Giving back can take many forms, from donating to a worthwhile charity to helping your neighbor dig his car out of the snow. Whether it’s donating money or goods or volunteering time or services, contributing to a worthwhile cause feels good. For most people, the primary motivation for a donation is the sincere belief in the mission of the charity. Whether they donate during their lifetimes or in their wills, in their own names or in honour of other people, there is fundamental value for people in making a real contribution to their community.
Beyond the inherent intrinsic value of giving, there are tax, legal, and practical issues people should be aware of as part of effective charitable giving. Gifts can range from simple gifts, such as cash, either now or in a will, to complex structures involving gifts made during the client’s lifetime that may not be realized by the charity until the donor dies. Donors can be individuals, corporations, trusts or other entities. The tax treatment of different gifts and donors may vary considerably. Further, a donation can be made directly to a charity, through a public foundation, through an umbrella organization or through a private foundation. Advisors can assist people to assess the right charitable giving options for them, including gift planning professionals, investment advisors, accountants and lawyers.
The amount of tax savings for an individual donor is dependent on the calculation of the donation tax credit. In general, there is a tax credit for all donations to registered charities, up to 75% of a donor’s net income. For gifts made in a will, in the year of death (and going back one year), the limit is 100% of net income. Cumulative donations up to $200 in a year qualify for a tax credit of about 25% of the total. For total amounts over $200, the savings is about 45%. If you are a first time donor, you can claim the temporary federal First-time Donor’s Super Credit (FDSC). The FDSC can be claimed only once and must be claimed before 2018. It is an additional 25% tax credit (on top of the regular charitable donation tax credit), on up to $1000 of donations. Advisors can assist donors to ensure that their charitable gift is made in the most tax-efficient manner possible.
Beyond taxes, research in psychology, economics, and neuroscience has shown that charitable giving causes greater happiness. Happier people give more, giving causes increased happiness and these two relationships often operate in a circular fashion. Whether it’s the benefit to your community, your income taxes or your own personal happiness, the value is yours – to give and receive.