This article appeared in the Fall 2009 Registered Nurses’ Foundation of Ontario Newsletter
Charitable giving is a growing priority for many Canadians. We see this in recent statistics showing a substantial increase in donations. This kind of support for charity is unprecedented in our history. While generosity and belief in community are primary motivators, the greatest enabler is a series of new tax incentives that began in 1996.

Introduction of Federal Tax Incentives
In introducing these charitable giving incentives, the Federal government has given taxpayers a choice. It’s a choice about how individuals wish to support society and the amount of tax they wish to pay. With these new tax incentives, it’s now possible to eliminate tax on 75% of income, except in the year of death and the year prior to death, when this figure jumps to 100%. Everyone must contribute to society via the tax system, but the decision about where the contribution goes can now be directed by the individual taxpayer.

What makes the tax incentives distinct is that they focus on gifts of assets (stocks, bonds, mutual funds, real estate, RRSPs/RRIFs) and business interests. These aren’t the gifts we typically make. Most are familiar with annual gifts by cheque to our favourite charities. The Federal tax incentives enable exceptional gifts that stand out for their size and level of commitment. These are gifts that are planned ahead of time and often realized through estate plans.

Meaningful Charitable Planning
A good financial and estate plan that includes charitable giving can be difficult to implement on its own and professional advice is recommended. Personal and family needs are at the centre of the planning process, and then charitable giving is considered. The goal is to integrate charitable giving into your financial and estate plan in a way that reflects both your values and your desire to minimize taxes.

At lower amounts, the individual’s will typically designates one or more charities to receive specific amounts or a percentage of the final estate value. At higher levels of gifting, an intermediary charitable entity – either a donor-advised fund, which is a charitable giving vehicle administered by a third party such as a mutual fund company and created to manage charitable donations on behalf of an organization, family, or individual, or a private family foundation – is set up to receive assets over a number of years. The intermediary “container” can be filled at your own pace, in increments or in one large instalment, often when a business is sold or at the time of death. This “container” represents a piece of your legacy, an ongoing entity in your family’s name.

Typically, these larger gifted assets are endowed, which means the capital is invested and only the income is gifted annually. Both advised funds and private foundations give ongoing control to the donors and their families to choose the charitable recipient annually. It’s a vehicle that allows donors and their families to be involved over time in enacting your legacy.

Example 1
Mary, a 70 year old retired nurse, is an example of someone who wants to donate to the RNFOO. She arranges to contribute $50,000 over five years to a donor-advised fund available from a mutual fund company. Working with her advisor, she invests the money conservatively to ensure that the principal remains intact and the annual income of about 3% to 5% is donated to the RNFOO each year into perpetuity.

Example 2
In another example, Joanna, a Registered Nurse, and her spouse John want to make significant contributions to several charities. On their passing, their son will inherit sufficient assets to enable his career and lifestyle while simultaneously keeping him motivated to continue working. Joanna and John want to impart their charitable values to their son, his children and grandchildren. To do so, they set up a private family foundation with an initial investment of $250,000. On their passing, they have designated their private foundation as the beneficiary of a $500,000 joint, last-to-die life insurance policy. With the investment strategy designed to preserve the capital, the annual income can be distributed to their charities of choice.

The approach to planning described above separates the process of planning the gift from the support of individual charities. You can plan to give a large amount to charity over a number of years as part of an integrated plan. The contributions happen on your timetable and not when fundraisers come calling. Gifts to individual charities occur as part of a controlled, thoughtful process that preserves maximum flexibility and allows ones’ philanthropic values to be implemented over time. If you would like to learn more about this planning opportunity, please contact the RNFOO office.

Bev is a Senior Investment Executive and Financial Planner with ScotiaMcLeod and highly respected in her industry. She is a Certified Investment Management Analyst and a Fellow of the Canadian Securities Institute. Bev has served as Gala Fundraising Chair, and from October 1998 to October 2004 she served on the Executive Team of RNFOO. At the Gala in May 2006, Beverley Moir was presented with an Honourary Life Membership in recognition of her leadership and commitment to the Registered Nurses Foundation of Ontario.

