This post was written by Jess Merber and Jo-Anne Ryan – TD’s Private Giving Foundation and Philanthropic Advisory Services.

With the charitable giving season in full swing, it’s important to understand year-end tax planning and the value it can offer to clients who have charitable ambitions. When talking to clients, we recommend they consider these points:

1. Donate publicly traded securities. It is always better to donate appreciated publicly traded securities instead of cash. You will receive a donation receipt for the market value, and you will eliminate the capital gains tax. If you still want to own the security, you may repurchase it with other money immediately, and the adjusted cost base will reflect the new market value.
2. Consider a planned gift. Leave a bequest in your will, or consider maximizing your legacy with the purchase of life insurance. Depending on how it is structured, you may receive a donation receipt for the annual premiums. If you have an insurance policy that is no longer required to fulfill your estate, business, or other needs, you may want to consider donating it to a registered charity. You will receive a tax receipt for the appraised value of the policy.
3. Consider a donor-advised fund. Donor-advised funds (DAFs) are the fastest growing charitable vehicle in Canada. A donation receipt is issued upfront, while establishing a long-term legacy of giving. A DAF allows you to donate now and decide later.

It’s been a busy year with talk about markets, interest rates, and cost of living crisis, and increased need from charities. Clients need clarity around a couple of items from the Federal Budget’s impact on charitable giving.

Alternative Minimum Tax:

When Budget 2024 was released, it included an adjustment to previously proposed changes on the Alternative Minimum Tax (AMT) in relation to the charitable tax credit. It now allows for individuals to claim 80% of the charitable donation tax credit when calculating AMT. Additionally, tax payers now must include 30% of capital gains on donated shares to registered charities in income for AMT purposes, which was increased from nil under the previous rules.

Individuals subject to AMT and considering a gift of securities should consult with their tax advisors to understand the impact on their personal situation.

Increases in Capital Gains Rate:

Proposed in the 2024 budget was an increase to the capital gains inclusion rate from 50% to 66.67% for individuals on capital gains in a year that exceeded 250,000. The capital gains rate for corporations will increase to 66.67% on all capital gains.

These changes apply to capital gains realized after 24 June 2024. If a client has publicly-traded securities held personally and in a corporation, they should consult with a tax advisor to determine the optimum giving strategy.

Canada has some of the most generous tax incentives when it comes to charitable giving, and while we know the tax receipt isn’t the number one reason Canadians give, it’s important to take the time to understand your client’s charitable goals and total financial situation to assess what options are available and recommend a course of action.