Support the causes that are important to you now and in the future
Many charities and not-for-profit organizations are in need of support now more than ever – whether the COVID-19 pandemic has affected their ability to fundraise or caused demand for their services to skyrocket.
Canadians are typically a generous bunch. According to a recent study from Mackenzie Investments, around 80 per cent give to charity on an annual basis. However, 40 per cent of survey respondents say they’ve had to cut back on the amount they’re giving this year due to the impact the pandemic has had on their finances.
The holidays are a great reminder of the importance of giving back. Fortunately, even if your financial situation has changed this year, there are ways to continue supporting meaningful causes. Here are a few strategies:
Consider donating securities
If you are concerned about your cashflow levels or income this year, you may want to think about donating securities, like publicly listed stocks, mutual funds, or segregated funds.
Despite everything that’s happened throughout 2020, equity markets have held up well. At the time of writing, the S&P/TSX Composite Index is close to where it was at the start of the year, while the S&P 500 is up nearly 10 per cent year-to-date.
Donating securities that have increased in value can help you avoid tax liabilities from capital-gains tax, which usually gets included in your income at 50 per cent. This means you’re still able to support a charitable cause, but it costs you a bit less.
Manage your charitable giving in a tax-efficient manner
Understanding the tax implications of a donation can help you give more strategically and minimize your overall tax bill. Canada has a generous tax credit system for donors to charities. The Charitable Donation Tax Credit can be up to 33 percent of the amount you donated at the federal level if your net income is more than $220,000. You may also be entitled to an additional amount reaching up to 24 percent of your donation depending on your province of residence. Do your research and keep on top of annual deadlines.
Leverage donor-advised funds
Donor-advised funds are a great option for Canadians who want to build a lasting legacy.
Managed by a financial institution and your advisor, and funded by your dollars, a donor-advised fund can grow annually, along with the markets. You donate to the registered charity and receive a tax receipt immediately, while money inside the account grows gets disbursed or granted to the charities of your choice, ideally from interest and capital gains so that you can leave the principal intact to continue to grow. This facilitates growth in your support of the charities of your choice while reducing the amount of administration for you as a donor. It also allows your grants to continue annually, even if your financial situation temporarily changes.
Work with a professional to create a giving plan
The Mackenzie study found that only 13 per cent of Canadians currently work with an advisor to create a charitable giving strategy. This isn’t surprising – many donations are given ad hoc.
However, to ensure you are maximizing your impact, you may find it helpful to work with a financial advisor to incorporate giving into your overall financial plan.
The holidays are a great time to give back. However, if you approach charitable giving strategically, you’ll see your impact grow year-round.
Carol Bezaire is vice-president, tax, estate and strategic philanthropy at Mackenzie Investments.