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Charitable giving works best with a strategic plan

There's a time and a place for actively managed exchange-traded funds, says Mackenzie Investments' Michael Cooke

Date: April 18, 2017

Everybody knows it’s better to give than to receive, but receiving a charitable donation tax credit makes the act of giving even better.

“Charitable giving is a great way for investors, especially high-net-worth investors, to reduce the taxes they have to pay,” says Carol Bezaire, vice-president of tax, estate and stra¬tegic philanthropy at Toronto-based Mackenzie Investments. “There aren’t that many [tax] deductions anymore, so higher earners have fewer ways to save [on their taxes]. Donating is a great way for people to invest in the causes they believe in, leave a legacy and give back. It’s also a way to get the family involved in philanthropy.”

It’s to people’s advantage to strat¬egize their donations to charitable causes. According to Statistics Cana¬da, in 2013 approximately 24 million Canadians aged 15 or older, or 82 per cent of the population, donated money to charity – a percentage that has remained more or less constant for years.

Ms. Bezaire points out, however, that most of us donate only when, say, someone comes to the door so¬liciting or when there’s a local bike-a-thon. As a consequence, many Ca¬nadians don’t know how much they have donated until it’s tax time and they gather up all their receipts.

It’s to the advantage of both donor and recipient when the donor sets out a strategic plan, according to Ms. Bezaire. Find out how you can maxi¬mize your donation credit and get the most out of it, she says, while being assured that the money you’re giv¬ing is benefiting the actual charitable causes you want to support.

Financial advisors can also be part of the charitable-giving strategy, They can help by incorporating philanthropy into your tax planning at year-end. Planning ahead for appreciated securities – hold¬ings that rise in value – is especially im¬portant, particularly if a client is facing a big tax bill, Ms. Bezaire says.

“When reallocating a client’s port¬folio and they’re going to have a big capital gain, [we] might want to talk about donating the part of the securi¬ty with the gain in kind, getting rid of the capital gain,” she explains. “The donation tax credit you get from the donation might take care of the rest of the capital gain on the portfolio.”

The time when you are consid¬ering your charitable donations is also a good time for estate planning. Clients who want to leave a legacy would then be deciding who their beneficiaries should be. Those who do not have direct beneficiaries can look into the donor-advised Mack¬enzie Charitable Giving Program. Developed by Mackenzie Financial Corporation, the program allows the client’s advisor to oversee the legacy after the client has passed away, so the client’s name will stay connect¬ed with the charitable donation and continue to support the charities that the deceased donor chose.

As well, clients should consult their advisors about the pros and cons of donating at particular times in terms of tax advantages. “Is it better to do it now or should I wait and do it [through] my will? Anytime there’s a life event is a good time to ask about donations – for example, if you are selling a business and expecting a big capital gain,” says Ms. Bezaire. She had a client, for instance, who won the lottery and “wanted to make a difference.”

She has also observed that because of recent world events Canadian cli¬ents tend to be more generous and are “opening their hearts,” she says.

It’s important to keep in mind too that there are different tax repercus¬sions for donors who make their do¬nations while they are alive and do¬nors who leave funds as legacies after they’ve passed away. “While you’re alive, you can only use the tax cred¬it to offset up to 75 per cent of your income. That goes up to 100 per cent in the last two years of your life,” Ms. Bezaire notes. “Quebec is removing the limitation after this year, so that should spur more charitable giving.”

One pitfall to leaving donations until after death is that the tax credits can’t be used to offset income after you’re gone. “We had a client who was comfortable living on $30,000 a year. Her retirement savings plan was worth $250,000, which she donated to charity. [But] her estate couldn’t use the tax credit that she could have used had she donated while she was alive,” Ms. Bezaire says.

The rules have changed for 2016, allowing the executor to use the do¬nation tax credit a bit longer, either applying it to the deceased person’s last two tax returns or using it for five years as long as the estate remains undissolved. This change will benefit high-net-worth individuals with large estates more than it would other peo¬ple, Ms. Bezaire says.

There’s another rule change in the federal government’s December 2016 update. The tax credit level for larger donations was raised from 29 to 33 per cent. Again, this change benefits those who donate the most, Ms. Be¬zaire notes.

“It’s good for anyone whose in¬come is more than $200,000.”

Produced by Globe Edge Content Studio. The Globe’s editorial department was not involved.

Sponsored by Mackenzie Investments Commissions, trailing commissions, management fees, brokerage fees and expenses all may be associated with investment funds. Please read the prospectus before investing. Investment funds are not guaranteed, their values change frequently, and past performance may not be repeated.

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