which produces a charitable tax credit in addition to the resource deduction. Combined, the two tax savings can significantly lower the cost of giving.
Strategies for exceptional gifts
The most common type of estate donation is a gift by will that pays out after death. A gift by will is highly flexible. It allows the donor to retain use of the property while living and permits changes during life. An estate donation can be claimed against up to 100% of income on the final two lifetime returns, plus against up to 75% of income on estate returns. If the gift is significant relative to income, there is the potential to eliminate most taxes payable at death.
Gift of public securities
A gift of publicly-traded securities or mutual fund units is not subject to capital gains. It also qualifies for a tax credit. These two savings make it the most tax-effective way to make a significant donation. Consider combining a sale of securities with an in-kind donation of securities to eliminate taxes at disposition.
Charitable insured annuity
This “life income” strategy combines an annuity with a life insurance policy to generate annual income for the older donor and a future gift for the charity. The annuity payments are partially tax-free and, due to tax savings from the donation, are often greater than other conservative fixed-income investments.
Exceptional donations are enabled through the wealth planning process. A donor-advised fund at a public foundation, such as Aqueduct Foundation, will help you make tax-effective donations today and select the charities you want to support in the future.
The professionals at Scotiatrust can provide insight and practical support to help enhance the effectiveness of your charitable giving – both now and for future generations.