Figures reported by Statistics Canada suggest that our citizens are among the world's most generous. Canadians have been donating approximately eight-billion dollars or more every year since 2007, with 84 per cent of all Canadians over the age of 15 making contributions to a charity or non-profit organization. The average Canadian now donates approximately $500 per year, with 25 per cent of donors making 85 per cent of the contributions. The magnitude of donations reflects our country's economy.
As individuals get older, they may begin thinking in terms of the wealth that they have accumulated and what can safely be spared, identifying a charity believed to be worthy of sharing in their assets. While many gifts are being made by aging baby boomers with extra funds at retirement or at death, the younger generation have also become active contributors, and donations to charitable causes are expected to become more common as these individuals age.
When considering making a donation, individuals should decide whether they would rather make a donation during their lifetime or as a testamentary disposition. When the gift is made inter vivos, the individual will be able to benefit from tax benefits and, in some cases, see the good that is accomplished through the charitable donation. When a gift is left to a charity within a will or other testamentary instrument (such as through a beneficiary designation of a life insurance policy), the estate will similarly be able to claim the charity tax credit, which will typically be used to offset terminal income taxation and estate administration taxes.
A gift made through a will can either be made as a predetermined amount or as a share in the residue of the estate. With residuary gifts, the charity becomes tied into the business model of estate planning and may later interfere with the administration of the estate. It is generally best to keep charities separate from the business of estate administration, which can be accomplished by instead providing a charity with a gift of an express amount.
The reason for giving is particular to the individual. Passion and/or compassion for a person or an organization, or the desire to do good often play a role in a person's decision to make a charitable donation, but tax benefits are usually the driving force behind the charitable giving.
Making donations, during life or at death, to charitable causes has never before been associated with such significant tax incentives for Canadians. New legislation has introduced the First-Time Donor's Super Credit (FDSC), a credit that allows Canadians to contribute little more than one quarter in after-tax cost to the total amount of a charitable gift of up to $1,000.
The name of the credit is somewhat misleading, as the tax break does not apply only with respect to initial support of charitable causes. However, only individuals who have not claimed a charity tax credit since 2007 are eligible.
Recent years have seen a greater proportion of young people donating inherited money. The FDSC will allow individuals to donate a smaller portion of funds, without having to choose between benefitting themselves or supporting a charity. The FDSC may also encourage aging Canadians of lesser economic means to make greater contributions to charities at a lowered after-tax cost during life instead of, or in addition to, leaving a gift in a will.
Some charities have found other ways to sweeten the incentive to leave gifts to their cause. For the past few years, the Marie Curie Cancer Care charity has partnered with a law firm to provide free will-drafting services to local residents. Leaving a gift to the charity is encouraged throughout the process, but is not a precondition to the waived cost for the legal services.
With a stable economy and an aging population that has a tendency to donate greater amounts with age, Canadians are expected to contribute increasing amounts to charities and non-profit organizations, with charities and the government expected to introduce creative new ways to incentivize charitable giving. When choosing to leave a gift to a charity through a will, individuals should consult an estate planning lawyer and accountant to ensure that the intended tax benefits will follow.
*Ian Hull and Suzana Popovic-Montag are partners at Hull & Hull LLP, an innovative law firm that practices exclusively in estate, trust and capacity litigation. To watch more Hull & Hull TV episodes, please visit our Hull & Hull TV page.