How Canadians can use charitable receipts to mitigate up to 75 per cent of their annual net taxes

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The end of the year is a time when many investors think more about giving back some of their earnings — either from their job or from investments — and donating them to charity.

Giving back not only feels good, there are tax benefits too, says Mark Halpern, chief executive officer of Inc. in Toronto.

In fact, he says more advisors should be talking to their clients about charitable giving as part of their wealth and estate plans.

“It’s incumbent on advisors to have philanthropy as part of the holistic conversation they have with clients,” he says.

Globe Advisor recently spoke to Mr. Halpern about some tax-efficient giving strategies.

What are the basics of giving to charity that Consultants should discuss with their clients?

What many people don’t realize is that Canadians can use charitable income to reduce up to 75 percent of their net annual tax liability, and any amount over 75 percent can be carried forward for up to five years. Also, some don’t know that in the year of death, charitable donations can be used to offset up to 100 percent of inheritance taxes, and you can also go back to the previous year.

Cash, checks, and credit cards are the most popular ways to donate, but they’re not the most efficient for investors. The most efficient way is by donating unregistered valued securities such as stocks, exchange-traded funds, and mutual funds. When you donate securities to charity, you pay no capital gains taxes and receive a donation receipt for the market value of the donation at the time of sale.

What other tax efficient charitable options are available?

There are private and public foundations, as well as flow-through stocks, all of which offer tax benefits.

A private foundation is primarily for multi-million dollar people who want to start their own philanthropic organization and do all the administration and giving. In the case of a public foundation – also known as Donor Advised Funds – the donations are managed by a foundation or a financial institution. There are a growing number of donor advisory funds in Canada, and what many people like is that the donation and tax receipt can be issued in a specific year, but they can later decide which charities receive the funds.

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With flow-through stocks, investors can claim tax deductions on the purchase of stocks issued by Canadian resource companies. Funds raised by these companies must be used for exploration and development expenditures to qualify for the deduction.

Also, most people don’t know that life insurance policies can be donated to charity. The donor receives a donation receipt for the market value of a policy, which can be claimed for the year of the donation. You can also take out life insurance and transfer ownership to a charity and consider the premiums you pay as charitable donations.

What is the takeaway for advisors and their clients?

The end of the year is a great time for Consultants to talk to clients about charitable giving – and there are several strategies they can use. It requires sitting down with someone who understands the intersection between taxes, philanthropy, and estate planning so they can properly advise you on how to give back to the community while saving on taxes.

– This interview has been edited and shortened.

– Brenda Bouw, specially for The Globe and Mail

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