Changing Lives by Creating Opportunity

Recognizing financial need at critical stages of their lives and development, this family worked with the schools in the inner-city to make scholarship opportunities available to deserving students when they need it the most.

Through their schools, students graduating Grade 12 can apply to be considered for either a one-time bursary or a multi-year scholarship. By establishing selection criteria that would enhance their education as well as their life in general, the donor family encourages students to work with their teachers to submit an application for the scholarship. Commitment to education, engagement in the school community, engagement in the community at large and financial need are factors considered in the selection process, not only highest grades achieved.

GiftPact Foundation has administered this family’s scholarship program since 2013. We have had the privilege of seeing lives change because of it.

The Value of Being Charitable

Helen and Alan have been charitable for many years. They have discussed the value of being charitable with their three teenage children, Caroline, James and Mathew. They wanted to impress upon their then children, the importance of giving back to the community and began to ‘gift’ their children the ability to direct charitable dollars to support charities of their own choosing.

Each year, each child was given the ability to direct $2,000 to charities they wished to support from Helen and Alan’s donor-advised fund, with the provision being each child share their reasons for choosing the charities. Family gatherings were enhanced with conversations about their values and goals as the children discussed the charities they chose to support. These conversations also touched on the fulfilling ‘work’ required to choose a charity and the sense of wellbeing often experienced by being charitable.

In time, as their children matured, Helen and Alan chose to create a legacy plan around their GiftPact DAF. They established an Advisory Committee to become active upon the death of the second of them. They designated their eldest, Caroline as the Chair of the committee. They chose to dedicate a fixed amount of money from their Estate to be donated to their GiftPact DAF. Once donated, they identified 10 charities that they wished to distribute $100,000 to upon their death, and instructed that the remaining balance be administered by the Advisory Committee, ensuring that their family legacy of charitable giving continued well beyond their lifetime.

The family continues to have conversations about values and goals and the importance of philanthropy, learning a little bit more about each other along the way.

Best friends Susan and Jill are lifelong Manitobans with a strong connection to their community who support several charities that are important to them. This year, they have decided to make a large donation to their respective GiftPact Foundation Donor-Advised Funds (DAF), which they plan to direct to a charity embarking on an ambitious capital campaign. They had both planned to sell investments they own to finance the donation.

Following a discussion with their advisor, Susan and Jill learned that they could realize
significant tax savings by donating the publicly traded shares they hold in-kind rather than the cash from their sale.

How capital gains and in-kind donations work

Publicly traded securities are traded freely on the open market and include shares, stock options, bonds, and units in mutual funds.

In Canada, the sale of securities is subject to 50% inclusion rate (meaning 50% is taxable) on the capital gains realized from the sale of the shares. However, as of June 25, 2024, if an individual has capital gains that exceed $250,000 in a year, the gains above that amount are subject to a 66.67% inclusion rate (meaning 2/3 is taxable). A capital gain refers to the profit the investor has made on the asset since they purchased it, that is, the proceeds of sale less the original cost of those shares (with some adjustments, known as the “adjusted cost base”).

However, if the investor transfers the securities directly to a registered Canadian charity instead of selling them, they are exempt from capital gains taxation. Additionally, the investor donating the securities will receive a charitable donation receipt for the value of the shares.

How much Susan and Jill saved in taxes

Susan and Jill’s situations are in different when it comes to their in-kind donation of publicly traded securities to charity.

Susan aimed to donate $100,000 to her chosen charity’s capital campaign through her GiftPact DAF. Her appreciated securities had a fair market value of $100,000 and an adjusted cost base of $50,000. She had a net annual income of over $250,000, and her other charitable gifts exceeded $200. Susan’s other capital gains for the year exceed $250,00

The following chart compares the tax outcome of Susan donating cash through the sale of shares vs. transferring them directly to a registered charity:

Upon reviewing these two options, it was clear to Susan that transferring her shares to her GiftPact Foundation DAF was to her advantage, reducing the cost of donating by $16,668

Jill also aimed to donate $100,000 to the charity’s capital campaign through her GiftPact DAF. Her appreciated securities had a fair market value of $100,000 and an adjusted cost base of $50,000. She had a net annual income of over $250,000, and her other charitable gifts exceeded $200. Where Jill differed from Susan was that her capital gains for the year were minimal.

