IG Wealth Management's Christine Van Cauwenberghe says life insurance can help
While Canadians’ charitable giving was slipping even before the cost of living crisis bit, many wealth people are looking at how their money can do good both while they are alive and afterwards.
Christine Van Cauwenberghe is head of financial planning at IG Wealth Management and told WP that some of those that are giving are making significant contributions, which is pushing up the average donation stats. But for others, there is a knowledge gap.
“With our clients, we are seeing a wide variety of causes they want to benefit, often in the community that gave them the opportunity to grow their wealth. I think that more people would give to charity if they had a better appreciation of the tax benefits,” she said.
When working with clients, Van Cauwenberghe often finds that they realize that they can give more than they thought to the causes that matter to them, while the impact on themselves and their family is negligible.
But this relies on utilizing Canada’s significant tax benefits in the right way, with the help of a financial planner to determine the best time to make a gift and how it should be structured.
Estate planning is often a focus for charitable giving, with wealthy individuals wanting to balance passing on a legacy that will help their heirs while also helping others. But clients may not be aware of some options that are available to them to best manage the tax implications such as donor advised funds.
Again, working with a financial planner is key to understanding the range of options and how they may best suit an individual.
“If you have any publicly traded securities with unrealized capital gains, consider gifting those to the charity, as you won’t have to report any of the capital gain for tax purposes,” suggested Van Cauwenberghe. “The added benefit to this type of gift is that the charitable tax receipt is still issued for the full value of the securities at the time of transfer.”
Life insurance is another option to consider, and Van Cauwenberghe says that more clients are understanding how this can work in their best interests.
“In most cases, the best way to maximize the after tax value of your estate is through the use of permanent life insurance,” she said. “Insurance can also be an effective way to leave a large gift to charity, and if you make the charity the owner of the policy, you will be issued a charitable tax receipt for each of the premiums as you pay them.”
Capital gains
For business owners there is often a lack of knowledge about donations from their corporation, but this may become a more important consideration, Van Cauwenberghe says, given the concern about proposed capital gains tax changes with corporations unable to access the lower rate on the first $250K the way individuals can.
“For corporations, it may be particularly beneficial to donate publicly traded securities to a charity to avoid capital gains tax,” she said. “The tax free portion of the gain is also added to their capital dividend account, which can be paid out to the shareholders tax free. Since the full amount of the capital gain is considered to be tax-free, the full amount of the capital gain can be added to the capital dividend account.”
