Sharing your wealth through charitable giving

The contribution you make to charity plays an invaluable role in helping to enrich the lives of all Canadians. Enhance how you share your wealth and build your legacy by ensuring your contribution is optimized for the greatest tax effectiveness. Here are some strategies to make the most of your support for the charities that matter to you.

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The contribution you can make to charity plays an invaluable role in helping to enrich the lives of all Canadians. Enhance how you share your wealth and build your legacy by ensuring your contribution is optimized for the greatest tax effectiveness. Here are some strategies to make the most of your support for the charities that matter to you. 

Maximize your gifting

A well-crafted charitable giving plan maximizes the benefits of giving because it ensures greater tax efficiency. Having a tax efficient plan focuses on the best way to give to the causes and charities that matter to you, your family, and your legacy. Here are two common tax-efficient strategies using cash and non-cash donations.

1. Cash donations

If you plan to make a cash donation to a registered charity, you are entitled to a tax credit based on the total amount you give.  Any unused tax credits can be carried forward to reduce taxes in any of the following five years. Here’s how the tax savings are calculated:

  • Typical savings are 25% of the first $200 of donations claimed each year when combining Federal and Provincial donation tax credits.[1]
  • On donations in excess of $200 tax savings jump to approximately 46%.
  • Savings increase to 50% to the extent the donation equals income subject to the highest tax bracket ($210,371 in 2019).

2.  Non-cash gifts in-kind

Donating securities; such as stocks, bonds and mutual funds, from your investment portfolio is another way to extend the reach of your charitable giving plan and create tax advantages.  This is because donations of publicly traded securities are eligible for a zero percent capital gain inclusion rate, effectively eliminating the capital gains tax.  If your shares have increased in value since you bought them, an IG Consultant can help to determine which asset to donate and timing to maximize tax benefits.  

3. Cash or non-cash – how to decide

Here’s an illustration of two Canadians who are working with their IG Consultant to calculate the tax effectiveness of their annual donation to charity.  

As you can see, both scenarios resulted in tax savings that can now be reinvested.  However, making a gift in-kind maximized tax efficiency.

More ways to give and save

Cash and in-kind gifts are two examples of the many ways you can contribute to your favourite cause and take advantage of tax savings. More advanced approaches to a charitable giving plan include giving through a life insurance policy, the creation of a private foundation, and planned giving through a Donor-Advised Fund. Exploring ways to best share your wealth and create a charitable giving plan are all part of the IG Living Plan. Connect with a consultant or visit our website to explore all your options. 

[1] Note that tax credits will vary by province.

[2] Donating in-kind vs. cash provides a net additional benefit given the effective elimination of capital gains. These additional tax savings would be received in addition to the $11,500 of donation tax credits.  The accrued unrealized capital gain on $25,000 of securities with $5,000 ACB = $20,000 gross capital gain, which is a $10,000 taxable gain due to the 50% inclusion rate.  Assuming the individual is in a 46% marginal tax bracket then $4,600 capital gains tax can be eliminated.