The following chart compares the tax outcome of Jill’s donating cash through the sale of shares vs. transferring them directly to a registered charity:

Upon reviewing these two options, it was clear to Jill that transferring her shares to her GiftPact Foundation DAF was to her advantage, reducing the cost of donating by $12,500.

Be a savvy philanthropist

How you structure your charitable gift is often just as important as the amount you give, both for the charity and for you as the donor. In-kind securities donations are a smart and tax-effective alternative to a cash gift.

If you would like to learn more about donor-advised funds and how GiftPact Foundation can maximize the impact of your charitable giving, please get in touch.

The information in this article is for illustration purposes only. It is obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is for informational and educational purposes and is not intended to provide specific advice, including, without limitation, investment, financial, tax or legal matters. This article is published by GiftPact Foundation Inc. (“GiftPact”), and unless indicated otherwise, all views expressed in this article are those of GiftPact. The views expressed herein are subject to change without notice as tax policies and regulations change over time.

Dave and Karen are a couple in their mid 70s. They are very comfortable financially, have retirement savings to match their lifestyles and no debt. They own their home and a family cottage that has really gone up in value. They also own a $350,000 life insurance policy that was paid up at age 65.

They have two children. Both are married with children; one living in California, and the other lives in Winnipeg. The Winnipeg child and grandchildren, since COVID, have spent the entire summer at the cottage after Dave and Karen upgraded the internet. Dave and Karen would like to transfer the cottage to their Winnipeg child, in part because it is showing wear and tear from the extra use, and they don’t feel that it is right to use their retirement savings to benefit only one child. They have been told there will be a big capital gain on transfer (as they will use the principal residence exemption more efficiently for their home) even though they would be gifting the cottage and not selling it. Their CPA says the tax bill would be about $100,000.

How the donation of an existing insurance policy can reduce current taxes.

Dave and Karen are also very active charitably. Their children are all doing well financially. They feel that gifting their home in Winnipeg to the California child at a later date will equal the cottage gift, so equalization between children is not necessary. Dave and Karen feel that gifting their cottage and home together with any remaining retirement assets to their children is sufficient. So the life insurance policy is not required for estate purposes. They were thinking about changing the beneficiary of the policy to five charities: two would each receive $100,000 and three would receive $50,000 each, and the tax deduction in their estate would cover tax on any remaining RRIF and any estate tax.

Their accountant suggested they talk to GiftPact to discuss an immediate policy gift as a way to offset the tax of $100,000 on transferring the cottage. As it turned out, the offsetting deduction was enough to cover most of the tax. Here’s how it worked:

Insurance policy attributes:

Dave and Karen have had some health issues in the past. Their medical history and current conditions make their life insurance policy more valuable today, because life expectancy is reduced.

Tax attributes of an insurance gift:

Dave and Karen can donate their old policy to charity in the same year as they give their cottage to one of the children. GiftPact would become the owner and beneficiary of the policy, under Dave and Karen’s GiftPact Donor-Advised Fund. Through an agreement with GiftPact, the funds will be distributed according to their wishes. If their intentions change they can easily change which charities will receive the proceeds on second death

Often, the best solution is to donate insurance on death, where (in this case) the estate would receive a $350,000 donation receipt. Sometimes, as with Dave and Karen, it just made sense to get a smaller receipt now to facilitate their other planning.

Be a savvy philanthropist

How you structure your charitable gift is often just as important as the amount you give, both for the charity and for you as the donor. In-kind donations of life insurance policies or securities are a smart and tax-effective alternative to a cash gift.

If you would like to learn more about donor-advised funds and how GiftPact Foundation can maximize the impact of your charitable giving, please get in touch.

The information in this article is for illustration purposes only. It is obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is for informational and educational purposes and is not intended to provide specific advice, including, without limitation, investment, financial, tax or legal matters. This article is published by GiftPact Foundation Inc. (“GiftPact”), and unless indicated otherwise, all views expressed in this article are those of GiftPact. The views expressed herein are subject to change without notice as tax policies and regulations change over time.

