Are You Generous?

Straight Talk About Being a Giver

By: Loren Hagerty, Executive Director

If you're shopping, a “50% Off Sale” is a big deal.  When it comes to charitable giving in Canada, there’s a similar “sale” going on every day of the year. Most Canadians who pay income tax can get about 50% of their charitable donations back in a tax credit/refund for any charitable contribution above $200 in a given year (it varies a bit by province).

There is a common misunderstanding that the amount one receives back depends on income level or tax bracket, but the percentage is the same for all but the highest income earners (those earning $205K or more per year). Most donors from BC get a tax credit (essentially a rebate) of 45.8% of the value of their donations (above $200/year in 2018), and Albertans get 50%. For all but the highest income earners, that’s a higher refund rate than what they paid in income taxes. The main motive to give should always be to support causes you believe in—but the tax credit makes it possible to give twice as much as you otherwise could!

Charitable giving isn’t just for the wealthy. In fact, 31% of donors to charity in Canada earn less than $50K/year, and 35% earn $50-100K. Some people think they should wait until they are financially set before they begin giving, but a giving habit is easier to start early in life. By teaching children to give as soon as they earn an allowance or income, it becomes a habit that can bring joy and fulfillment to life.

If you choose a percentage (rather than a dollar amount) of income to give, the donation will be small when you have a low income and will grow automatically as your income grows. For example, many companies have pledged to give 1% of their equity, profit, product, and/or employee time by joining the Pledge 1% movement. Millions of people around the world—particularly those following Judeo-Christian religions—donate 10% of gross income (regardless of income level) in a centuries old tradition known as a “tithe.” That may sound like a whopping amount, but don’t forget about that tax credit which makes the net cost closer to 5% of income. That’s still a hard habit to start later in life, but not so hard to begin when that income is only a $10/month childhood allowance.

The point is, if you have kids, teach them to give, and set your own stretch goal, whether that’s 1% or 10% or something else entirely, and don’t wait to begin. There are many multi-millionaires who never started a giving habit and don’t yet believe they can afford to give a penny. But thankfully, there are also many affluent people who are exceedingly generous: the top 1% of income earners in Canada make up 13% of the donors in Canada and give 31% of the money. You can also leave money to charities in your will, but the joy, sacrifice—and tax credit—of giving are best experienced while you are still alive.

Cash isn’t the only thing you can give. In fact, you should almost never donate cash if you have the option to donate appreciated shares in a company instead, because you’ll avoid tax on the appreciation of the shares. Even if you think those shares will keep increasing in value, you can donate them, get the large tax rebate, and then immediately buy them back with the cash you would otherwise have given. You can donate assets like real estate, or in the case of SALTS, you can donate a boat. You can donate your time as a volunteer, and enjoy the meaning and sense of purpose that can come from contributing to a worthwhile cause.

Since individual tax situations vary and we are simplifying and generalizing, this article may not correctly describe your circumstances. Talk to a tax or financial advisor to understand your own state of affairs—preferably an advisor who will help you be generous. Why not make it a life goal to be a philanthropist, and start right now? You can leave this world in better shape than you found it by sharing your love and generosity with others.

Doodle by Watch Officer Van, found on a petty cash envelope