Countdown is on for charitable gifts

The countdown has begun. The CRA website is reminding taxpayers that ‘charitable donations must be made by December 31, 2010 in order to qualify for a tax credit in the 2010 tax year.’

For advisors this may be a good time to discuss charitable giving with their clients.

“Every time there’s a tax situation, there’s an opportunity for advisors to introduce that topic and to add some value,” says Denise Castonguay, executive director at Canada Gives, a charitable foundation. “Advisors can identify the right investments to donate and liquidate if they’re going to change the portfolio.”

It should be a part of their annual review or a tax event, she says. The reality, however, is that a lot more needs to be done by advisors to position themselves as experts in the financial side of charitable giving. “I don’t think they need to be experts in philanthropy, I think they need to be experts in the business of philanthropy and that’s tax and estate planning.”

People who give the most to the charitable sector are boomers in the age group of 45 to 65. Those who give the biggest gifts are the retirees, mostly over 70. Advisors working with these people are well positioned to help them chart their charitable course, she says.

“(Charitable planning) is like having an investment discussion with the client; and (advisors) have to find out what fits them best,” says Castonguay. “They really should know the different options in the market so they can walk them through the decision process or direct them to the right structure.”

She points to one such structure, flow-through shares (FTS), arguably one of the best kept secrets of the field of charitably giving. Certain corporations in the mining, oil and gas, and renewable energy and energy conservation sectors may issue FTS to help finance their exploration and project development activities.

“The neat thing about the FTS is they are special kind of shares that Canadian government gives tax break to when people buy,” says Castonguay. “They are often illiquid for up to two years; (but once) it becomes liquid it converts to a mutual fund unit so it can trade.”

Not only do shareholders get tax credit at the time of purchase, but the holder gets more tax credit when the FTS are donated to a charity, thus effectively offering double tax savings on one purchase. And here’s the kicker: “If the value of the share goes up in that two-year period, you can actually make money by making a charitable donation,” says Castonguay.

Creating something of an aberration, charitable donations create for mutual fund dealers the rare opportunity to access securities groups they normally couldn’t. “They can access securities that are not on book, and that they are not licensed to sell, because they are not trading them, they’re just helping their client make a donation.”

Although there’s only 10 days – as of Wednesday – left to make a charitable donation for 2010, Castonguay says it’s never too late. “From the tax point of view, there’s two seasons to this business.” About 60% of all the charitable donations happen in November and December. However, the month of April, after the RRSP season, is another tax time. “Those are the two prime times for tax thinking.”

Another important thing to remember is that taxpayers do not have to claim all the donations they make in a given year. The CRA website states: “You can carry forward any donations that you do not claim in the current year and claim them on your return for any of the next five years.”

When all this is added up, giving can be a pretty sweet deal.