Bob runs successful businesses and wants to give back to the community by making a large gift to the service organization that supported him as a student. He plans to facilitate this gift
through his GiftPact Donor-Advised Fund, which he set up several years ago to manage all of
his charitable giving.

Bob wants to donate $100,000 to the registered charity, but most of his money is tied up in his company. Fortunately, as the result of previous estate planning, Bob owns fixed-value preferred shares in his company worth $100,000, with an adjusted cost base (ACB) of $1 and paid-up capital (PUC) of $1.

Bob has two options:
● Redeem their preferred shares, take the deemed dividend and donate the cash to GiftPact.
● Donate their fixed-value preferred shares in-kind to GiftPact.

How gifts of shares in a private corporation work

While there is no capital gains tax on gifts of publicly traded securities to a charity, different rules apply to gifts of shares in a private corporation.

If you redeem your shares and donate the cash, it will trigger a dividend. On the other hand, if you make an in-kind donation of private corporation shares to a charity, you must pay tax on any capital gain arising from those shares at the time of your gift.

Canada taxes capital gains at a lower rate than dividends. So gifting your shares in-kind rather than donating the cash from their redemption should result in lower taxes.

How much Bob can save in taxes

Capital gains in Canada are taxed at 50.0% inclusion rate. Let’s look at the math in the following charts:

Bob’s 100,000 gift (at a 50.0% inclusion rate):

Bob increased his tax savings by $21,470 by donating his private company shares in-kind to his GiftPact DAF rather than redeeming them and donating the cash.

Planning points

Complex rules apply to the donation of shares in a private corporation. The CRA considers this type of share a non-qualifying security. Getting a charitable receipt for the donation of private company shares depends on whether the CRA considers the non-qualifying security an excepted gift.

Non-Qualifying Security Excepted Gift Criteria:

• The security is in the form of a share.
• The charity receiving the gift is not a private foundation.
• The donor deals at arm’s length with each of the charity’s directors, officers, and like officials.

The following tax planning benefits could apply if the private company shares are an excepted gift:

• You will realize a taxable capital gain rather than a taxable deemed dividend on the donation of the shares in-kind compared to redeeming the shares and donating cash.
• When the corporation redeems the shares from GiftPact it could result in the corporation realizing a refund from its refundable dividend tax on hand (RDTOH) pool.

There could be other potential implications for the redemption of shares in a private corporation. Proper planning and professional tax advice are important prior to initiating a donation of shares in private corporations. Donations can be claimed up to 75% of an individual’s net income for the year. Any unused donations can be carried forward for up to five years.

GiftPact would be happy to assist you in determining if this strategy is appropriate for you.

Be a savvy philanthropist

How you structure your charitable gift is often just as important as the amount you give, both for the charity and for you as the donor. In-kind donations of life insurance policies or securities are a smart and tax-effective alternative to a cash gift.

If you would like to learn more about donor-advised funds and how GiftPact Foundation can maximize the impact of your charitable giving, please get in touch.

The information in this article is for illustration purposes only. It is obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is for informational and educational purposes and is not intended to provide specific advice, including, without limitation, investment, financial, tax or legal matters. This article is published by GiftPact Foundation Inc. (“GiftPact”), and unless indicated otherwise, all views expressed in this article are those of GiftPact. The views expressed herein are subject to change without notice as tax policies and regulations change over time.

Janet and Ron donate a total of $50,000 each year to local Manitoba charities. As a result of their philanthropy, the couple receives $50,000 in donation tax receipts from the receiving charities. By submitting these donation receipts with their tax returns, the $50,000 of charitable donations provides them with a $25,000 tax savings at the highest marginal tax rate of 50%, meaning their cost of making $50,000 in charitable gifts was $25,000 (or a 50% after-tax cost of giving).

