While generosity and belief in the community are primary motivators, the greatest enabler is a series of tax incentives that support the philanthropic donation of assets. In fact, Canada’s tax system is now one of the most supportive of charitable giving in the world.
A few benefits of charitable giving
One benefit of the Canadian system is high donation contribution limits, which set how much of a donation may be claimed against a donor’s annual net income. By giving, in most cases, it’s now possible to offset tax on up to 75% of annual net income during life. At death, this figure jumps to 100%. Underlying these tax incentives is a choice for taxpayers: whether to contribute to society by paying taxes or giving to charity.
A second benefit is a series of incentives to encourage donations of widely-held assets, such as public securities, bonds, mutual funds, real estate, art, estate assets, RRSPs/RRIFs, and life insurance. For example, in-kind donations of appreciated public securities are exempt from capital gain. In addition, they are eligible for a donation tax credit of up to the highest marginal tax rate in most provinces.
Canada’s donation incentives primarily focus on encouraging gifts of assets. In contrast to annual donations, a donation from assets or wealth is exceptional in timing and commitment. Exceptional donations are large relative to annual income, which is why high donation contribution limits are beneficial. These donations are often planned years in advance and realized through the donor’s estate.
Since our assets are what we live in and live on, exceptional charitable donations need to be implemented as part of a Total Wealth Plan – one that balances personal and family needs with community interests.
Philanthropy through a donor advised fund
One of the best ways to integrate philanthropy into your wealth plan is to break down the planning process into two parts: first, focus on planning the gift (the “how”); second, focus on the charities you want to support (the “where” and “why”).
Establishing a donor advised fund at a registered charitable foundation is helpful with this process. A donor advised fund is a personal charitable foundation that allows you and/or your heirs to choose the charities you wish to support.
Think of a donor advised fund as a container for planning purposes. This container can be filled with donations over several years, including at death. With a donor advised fund, you can implement a tax-effective plan for life that provides you with the ongoing ability to choose the charities you support. It also enables you to make charitable decisions based on your plan, not individual emotional appeals.
A donor advised fund is also part of your legacy. You may choose the name of these charitable funds and support charities of your choice. It’s an ongoing entity that represents your family’s values and priorities. Typically, gifts are endowed, which means the capital is invested, and only the income is spent annually, but they can also have flexible granting mandates. Donor advised funds enable donors to have direct involvement in their giving – after the initial tax-receipted gift is made.
Aqueduct Foundation, one of Canada’s largest registered charities and operated by Scotiatrust®, has donor advised funds that provide planning and philanthropic flexibility. For example, a legacy fund can be established at no cost and then funded through a gift in your will or with life insurance.
Speak with a Scotia Wealth Management Relationship Manager about Aqueduct Foundation and how to integrate your philanthropy into your Total Wealth Plan.