Canadians are encouraged to donate in various ways—some of which are lesser known. Most familiar are cash gifts, which offer a tax credit of up to 53.5% in British Columbia, ultimately reducing the cost of giving to 46.5%.

Property donors receive a donation receipt for the fair market value of the donated property. Any accrued gains at the time of donation are usually subject to tax. A special exemption applies to donating publicly traded securities, which allows donors to avoid tax on accrued gains.

Individuals can designate a charity as the beneficiary of a life insurance policy, entitling their estate to a donation receipt. Alternatively, donors can transfer a policy to a charity during their lifetime in exchange for a donation receipt equal to the policy’s fair market value. Ongoing premium payments also qualify for additional tax benefits.

A highly efficient strategy not commonly on donors’ radars uses mining flow-through shares. Mining flow-through shares come equipped with many tax incentives that can considerably reduce the cost of giving.

Business owners may wish to donate shares of their private companies, although charities might be reluctant to accept such shares, not knowing when they will be monetized. Acquiring corporate owned life insurance in tandem with the gift can provide assurance that proceeds to monetize the shares will come available. The financial return of a corporate owned insurance policy can also be very appealing.

Donor advised funds are gaining popularity. Contributions, cash or otherwise, are made to a public foundation, which are then used to fund an investment account. Donors can make gifts from the investment account to chosen charities over time.

Tax limitations

Consider tax rules that limit the financial impact of a gift. Donations claimed each year are generally limited to 75% of net income. Donations exceeding this amount may be claimed within the following five taxation years.

Alternative Minimum Tax prevents high income earners from reducing their tax bill through deductions, credits and exemptions below a level that the government finds appropriate. AMT rules recently underwent an overhaul and deserve consideration.

Budget 2024 increased the capital gains inclusion rate which may impact the cost of gifting certain property.

Tax legislation limits the fair market value of a life insurance gift that is made either within the first three years of a policy’s purchase or within ten years of purchase, if the policy was acquired with the intention of making a gift.

Non-Qualifying Security rules apply to disallow a tax receipt on the gifting of private company shares to a private foundation until the time the foundation disposes of the shares, which must be within 60 months. Such donations are best structured on death where the donated shares are immediately redeemed with life insurance.

Learn more at ZLC Financial, a boutique financial services firm that has been providing independent financial advice within Vancouver for more than 70 years. Visit zlc.net or connect on Instagram, Facebook or LinkedIn