Janet and Ron were introduced to the concept of a Personal Covered Flow Through at a charity fundraising event. They explored the idea further with their accountant and found they would be eligible to participate in this gifting strategy , which could increase the impact of their philanthropy in the following ways:

Reduce Cost of Giving

They reduced their cost of giving from 50% to 5% as they had sufficient taxable income to facilitate this level of flow through participation. As a result, the after-tax cost to make $50,000 in gifts was reduced from $25,000 down to $2,500.

Increase Giving

Alternatively, Janet & Ron could have opted to keep their current $25,000 cost of giving and instead increased the size of their gift from $50,000 up to $500,000, depending on how much their level of taxable income could support. 

Separate Philanthropy from Tax Planning

Regardless of their choice to reduce the cost of giving or increase the impact at a level cost, participation allows Janet and Ron to separate their philanthropic tax planning from their charitable giving. Participation in a flow-through transaction would provide a donation tax receipt for the year of participation with proceeds from their participation deposited into a Donor Advised Fund (“DAF”) at GiftPact Foundation, allowing the family the flexibility to make distributions to their chosen charities on their own schedule. They can also add to the DAF to build a charitable fund for the next generation. With the charitable tax receipt in hand, they can avoid the “December rush” and take the time to support their charities on their own schedule.

Be a savvy philanthropist

Once Janet & Ron completed their donation flow through transaction with their flow through provider, their DAF received the $50,000 and was readily available to distribute to charities of their choice in the future.
In the end, the couple was very pleased to have an after-tax cost of only $2,500 instead of their usual $25,000 to generate this level of charitable capital. They can now focus on planning how they can use these savings to increase the impact of their charitable gifts in the coming year. They plan to consult their accountant to see if they can participate in future Covered Flow Through arrangements to continue their charitable legacy. 

How you structure your charitable gift is often just as important as the amount you give, both for the charity and for you as the donor. In-kind securities donations are a smart and tax-effective alternative to a cash gift.

If you would like to learn more about donor-advised funds and how GiftPact Foundation can maximize the impact of your charitable giving, please get in touch.

The information in this article is for illustration purposes only. It is obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is for informational and educational purposes and is not intended to provide specific advice, including, without limitation, investment, financial, tax or legal matters. This article is published by GiftPact Foundation Inc. (“GiftPact”), and unless indicated otherwise, all views expressed in this article are those of GiftPact. The views expressed herein are subject to change without notice as tax policies and regulations change over time.

Planning your Philanthropic Legacy

Having opened a donor-advised fund means you have already made an important commitment to philanthropy during your lifetime and beyond. When thinking about your charitable legacy you intentionally plan how you want to give during your lifetime and what you want to leave behind. A GiftPact donor-advised fund not only makes it simple to give during your lifetime but makes it easy to transition your philanthropy to your next generation.

By outlining a legacy plan you are able to add successor donor representatives or establish an advisory committee who, upon your death, would assume the donor representative role. By establishing successor donor representation and outlining a legacy plan as part of our GiftPact Donor-Advised Fund Agreement, your GiftPact fund is able to receive additional money from your estate, distribute all of it to charities of your choice, or distribute some to charities of your choice and retain some for your successor representatives to continue your philanthropic legacy.

Getting started may be the most difficult part of creating your legacy plan, but once you begin, you may find that in planning gifts for others, the journey of sharing your intentions with your loved ones becomes a gift to yourself.

Sharing our Stories of Hope

A local business innovator and philanthropist fostered an academic opportunity for students while honouring the past.

Our Donor chose to create a scholarship opportunity at the High School his father had attended. Students of this inner-city high school, many recent immigrants to Canada, have the opportunity to share their stories to receive a scholarship toward their post secondary studies.

These students, from diverse backgrounds and cultures, are invited to share their stories of hope through various mediums, written text, song, dance, film or visual art. Students are encouraged to share their history, cultural traditions, challenges, triumphs and dreams for the future.

A Goal to Create a Living Legacy

By sharing their stories of hope and overcoming adversity, students lift up themselves and others, empowering other students to create connections and share their own stories.

Through this sharing of stories, with a goal to create a living legacy, students can inspire and motivate future generations as models of persistence and resilience within their communities.

GiftPact Foundation has helped this philanthropist support this project since 2017 and has the privilege of seeing some of the student’s presentations first hand.