The most charitable time of the year – Winnipeg Free Press

Charity at this time of year has its obvious advantages. After all, it is better to give than to receive.

Studies even offer scientific evidence, including a 2018 University of Chicago study showing that people experience equal joy after giving repeatedly, compared to gift recipients whose returns diminish the more often they receive them.

However, donations to registered charities provide tangible benefits to the donors.

MICHAELA MCKENZIE / FREE PRESS FILES Ruven Hoffmann fills the freezer with meat at Harvest Manitoba during a volunteer shift in Winnipeg. — MICHAELA MCKENZIE / FREE PRESS FILES

Ruven Hoffmann fills a freezer with meat at Harvest Manitoba during a volunteer shift in Winnipeg.

They get a generous tax break, which resonates with people who “can often feel like they’re paying quite a lot in taxes and are looking for strategies to mitigate that,” says Mariska Loepkki, assistant vice president of taxes and estate planning at IG.

What’s more, the end of the year—since we have a clearer picture of taxable income—is often the best time to maximize federal and provincial government donation credits.

Even small gifts are worth it: a 15 per cent federal tax credit on the first $200 donated during the year, plus a 10.8 per cent Manitoba credit.

However, the more you give, the more you get, as credits increase up to 29 per cent at the federal level and 17.4 per cent at the provincial level for every dollar over $200 a year in donations.

“So you give $1,000 and essentially get $423 back, but the charity still gets $1,000,” says Lepkki, adding that the federal credit is even larger for Canadians in the highest tax bracket.

“This is certainly food for financial thought, given that registered charities can use the money now perhaps more than ever,” says Pam Pryor, national leader of estates and trusts for tax and family office KPMG.

“Many charities have not recovered from COVID.”

To this point, Statistics Canada reported in December 2023 that inflation caused by the pandemic had reduced Canadians’ ability to give, with nearly three in five charities reporting they received less than in previous years.

Additionally, additional StatsCan data found in 2022, taxable donations fell from about $11.8 billion in 2021 to $11.4 billion.

However, the demand for charitable services has increased.

One recent Canada Helps report shows that 22 per cent of Canadians used the services of charities in 2023, while 40 per cent of charities saw increased demand.

Among those experiencing higher demand for their services are food banks, including Harvest Manitoba.

“Before COVID, we were probably supporting 7,500 households a month,” says Colleen McVarish, director of partnerships and development for Harvest Manitoba. “We now serve over 20,000 households a month.”

Harvesting is not always on people’s lists for receiving monetary donations. Most of us think of food drives like Tins for the Bin, where we donate non-perishable food items.

While the food bank is still needed and welcomed, they are a drop in the ocean, making up about two percent of the total need, McVarish says.

Most of Harvest Manitoba’s support comes from food producers, farms and other organizations, but an increasingly large portion comes from monetary donations, she adds.

“Probably 40 percent of what ends up in our baskets is purchased, whereas before COVID the only thing that was purchased was mostly baby food.”

Monetary donations to Harvest Manitoba are also incredibly effective, dollar for dollar, says McVarish, who is responsible for purchasing food from donations. “We can buy semi-trailers full of goods, and because we buy in large quantities, the price is much cheaper.”

It doesn’t have to be cash.

Charities like Harvest also accept donations of valuable property with taxable gains—specifically, stocks, bonds, and mutual funds from non-registered investment accounts or even real estate.

“If you have real estate from which you make a significant profit and you are charitable, do you want to pay the CRA or pay to charity?” Lepkki says adding in-kind donations should be a focus for high net worth individuals given the recent increase in the capital gains tax rate.

A change made earlier this year by the federal government increased the inclusion rate from 50 percent to 66.67 percent for every $250,000 in realized capital gains in a given year.

By working with a financial planner, a wealthy donor can avoid some of the tax hassle by making a significant in-kind donation, which not only results in a significant tax benefit, Pryor says.

Donors also avoid capital gains taxes because profits from in-kind donations are no longer taxed.

However, for those considering making large in-kind or cash donations, it’s best to start today.

“Don’t wait until the last minute,” Pryor says, noting that charities often take several days to process in-kind donations before the Dec. 31 cutoff date.

For very large gifts, individuals and families may also consider implementing philanthropic strategies such as creating a foundation or donor-advised fund.

Donor-advised funds, sometimes called “mini-funds,” allow individuals or families to save money while receiving full credit while being able to make ongoing recommendations for sustainable, smaller amounts to the charities they want to support on an annual basis. .

As with foundations, the total donation amount is first invested in a portfolio of securities designed to maintain the pool of capital for several years or even forever.

Unlike foundations, which require millions of dollars in donations, donor-advised funds can often be started with a one-time investment of $10,000.

More often than not, it is a gift that continues to benefit—charities and donor families—as the capital invested often generates enough income to cover all or most of the annual gift to the charities.