5 methods to reap the benefits of tax advantages when donating to charity

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Most Canadians have contributed to a charity or not-for-profit group this 12 months regardless of a difficult financial setting, high inflation and rising rates of interest.

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Certainly, 71 per cent say they’ve contributed, primarily by giving cash (51 per cent) or making a bodily donation, corresponding to clothes, home goods or meals (48 per cent), in line with a brand new Canadian Imperial Financial institution of Commerce ballot performed by Maru Public Opinion. The highest motive given by those that didn’t donate was that they couldn’t afford it (60 per cent), whereas solely 22 per cent cited mistrust in how charities used monetary contributions.

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Most donors want to help native causes and actively hunt down charities the place they assume their donations will make a distinction. Social-service (33 per cent) and well being organizations (30 per cent) high the record, adopted by animal welfare and wildlife preservation charities (21 per cent), youngster and youth help (18 per cent), native and worldwide discount of poverty charities (18 per cent), and spiritual organizations (18 per cent).

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However of highest relevance to this columnist is that the ballot discovered most Canadians lack a strong understanding of the tax benefits related to charitable contributions, notably these associated to donating publicly traded securities.

The survey discovered that simply 42 per cent have a powerful understanding of the tax benefits associated with making charitable donations, but 51 per cent stated the flexibility to obtain a tax credit score will increase the chance they may donate.

Solely 31 per cent stated they’re conscious of the tax benefit in donating publicly traded securities “in-kind,” and simply seven per cent have made the sort of donation. Maybe not surprisingly, higher-income Canadians have been virtually twice as probably (12 per cent) to make donations of appreciated securities.

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With this ballot information in thoughts, listed here are 5 issues to think about earlier than Dec. 31 to take advantage of, tax-wise, of your charitable donations in 2022.

Perceive the tax advantages of donations

Giving money, both by cheques, bank card or on-line cost, is easy and, as with all kind of donation, means that you can obtain a tax receipt to say each federal and provincial non-refundable tax credit.

On the federal facet, you get a credit score of 15 per cent for the primary $200 of annual charitable donations. The credit score price jumps to 29 per cent for cumulative donations above $200 (or 33 per cent when you have earnings topic to the highest 33-per-cent federal price, which is earnings of greater than $221,708 in 2022). Parallel provincial credit work equally, offering most Canadians with a minimal mixed federal/provincial tax credit score price at the very least 40 per cent for donations above $200 yearly.

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Donate appreciated securities in-kind

In-kind donations of publicly traded shares, mutual funds or segregated funds to a registered charity offer you a tax receipt equal to the honest market worth (FMV) of the securities or funds being donated, and assist you to keep away from paying capital features tax on any accrued achieve.

The same rule applies to the donation of securities obtained via the train of worker inventory choices. You might be able to keep away from paying tax on worker inventory choice advantages by donating the obtained securities in-kind to a charity inside 30 days of train.

Donate depreciated securities

Up to now, 2022 has not been variety to equities, making December the best time for tax-loss selling. Another could also be to think about donating these securities with accrued capital losses to charity. You’ll get a receipt for the FMV of the shares being donated, and you need to use the capital loss triggered on the donation to offset every other capital features realized in 2022.

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Needless to say in contrast to appreciated securities, you don’t truly should donate your loss securities in-kind to make use of the loss. You possibly can promote them after which donate the money.

Any unused internet capital loss in 2022 can be carried again as much as three years (or carried ahead indefinitely) to be utilized towards taxable capital features in these years. Maybe it’s price taking one final take a look at your 2019 tax return to see in case you reported any capital features that 12 months, since 2022 is your final probability to hold again a loss to that 12 months to get well taxes paid on these features.

Donate RRSP/RRIF withdrawals

Any funds withdrawn out of your registered retirement financial savings plan (RRSP) or registered retirement earnings fund (RRIF) are taxable within the 12 months of withdrawal at your marginal tax price. Relying in your province and tax bracket, donating your RRSP/RRIF withdrawal to charity can typically end in a donation receipt price extra in tax credit than the tax you’ll face on that withdrawal, which can scale back tax on different earnings.

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Take into account a donor-advised fund

Lastly, contemplate establishing a donor-advised fund (DAF) as a substitute for establishing your individual non-public basis. DAFs are helpful in case you’re not fairly positive the place to donate this 12 months, however nonetheless wish to declare a charitable tax credit score for 2022.

DAFs are supplied via some public foundations, corresponding to neighborhood foundations or these affiliated with main monetary establishments or funding administration corporations. They permit a donor to arrange a fund throughout the bigger, public basis.

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The donor opens their fund by freely giving money (or appreciated securities) to the DAF and will get an instantaneous donation receipt. The funds can develop contained in the DAF tax free, and annually the donor can suggest distributions (sometimes a minimal of 5 per cent of the typical FMV of their fund annually) to be produced from the DAF to any of the 86,023 registered charities or qualified donees in Canada.

The largest benefit of a DAF is that the donor doesn’t have to fret concerning the administrative particulars of operating a non-public basis, or any document holding. The inspiration will course of all donation requests and switch the funds to the charities chosen, in addition to monitor the DAF and supply common updates on the fund’s efficiency.

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A DAF additionally supplies confidentiality. Whereas you possibly can lookup all the main points and monetary info of any non-public basis on Canada Income Company’s web site, in case you set up a DAF, your particular person fund info, together with that you just actually have a DAF, is stored non-public and isn’t searchable by most people.

Jamie Golombek, CPA, CA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Non-public Wealth in Toronto. Jamie.Golombek@cibc.com

Be aware: The CIBC survey was performed by Maru Public Opinion, utilizing its pattern and information assortment specialists at Maru/Blue, on Nov. 28-29, 2022, amongst a random number of 1,515 Canadian adults who’re Maru Voice Canada on-line panelists. The info was weighted to match the inhabitants Census information. For comparability functions, a likelihood pattern of this dimension has an estimated margin of error of +/-2.5 per cent, 19 instances out of 20.

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