® Registered trademark used under authorization and control of The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF. This article is for information purposes only. All performance data represents past performance and is not indicative of future performance. It is recommended that individuals consult with their Wealth Advisor before acting on any information contained in this article. ScotiaMcLeod does not offer tax advice, but working with our team of experts we are able to provide a suite of financial services for clients. The opinions stated are not necessarily those of Scotia Capital Inc. or The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF. All insurance products are sold through ScotiaMcLeod Financial Services Inc., the insurance subsidiary of Scotia Capital Inc., a member of the Scotiabank Group. When discussing life insurance products, ScotiaMcLeod advisors are acting as Life Underwriters (Financial Security Advisors in Quebec) representing ScotiaMcLeod Financial Services Inc.

Q. I understand that by making a charitable donation, I can reduce my taxable income. I heard that there were some changes to the personal tax rates related to donations in the last federal budget. What are these changes and how can I use them to my advantage?

A. Although most charitable donations are motivated by philanthropic reasons and belief in the receiving charity, there are also income tax incentives for giving. It is important to understand how charitable tax credits work as careful planning can reduce or eliminate income taxes owed during your life as well as when you pass away and benefit the selected charity.

The May 2006 federal budget eliminated the capital gains inclusion rate for donations of publicly listed securities that were acquired with employee stock options and for donations of ecologically sensitive land to a registered public charity on or after May 2, 2006. This means that it is more tax effective to donate securities that have appreciated in value to a charity rather than to sell them, incur the taxable capital gains, and then donate cash to your selected charity.

For charitable donations made by Will, or in the last year of your life, they may be claimed against 100 per cent of net income on your final income tax return. Any unused tax credits can be carried backward to the year immediately preceding the death. In contrast, the contribution limit for charitable donations during your lifetime is only 75 per cent of net income.

A Will can also reduce income tax at death by enabling the executor of the will to distribute assets to the chosen charity in their original form (“in specie”). “In specie” gifts of publicly traded securities, employee stock options, and ecologically sensitive land all receive the reduced capital inclusion rate. This rate was reduced to zero in the most recent federal budget, making it very tax effective to transfer securities “in specie” rather than selling them first and transferring the sale proceeds to the charity. It is vital that the charity’s full legal name be used in the will to ensure the success of the donation.

A charitable donation during your lifetime and in a Will is shaped by your values and personal priorities as income tax incentives only support existing values and priorities. In establishing a charitable giving plan or an estate plan, it is important for you to review your personal experiences and determine whether a charity has touched you. Through consultation with legal and financial advisors, an informed decision can then be made which balances personal and family needs with philanthropic wishes.

Bev Moir is a Senior Investment Executive and financial planner with The Moir Team at ScotiaMcLeod,Toronto. ScotiaMcLeod is a division of Scotia Capital Inc., a member of the Scotiabank Group. Member Canadian Investor Protection Fund (CIPF).

This article is for information purposes only. It is not a substitute for tax advice. ScotiaMcLeod does offer tax advice, but working along with a Team of Experts we take a complete look at your life to provide a complete financial solution. It is recommended that individuals consult with a financial or tax advisor before acting on any information contained in this article. The opinions stated are not necessarily those of Scotia Capital or The Bank of Nova Scotia.

Stock market guru Warren Buffet’s recent decision to make a significant donation to the Bill and Melinda Gates Foundation generated wide publicity and raised awareness about various approaches to charitable giving. Many Canadians want to give back to their community by supporting local, national and world charities. Furthermore, recent federal budget changes eliminating the capital gains tax on the donation of publicly traded securities has sparked more interest in philanthropy.

