The season of giving offers a reminder to clients that charitable donations must be made by Dec. 31 if they want to claim the donation tax credit on their 2019 return. In addition to meeting the tax deadline, clients should also consider what to donate because the tax savings depends on the type of gift, says KPMG in a report on charitable planning.
For example, donating property — such as securities, artwork or real estate — may increase the tax benefits to your client, compared to donating cash.
To determine the tax credit, property donations are generally valued at fair market value (FMV) at the time the gift is made. The client is also deemed to have disposed of the property at FMV.
To avoid realizing a capital gain or to realize a smaller one, the client may elect to designate a value for the gift — anywhere between the client’s cost and FMV, the report said. The tax credit would adjust accordingly.
Capital gains arising on the donation of certain types of property generally aren’t taxable. These include gifts of certified cultural property and donations of ecologically sensitive lands to the federal government, a province, territory or municipality, or to certain charities.
And, while the maximum donation amount your client can usually claim in a year is 75% of their net income (100% in Quebec), the limit effectively increases to 100% for certain property donations, the report said. These include capital property resulting in taxable capital gains, depreciable property that triggers recapture of capital cost allowance, and certain gifts of certified cultural property and ecologically sensitive lands.
Clients should be aware, however, that donating property could mean owing alternative minimum tax — for instance, if the client already has certain large tax deductions or capital gains in a year and their property donation results in additional gains.
A final general tax tip: if a client’s donation receipts exceed their income limit or they choose not to claim a donation in the year they make it, they can save the receipts and generally claim the credit in any of the following five years, the report said.
‘Tis the season to talk about charitable giving
The season of giving can also serve as a reminder to talk to clients about philanthropy. For some clients, an important part of that discussion might include how to make a positive social impact.
“Philanthropy can be most effective when it’s part of a well-planned, holistic strategy that delivers a measurable impact,” said Kristine Remedios, chief inclusion and social impact officer at KPMG, in a release on Friday.
Her tips for clients included picking a cause they care about and reviewing the charity’s impact metrics. Only charitable organizations that communicate with donors and report their measurable impact should be potential candidates, she said.
For more details about charitable giving, including ways to donate, read the KPMG report.