Eight ways to make the most of a donation
The ancient Jewish scholar Maimonides said that there are eight levels of charitable giving.
The lowest form, he said, was to give unwillingly. Maimonides’ highest form of giving is one in which you help the person to become self-sufficient so that they will no longer be in need of charity.
Once you have determined what level of charitable giving you wish to practice, you are still left with another question: In what form will you make your gift?
While you can give $20 at the door to a charity, many types of gifts are more appealing to higher net worth individuals because of tax advantages and greater control.
So, without trying to compete in any way with Maimonides, here are eight ways to give to charity:
1. One-time gift using cash, cheque or credit card: The benefit of this gift is that there is no commitment beyond this year, and it is completely flexible year to year. If given to a registered charity, you would qualify for a full tax credit.
2. Gifting publicly traded securities: The benefit to gifting publicly traded securities is that if there is a capital gain on the investment, you can donate the total value of the security and you no longer owe the capital gains tax.
While not overly complicated, most people will only look at this option for larger gifts that would involve stock with a capital gain of at least $1,000, as the extra tax benefit would reach at least $250 at a 25 per cent tax rate on the capital gain.
3. Making a one-time gift using flow-through shares: Flowthrough shares are a type of stock involved in materials or energy exploration that qualify for sizable government credits.
What this strategy does is suggest that instead of simply giving a cheque to a charity, you can instead purchase flow-through shares so that you personally will receive the sizable tax credits.
4.Gifting real estate or private shares: As of 2015, tax laws have changed so that in most cases a second property with a large capital gain can be gifted to charity and there will be no capital gains taxes owing. The same would apply for private shares.
5.Leaving money in an estate: It can be a lump sum amount left to a specific charity or it can be a percentage of the total value of an estate.
Many people are comfortable with this type of giving because they can be 100 per cent sure that they no longer need the money. The only problem with this type of gift is that there are often more taxefficient ways to give — as money in your estate has been fully taxed and probated along the way.
6.Leaving money through an insurance policy: This type of charitable giving is not nearly as common as leaving money through an estate, but it can be a much more powerful way of gifting. While it is a little tough to do a complete “apples to apples” comparison, the key is that giving through life insurance can provide a certainty of an amount you would give, and most often will deliver a higher rate of return than simply leaving the money in your will.
7. Donating RRSPs and RRIFs: It is possible to make a charity a full or partial beneficiary of your RRSP or RRIF. The benefit of this type of gifting is that, in general, the largest tax bill on an estate is for the remaining balance of an RRSP or RRIF on the death of a second spouse. By donating this money, you can effectively cancel out this tax with the charitable gift.
8. Other donation strategies: While the list could go on for a while, other strategies can include a private foundation — for those who might be interested in setting aside at least $1 million to charity — or a charitable remainder trust and charitable gift annuities, which are essentially strategies that generate income to you while you are alive, but will ultimately gift the capital after you pass away.
I guess when it comes down to it, we all want to make a difference.
If you can magnify your difference by being more tax-efficient with your gift or by inspiring others to give, then more power to you and more benefit to your charity.