Legacy planning is now becoming a hot estate-planning topic. Many are realizing the value of strategically planning ahead to maximize contributions to their favourite charities while simultaneously taking advantage of the tax and estate planning opportunities associated with charitable giving. You or your family don’t have to be wealthy to take action. By planning ahead and strategically defining your charitable giving approach, you will find that a well placed gift can make an impact.

You may be familiar with making annual donations to support your favourite charity. But how do you go beyond an ad hoc approach and build an enduring legacy? Here are some of the ways you can make a donation: You can designate a charity as a beneficiary in your will and leave them a donation of cash, securities or other property; you can name a charity as the beneficiary of your insurance, pension plan, RRSPs or RRIF; or you can also set up a donor-advised fund.

A donor-advised fund is a smaller scale equivalent of a private foundation where you donate to charities of your choice on an ongoing basis through a vehicle called a donor-advised fund set up for that purpose.

How does a donor-advised fund work?

You or your family decides to make a donation on an ongoing basis. Using a donor-advised fund, you name the fund and, each time a charitable gift is sent to the charity of your choice, it is made in the name of the fund. The initial donation to establish the donor-advised fund can be in cash, stocks, bonds, mutual funds or insurance. Minimum amounts, generally $25,000, are required to establish a fund, while subsequent donations can be smaller. You receive an immediate tax receipt for the donation, which can be carried forward up to five years, and retain the right to advise the program administrators on how the income from your donation is to be allocated each year. Your designated charities may remain the same from year to year or can vary if you wish. You can also name a successor to continue your legacy and ensure the continuity of your giving strategy across generations.

There are many opportunities to intentionally pass on resources to a societal issue or community that reflects your values and beliefs. Develop an informed strategy to guide your approach with the ultimate goal of maximizing your contribution.

Bev Moir is a financial planner with The Moir Team at ScotiaMcLeod in Toronto. ScotiaMcLeod is a division of Scotia Capital Inc., a member of the Scotiabank Group. Member CIPF.

This article is for information purposes only. It is recommended that individuals consult with a financial or tax advisor before acting on any information contained in this article. The opinions stated are not necessarily those of Scotia Capital or The Bank of Nova Scotia.

Q. Our office is currently raising money for the United Way and I’m wondering how much I can donate to be eligible for a tax rebate? Can you explain the limits and how they apply? Helena J.

A. Charitable giving in Canada has a strong tradition and is very important to the many charities that depend on their donors’ generosity. The introduction of tax incentives by the Federal government increased the opportunities for Canadians to consider charitable gifting as part of their annual financial planning. The United Way is an example of an organization that qualifies as an official charity – one that can legally issue tax receipts – because it is registered with the Canada Revenue Agency. Individuals will receive a federal tax credit of 16% on the first $200 donated to a charity, and 29% on any remaining amounts. As donations can be either used in the current year or carried forward for up to five years, a donor can maximize the amount of the tax credit by not claiming charitable donations until the $200 threshold is reached. Alternatively, married and common-law couples can pool their donation receipts to maximize their tax credits. This helps to avoid having two $200 ‘thresholds.’ An individual at the top income level could expect tax savings ranging between 39% and 48% (depending on the province) for every dollar donated above $200.

For the majority of Canadians, cash gifts are the most common way of donating. However, there are alternatives to giving a cash donation such as gifting capital property including: stocks, bonds, real estate, certified cultural property, and proceeds of a life insurance contract. Charitable gift planning is a growing endeavor and worthy of individuals’ time and attention if they want to maximize their opportunities for significant tax and estate benefits. Through planning a donation strategy, many people have left a legacy long after passing for the benefit of future generations.

Bev Moir is a financial planner with The Moir Team at ScotiaMcLeod in Toronto. ScotiaMcLeod is a division of Scotia Capital Inc., a member of the Scotiabank Group. Member CIPF.

This article is for information purposes only and is not intended to solicit any investment. It is recommended that individuals consult with their own financial or tax advisor before acting on any information contained in this article. The opinions stated are not necessarily those of Scotia Capital or The Bank of Nova Scotia.