My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Tuesday, January 18, 2011

Charitable Giving

There have been several articles in the last couple of months about the decline in donations to Canadian charities. Statistics Canada reported Canadians donated one billion less dollars in the two-year period from 2007 to 2009. The reasons for the decrease in giving range from the poor economy to the number of donation scams and finally, the large allocation of donated funds to charity administration.

Rob Carrick recently had an article in the Globe and Mail expressing concern about Canada’s ‘generosity deficit” and ways to rejuvenate charitable giving. He provided information on how you can easily incorporate giving into your life and the tax benefits of making charitable donations. I had an email exchange with Rob stating that in my opinion, the problem is not a rejuvenation issue as much as a change in society’s attitude toward giving. I want to expand on this issue in this blog. 

First, let me state that I think a substantial issue is the economy and when, and if, people feel good about their job prospects and the economy, a significant amount of donations will come back. But, as someone who has been involved with the Make A Wish Foundation and the Reena Foundation, I know multiple charities are just chasing the same big donors. Where will the growth come from outside of these big donor corporations or wealthy individuals?

At this point I am going to state some personal opinions that may be way off or misguided. I will get to some income tax considerations later on; but hey, this is my blog and today I am veering off a little.

Some of the articles I have read note that the average age of donors is now 53 instead of 51. I think this statistic is significant and it can’t be explained away by saying that younger people are not faring as well in the economy. As a tax accountant, I have done thousands of tax returns for many very wealthy Canadians. You would be surprised at how many returns have just a $50 donation to the Cancer Society or Sick Kids, etc. There are many entrepreneurs not following the charitable gospel espoused by Warren Buffet and Bill Gates I think the donation issue is a cultural issue or family issue. I can almost trace giving down a family tree as I prepare income tax returns for selected families. When a child is brought up in a charitable household they almost always follow through as a contributor to charity.

In my opinion, charities are going to have more trouble going forward as the older generation passes on and charitable values diminish; as the younger generation seems to increasingly shun religious institutions. As the concept of charity springs from religion, charities will continue to suffer unless parents can ingrain giving as part of a child’s upbringing religious or otherwise.

So what is the financial benefit of a charitable donation? Once you exceed the $200 minimum donation limit, each dollar saves you 46.4% in income tax in Ontario through the donation tax credit. So really, you are only out of pocket $54 for each donation.

If you wish to donate public securities you do not have to pay the capital gains tax on the security donated. Thus, you not only get the 46.4% donation credit, you save 23% in income tax on the capital gain.

There are additional charitable tax planning ideas that can reduce the after-tax cost of donations using flow-through shares and insurance, however, they are beyond the scope of this article.


Terra Restaurant

Excellent restaurants are few and far between in North Toronto, but a screaming exception to that rule is Terra.

I have been to Terra a couple times recently, once with my wife for dinner, and once for a business meeting. Both meals were excellent, especially my dinner visit.

For our dinner visit we had the tasting menu. I usually agree to ordering a tasting menu because my wife enjoys them. Personally, I am usually starving when I finish, as the portions typically get lost under the garnish. However, at Terra I was full at the end.

The dinner started with a tasty Amuse Bouche.

The second course was a duo of two of my favourite items, a lobster potsticker and Seared Ahi tuna in a mango salsa. Both were excellent.

The third course was a very substantial helping of potato gnocchi with mushrooms, scallion and parmesan in a roasted garlic cream sauce. It was outstanding, but very filling. The portion was too large, not a usual complaint for a tasting menu.

The fourth course was a sorbet, to cleanse the pallet as they say.

The fifth course was a choice of salmon or a beef filet. The beef filet was 10oz – massive for a tasting menu. Both my wife and I had the filet and it was excellent.

The sixth course was a sampling of cheeses and finally the seventh course was a combo of a miniature crème brulee and chocolate torte.

It was an excellent all around dinner.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

7 comments:

  1. Mark - can you clarify the following:

    "So what is the financial benefit of a charitable donation? Once you exceed the $200 minimum donation limit, each dollar saves you 46.4% in income tax in Ontario through the donation tax credit. So really, you are only out of pocket $54 for each donation."

