Give More Strategically To Avoid The Tax Time Crunch

Canadians give generously at the end of each year. According to Imagine Canada, many charities receive about 40% of their donations in the last six-to-eight weeks of the year. As many donors scramble to give before the tax deadline, online donations in December alone represent about 22% of donations made all year through CanadaHelps. While this end of year giving is critical for the charitable sector, it has two implications.

The first is that charities are overly dependent on the winter “giving season” to fund their operations throughout the year, which makes it hard to plan and invest in programs and the organization. This is true every year, but even more so now. The fallout from COVID-19 has resulted in revenue shortfalls for charities—both in donations and other types of earned revenue such as ticket sales and registration fees. According to Imagine Canada, 68% of charities have reported declines in donations since the onset of the pandemic. In the same period, charities across the country have also experienced a significant increase in demand for their services. The Yukon Women’s Transition Home—a charity based in Whitehorse that offers refuge for women and their children experiencing violence—has experienced a 20-40% increase in demand for their services. Alberta-based Edmonton Meals on Wheels has seen an 87% increase in services, and an increase of more than 80% in grocery shopping requests due to seniors self-isolating at home. In Mississauga, Ontario, Seva Food Bank’s new client registrations have more than doubled since March 2020. These are just a few of the many stories we’re hearing from charities right across the country.

Research in The Giving Report from CanadaHelps reveals that smaller charities (which make up the majority of charities in Canada) rely more heavily on donations than larger charities (that often receive more government funding), so cyclical giving can be particularly challenging when the unexpected happens.

The second implication that saving giving until the end of year has is that it may result in a smaller tax receipt for the donor if an annual gift has to be financed all at once instead of regular donations made throughout the year. Charitable giving should be part of an overall household budget and financial plan and creating a monthly giving strategy will help donors focus on the causes they’re most passionate about while taking advantage of Canada’s generous charitable tax credits.

Consider how much you gave in 2020. Could you have given more if you’d split it into twelve monthly gifts? The regular revenue of a recurring gift helps charities budget and plan their programs, and allows you to spread your giving out over the year. A small monthly gift is also an easy way to support a new charity or cause that you’re interested in without having to replace an existing gift.

There are a number of other strategies to consider when building a giving plan. Donations of publicly traded securities (including stocks, mutual funds, and bonds) directly to a registered charity are still the most tax-effective way to give. Since 2006, in addition to being eligible for federal and provincial tax credits, donations of securities have been exempt capital gains tax. So, if a publicly-traded security has appreciated in value and it is donated directly to a charity rather than donating the cash proceeds from the sale of that same security, both the donor and the charity will benefit. Donors will receive a tax receipt for the full market value of the securities, and their favourite charity (or charities) will receive the full value of the securities.

Giving charitable gifts or gift cards for charity are another way to increase end of year tax credits, while supporting the important work of charities. Many of the gifts that consumers give are a gesture to show appreciation to teachers or colleagues, or to thank someone for hosting an event (something that everyone is looking forward to in a post-pandemic world). Giving gifts that impact social good—instead of more stuff—is a powerful thing to do, especially now when so many in the community are struggling.

Charitable gifts in Canada are eligible for both Federal and Provincial non-refundable tax credits, and the amount of the credit increases significantly after making at least $200 in charitable gifts in a year—from 15% for amounts under $200 to 29% for donations over $200 (or up to 33% in some situations).

To maximize the value of charitable receipts for those who are married, either spouse can claim a portion or all of the charitable receipts for the year, but not all of the donations made have to be claimed in the year they were made. When donating over $200, donation amounts can be carried forward and claimed on tax returns for any of the next five years. This flexibility means that the unclaimed carry forward portion may qualify for a larger tax credit in the future.

This past year has been isolating and painful for so many Canadians. Those who are lucky enough to have made it through relatively unscathed have a tremendous opportunity to contribute to rebuilding a stronger society after this crisis abates. Charitable giving is an important piece of this rebuilding effort.

Marina Glogovac is President & CEO of CanadaHelps, a leader in providing powerful fundraising and donation technology to charities and donors since 2000. Marina has been a technology and media executive for more than 25 years, including roles at Kobo, Dealfind, Lavalife Corp. and St. Joseph’s Media. www.canadahelps.org.

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