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MONEY$TYLE: Thinking Strategically About Philanthropy

It is an exchange of values that results in a donation…
 
December 31 is the deadline to make charitable donations that may be claimed for the 2018 calendar year – and that date is fast approaching. Our tax system ensures that if you earn income or acquire wealth in Canada, some portion of that income and wealth will be used to meet the needs of Canadian society. This tax that you are paying is called your “social capital.” When you make a donation to the charity of your choice, this is called “self-directed giving,” and it’s a quicker, more efficient and more targeted way to give social capital. The tax saving from your donation results in a direct shifting of social capital from the government’s hands to the charities of your choice.
 
Advantages of self-directed giving
Of course, saving on taxes may not be your primary reason to give – people give for other reasons, such as to help people in need or to help causes that they love. But no matter what your reason, it always makes sense to use your money – whether taxes or donations – efficiently. If you choose to make a donation directly to a registered charity, you will receive a tax credit when filing your annual income tax return. (For every dollar donated over $200, you will receive a federal and provincial tax credit of approximately 45 cents, depending on your province.) Since this transfers a portion of the funds available for charitable giving from the government to you, we could view this as a shift towards self-directed giving away from managed giving through the government.
 
Direct giving offers several other advantages. First, you can personally select the charity that is to receive the funds. Second, there is a possible increase in efficiency, since the intermediary cost of the government bureaucracy is avoided. Third, since government taxes are used to fund a variety of activities, with the financing of charities being only a small part of outlays, the use of tax credits for personal donations can lead to a net increase in the funds made available to the charitable sector.
 
If you own stock that has appreciated in value, consider donating it to charity. You will receive a donation receipt for the market value, and eliminate the need to pay capital gains tax. Normally if you sell a stock, 50 per cent of the capital gains is reported as income.
 
Philanthropy vs. charitable giving
Traditionally, the term “philanthropy” has been used only in the domain of the wealthy. It is important to define what philanthropy is and distinguish it from charitable giving, which can be as simple as writing an annual cheque to a charity. A lot of people don’t understand the difference. Philanthropy is an exchange of values that results in a donation. It’s an investment in a cause, giving to a solution, and it often represents a longer-term commitment. Philanthropy often involves personal engagement or a lot of thought. In the end, the size of the gift is not the issue: thinking strategically about giving is the point. A philanthropist is engaged and is a stakeholder in the organization’s success and mission. Indeed, many wealthy individuals have applied their business and investment acumen to philanthropy with considerable success. But you do not need to be super-wealthy to be a philanthropist. Consider a donor-advised fund such as the Private Giving Foundation as a structure that allows you to establish a tax-effective legacy of giving for as little as $10,000 as a simple alternative to establishing a foundation. (For more information about the Foundation, go to tdwealth.ca/privategiving.)
 
I would like to encourage you to build a well-thought-out philanthropic plan. Please take time to educate yourself on the tax rules and different gift planning vehicles. And, lastly, please keep in mind that charities also need volunteers, and that donating time is often just as important as donating money.
 
Need help putting together a charitable plan? Try this simple six-step process.
 
Step 1:
Identify the values important to you in your everyday life. What are the causes you care about most or that have most affected your life? Examples could include such things as family, justice, dignity, etc.
 
Step 2:
What causes engage you: issues related to children, the environment, animals? Ask yourself if the causes you have identified address your values.
 
Step 3:
Decide whether you want to support local, provincial, national or global causes.
 
Step 4:
Do your research. Fortunately, you can cover a lot of ground quickly on the Internet, with many terrific websites. One is www.charityvillage.com. You can input causes and geographic regions, and it will provide a list of charities in those areas that address those causes. Of course, most charities today will have their own sites.
 
Step 5:
Do your due diligence just as you would when considering an investment. Request copies of annual, audited financial statements. Find out who’s on the board of directors. Examine how much support the charity receives from government and how reliant it is on personal donations. What percentage of its funding goes to administrative expenses and what percentage to the end user of its services? Bear in mind that administrative costs are a necessary burden for the provision of services. Ask if the charity is keeping those costs under control. For help researching a charity’s financial strength, visit www.charityfocus.ca.
 
Step 6:
The final step: Talk to the charity. Most have gift-planning professionals on staff who can be instrumental in the planning process.
 

 
AL RAMSAY is TD’s national manager, LGBTQ2+ Business Development, and leads a team of expert advisors across Canada dedicated to serving the LGBTQ2+ community. For more information or to book a meeting, he can be reached at al.ramsay@td.com or follow him on Twitter at @AlRamsay_TD. Jo-Anne Ryan is vice president, philanthropy, TD Wealth; and executive director, Private Giving Foundation.
 

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