Not offering any advice or opinion. Refer to the notice below.
Jamie Golombek, BCom’92, is a member of McGill’s Strategic Giving Council and the managing director, tax and estate planning, with CIBC Private Wealth in Toronto.
Despite a challenging economic environment, high inflation and rising interest rates, a recent CIBC/Maru poll showed that most Canadians contribute to a charity or not-for-profit organization.1 Indeed, 71% said they contributed, primarily by giving money (51%) or making a physical donation, such as clothing, household items or food (48%). The top reason given by those who didn’t donate was that they couldn’t afford it (60%), while only 22% cited distrust in how charities used financial contributions.
Most donors preferred to support local causes and actively sought out charities where they thought their donations would make a difference. Social-service (33%) and health organizations (30%) top the list, followed by animal welfare and wildlife preservation charities (21%), child and youth support (18%), local and international reduction of poverty charities (18%), and religious organizations (18%).
But of particular interest is that the poll found most Canadians lacked a solid understanding of the tax benefits associated with charitable contributions, particularly those related to donating publicly traded securities.
The survey found that just 42% had a strong understanding of the tax benefits associated with making charitable donations, yet 51% said the ability to receive a tax credit increases the likelihood they will donate.
Only 31% said they are aware of the tax advantage in donating publicly traded securities “in-kind,” and just 7% had made this type of donation. Perhaps not surprisingly, higher-income Canadians were almost twice as likely (12%) to have made donations of appreciated securities.
With this poll data in mind, here are five things to consider to help make more, tax-wise, of your charitable donations.
Understand the tax benefits of donations
Giving cash, either by cheque, credit card or online payment, is straightforward and, as with any type of donation, allows you to receive a tax receipt to claim both federal and provincial non-refundable tax credits.
On the federal side, you get a federal credit of 15% for the first $200 of annual charitable donations. The credit rate jumps to 29% for cumulative donations above $200 (or 33% to the extent of your income that’s taxed at the top 33% federal rate, which is income of more than $246,752 in 2024). Parallel provincial credits work similarly in most provinces, providing most Canadians with a minimum combined federal and provincial tax credit worth at least 40% for donations above $200 annually.
Donate appreciated securities in-kind
In-kind donations of publicly traded shares, mutual funds or segregated funds to a registered charity give you a tax receipt equal to the fair market value (FMV) of the securities or funds being donated. They also allow you to avoid paying tax on any capital gains for the donated securities.
A similar rule applies to the donation of securities obtained through the exercise of employee stock options. You may be able to avoid paying tax on employee stock option benefits by donating the obtained securities in-kind to a charity within 30 days of exercise and in the same calendar year.
Donate depreciated securities
If you’ve realized capital gains during the year, you may wish to do some “tax-loss selling,” which means selling the securities to trigger capital losses that can offset those capital gains. An alternative may be to consider donating the securities with accrued capital losses to charity. You’ll get a receipt for the FMV of the shares being donated, and you can still use the capital loss triggered on the donation to offset any other capital gains realized.
Keep in mind that unlike appreciated securities, you don’t actually have to donate your loss securities in-kind to use the loss. You can sell them and then donate the cash.
Any unused net capital loss in the current year can also be carried back up to 3 years (or carried forward indefinitely) to be applied against taxable capital gains in those years. Perhaps it’s worth taking one last look at your 2021 tax return to see if you reported any capital gains that year, since 2024 is your last chance to carry back a loss to that year to recover taxes paid on those gains.
Donate RRSP/RRIF withdrawals
Any funds withdrawn from your registered retirement savings plan (RRSP) or registered retirement income fund (RRIF) are taxable in the year of withdrawal at your marginal tax rate. Depending on your province and tax bracket, donating your RRSP or RRIF withdrawal to charity can often result in a donation receipt worth more in tax credits than the tax you will face on that withdrawal, which may reduce tax on other income.
Consider a donor-advised fund
Finally, consider establishing a donor-advised fund (DAF) as an alternative to setting up your own private foundation. DAFs are useful if you’re not quite sure which charity to choose, but still want to claim a charitable tax credit this year.
DAFs are offered through some public foundations, such as community foundations or those affiliated with major financial institutions or investment management firms. They allow a donor to set up a fund within the larger, public foundation.
The donor opens their fund by making a gift of cash (or appreciated securities) to the DAF and gets an immediate donation receipt. The funds can grow inside the DAF tax free, and each year the donor can recommend distributions (typically a minimum of 5% of the average FMV of their fund each year) to be made from the DAF to any of more than 85,000 registered charities or qualified donees in Canada.
The biggest advantage of a DAF is that the donor doesn’t have to worry about the administrative details of running a private foundation, or any record keeping. The foundation will process all donation requests and transfer the funds to the charities chosen, as well as track the DAF and provide regular updates on the fund’s performance.
A DAF also provides confidentiality. Whereas you can look up all the details and financial information of any private foundation on Canada Revenue Agency’s website, if you establish a DAF, your individual fund information, including that you even have a DAF, is kept private and is not searchable by the general public.
Alternative minimum tax
Finally, for high-income donors, keep in mind that proposed changes to the alternative minimum tax (AMT) system could impact charitable giving for taxpayers with taxable income above $173,205 in 2024.
The main changes specifically for donations when calculating AMT are:
• 50% (rather than 100%) of the donations that are otherwise allowed can be deducted.
• When securities are donated in-kind, 30% (rather than 0%) of the capital gain is included when calculating AMT.
• When publicly traded securities from the exercise of employee stock options are donated in kind, 30% (rather than 0%) of the stock option benefit is included when calculating AMT.
More information is available in the CIBC report Alternative minimum tax: Impact on charitable giving.
Be sure to consult with your tax adviser to determine how this information may affect your donations.
1According to a Canadian Imperial Bank of Commerce poll conducted by Maru Public Opinion in November 2022.
Jamie Golombek, FCPA, FCA, CPA (IL), CFP, CLU, TEP is the Managing Director, Tax and Estate Planning with CIBC Private Wealth, Toronto.
A prior version of this article appeared in the Financial Post on Dec 15, 2022
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