Philanthropy yields multiple rewards. When you give to your favourite charity, you do so in the knowledge that your contribution is going to a good cause – that may be enough of a reward in its own right. However, charitable giving has more to offer to forward-thinking philanthropists. When strategized correctly, your giving can generate considerable tax benefits. For this reason, your financial planning should always include a carefully formulated giving strategy. Here is what you need to know about philanthropy and its benefits for you and your family’s finances.

The Benefits of Strategic Philanthropy for Families

Aside from the satisfaction of supporting a charity that matters to you, philanthropy provides significant financial benefits for your family. Strategic giving triggers tax credits and can also help to reduce your overall tax burden. When you give to a charity – either cash or goods – you may qualify for a tax deduction for the fair market value of the donation. You can then apply this deduction on your income tax return and, if it is accepted, your overall tax liability will be reduced.

Aside from making philanthropy a part of your ongoing tax strategy, you can also include it in your estate planning. In this way, you can ensure that you leave a lasting legacy for your most treasured causes, as well as giving the gift of substantial tax breaks to your estate. 

How to Align Your Strategic Giving with Your Values

Strategic giving provides a chance for you to bring your financial planning into alignment with your highest values. Before developing a giving strategy, take some time to research many charities. Choose the ones that are closely aligned with what matters most to you. What are the causes that mean the most to you? Needy children? The prevention of animal cruelty? Perhaps healthcare or the environment? Once you have chosen a cause that you would be proud to give your money to, select the most appropriate giving strategy. This could include donor-advised funds, charitable trusts, direct donations, or a combination of these approaches.

Structuring Donations: Charitable Trusts and Foundations

Two of the most popular strategies used by individuals, companies and families to make charitable donations that also yield financial benefits, are charitable trusts and donor-advised funds (DAFs). 

There are two types of charitable trusts: remainder trusts (CRTs) and lead trusts (CLTs). CRTs provide income to the donor and their nominated beneficiaries for a specified period. After this, the remaining assets are distributed to the charitable organizations selected by the donor. Donors can receive immediate tax deductions for the value of the trust, while also potentially reducing estate taxes. They also help to defer capital gains tax and diversify investment assets.

CLTs work in the opposite way: they provide income to designated charitable organizations for a specific period, after which the remaining assets are distributed to the donor or their heirs and beneficiaries. These trusts help to reduce the donor’s taxable estate and transfer assets to heirs while reducing tax liabilities.

Charitable Donation Tax Credit in Canada

In Canada, you can enhance the financial benefits of your giving strategy by claiming federal and provincial tax credits. At the federal level, you are credited 15% of the first $200 of donations and 29% of additional donations beyond that. In Ontario, there is a 5.05% tax credit on the first $200 and an additional 11.16% on donations above $200.

Momentum Financial Services Inc. is a boutique wealth management and financial planning firm based in Halton Hills, ON. Contact us to begin working with one of our expert financial planners, who can help you create a tailored estate plan, together with a carefully strategized giving strategy.