    Does that mean if I donate $201 then it's as if I donated $200.46 and the government donated .54 cents . . . . and if I donated $500 then it;s as if I actually donated $368 ($200 + 46%) and the government donated $132 (54%) and in both cases I get the government portion coming back to me as a donation tax credit?

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  2. Hi Steve:

    The donation credit on the first $200 in Ontario is worth only 22.8%- so if you dontate $100 your credit/refund is $22.80 and if you donate $200 your credit/refund is $45.60. For every donation dollar over and above $200 you save 46.41% of those donations plus the $45.60 from the first $200 in donations.

    Thus, if you donated $500 as per above, your credit/refund will be almost $185 ($45.60 on first $200 and 46.41% of $300).

    I hope that clarifies your question.

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  3. Thanks Mark - it does.

    And did I read the tax rules correctly that I can save up charitable donations up to 5 years and then use them all at once to maximize the larger tax credit when my donations exceed the $200 threshold? And can charitable donations credits be transferred? Ie, if my wife has $200 and I have $200 - can she transfer them to me so I claim $400 since I'm in a higher tax bracket?

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  4. Hi Steve, yes you can save your donations for five years and then use them all at once. In response to your second question, the answer is also yes.You can transfer your donations to your wife or visa versa. In preparing tax returns we typically accumulate family donations and claim them all on only one of the spouses returns; that is unless the spouses look at their money as their own and they want to claim the donations they each made individually. However, that results in them paying more taxes then they would have if they combined the donations.

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  5. Thanks for the confirmation Mark.

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  6. Hey Mark,

    I couldn't possibly read this without refuting it, so here goes...

    "charities are going to have more trouble going forward as [...] the younger generation seems to increasingly shun religious institutions [...] the concept of charity springs from religion"

    The last time I looked at the Forbes list of worldwide top donors (2009, I think), it was quite wholly secular. The two individuals you feel worthy of individually identifying as charitable models (Warren Buffett and Bill Gates) are publicly godless heathens (and they aren't motivated by tax credits either).

    Statistics Canada provides us with some relevant data (I'll use the free ones)...

    On religion:
    http://www.statcan.gc.ca/pub/11-008-x/2006001/c-g/4097582-eng.htm

    And donation demographics:
    http://www40.statcan.gc.ca/l01/cst01/famil104-eng.htm

    Both the short and long term trends are clear. The statistics show that the highest average donations, and the highest frequency of donations occur around the 40s. Comparing this to the most religious group surveyed (60+, 1985), these people are 100% more secular. Surprising? None of it.

    Let's not even analyze that religious people tend to make donations to religious institutions (which are tax-exempted all the same as useful organizations). Is there a church, mosque, or temple that does the comparable societal good of secular charities (e.g. The Gates' Foundation, The Red Cross, Doctors without Borders, Wikimedia, and ACLU)?

    Care to guess which group also has the "large allocation of donated funds to charity administration"?

    I'll leave you with this damning graph, which is the real crisis in the charitable market:
    http://www.statcan.gc.ca/pub/71-542-x/2009001/c-g/ch1/c-g1.5-eng.htm

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  7. "Damning graph", see, even criticism springs from religion. :)

    Andrew, I thank you for your eloquent and well researched comment.

    You however may be guilty of some selective cutting and pasting, as I said ' unless parents can ingrain giving as part of a child’s upbringing religious or otherwise".

    I think you missed the "or otherwise". As I noted in the blog, I can trace charitable giving down a family tree. I would suggest in many cases the influence of religion dissipates as you move down the family tree, yet the youngest member still contributes to charity. Why? The origin of many a family’s giving may have sprung from religion, but the culture of giving was nurtured down the tree despite the younger generation in many cases shunning religion.

    I know where your stats take you and how they support where you want to go. My concern is religious or otherwise, without the culture of giving, each generation will be less charitable.

    How much of Gates culture of giving came from Buffet and how much did Zuckebergs come from Gates? To me that is the "otherwise".

    There are some tremendous role models in Buffet Gates et al. However, I am concerned that spirit is not necessarily permeating the younger generation, but like I said in the blog, I may be way off.

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