Thinking about giving strategically, and not just to your kids? Thoughtful planning, a proactive conversation with your kids to let them know they’re not getting it all, and a clear understanding of your financial landscape will ensure your charitable contributions are both impactful and tax-efficient. Here are a few tips to get you started.
Have your own financial house in impeccable order
Only when you have a clear picture of your financial stability can you truly give money away, guilt-free, knowing that your generosity won’t compromise your own future security or any legacy giving plans you have for your own family.
Properly assessing your financial foundation should be done with a financial planner, wealth adviser or seasoned money coach. It involves a comprehensive review of your retirement income streams, including pensions, government benefits and investment portfolios. Simultaneously, a realistic assessment of your anticipated expenses, encompassing health care, housing, travel, subsidizing costs for family members and the ever-present factor of inflation is paramount.
The goal is to understand how much you can afford to give, the right timing, and how the money will help you and the charity. Without this comprehensive assessment of your own situation, you could risk your financial security by over-giving today, not having taken into account higher costs for retirement living needs down the road. This would potentially push a financial burden to your kids.
Understanding Canada’s tax system
The Canadian government offers generous charitable tax credits, which can amount to up to 50 per cent when combining federal and provincial credits. Savvy retirees often maximize these credits by combining their donations with those of their spouse, ensuring that their joint contributions yield the highest possible tax advantage. Your accountant can help assess how best to structure your tax credits amidst other considerations with your filing. And tax planners, financial advisers and lawyers can assist in exploring if or how donor-advised funds (DAFs) could be beneficial. DAFs are an increasingly popular way to give for those who have greater financial flexibility. They allow you to make a charitable contribution, receive an immediate tax receipt, and then recommend grants to charities over time.
One of the most powerful strategies for charitable giving is to donate securities
It works like this; instead of selling appreciated publicly traded securities and then donating the cash, you can donate these securities directly to a charity. This approach allows you to avoid paying capital gains tax on the appreciation of the securities, while simultaneously receiving a tax receipt for the full fair market value of the donated assets. This is a win-win scenario that amplifies your impact and reduces your tax burden.
Using your RRIF money for donations
You can’t donate directly from a Registered Retirement Income Fund (RRIF) in Canada. However, if you withdraw funds from your RRIF, report the income, and then donate that amount (or less), you may receive a charitable tax credit that helps offset the tax payable on the withdrawal. While this doesn’t eliminate tax at source, it can reduce your overall tax bill depending on your income and donation size. In this way, a taxable withdrawal can be transformed into a philanthropic act with meaningful tax relief.
Leaving a legacy
Naming a charity as a beneficiary in your will, RRSP/RRIF, or life insurance policy offers a powerful way to make a meaningful gift that extends far beyond your lifetime. These planned gifts can also provide substantial estate tax benefits, further enhancing their appeal. Given the legal and financial complexities involved, consulting with a lawyer and financial adviser is highly recommended to ensure your legacy wishes are fulfilled seamlessly and effectively. Most of the larger financial institutions in Canada offer estate planning services to guide any of these types of giving methods.
For consistent impact, give regularly
For many retirees who like sticking to a budget, and who are potentially on a tighter budget, monthly giving is predictable for you and the charities you support. This reliable income stream enables charities to plan their programs and services more effectively, and might also open the doors for you to see the longer-term benefits of your money put to work. Plenty of retirees simply don’t have money to give, but they have time. That’s another way to help out; offering volunteer hours.
Before entrusting your hard-earned dollars to a charity, always verify that it is registered with the Canada Revenue Agency (CRA). Websites like CanadaHelps.org and the CRA Charities Listings provide valuable resources to review a charity’s financial statements, impact reports and overall transparency. This due diligence ensures that your charitable contributions are directed toward organizations that are reputable, efficient and aligned with your values.
If your kids aren’t happy about you giving away money to charity — perhaps they feel they need it more — take time to talk it through. Open dialogue prevents misunderstandings and resentment. Ultimately, it’s your call what happens to your money — you earned it, you choose.
