Canadians want to use their cash, and not just on another big screen TV. A new Statistics Canada report released Thursday reveals that in 2006, charitable donations totalled $8.5 billion, an increase of 8.3% from the year before.
“This is very significant,” says Malcolm Burrows, head of philanthropic advisory services at Scotia Private Client Group. “For the last 11 years charitable giving has been growing at over twice the rate of the economy.”
While the report doesn’t break down what types of donations were given, Burrows says a large portion of contributions in 2006 likely came in the form of donated securities.
That’s because in last year’s federal budget, the government eliminated the capital gains tax on security donations. Burrows estimates that somewhere between $600 million and $800 million came from donated securities.
“I’ve personally been involved with close to $50 million,” he says. “What it does is give you two tax savings instead of one. In Ontario you’d get a 46 cents savings [per dollar donated], plus another 15 cents, so that’s a nice sweetener — it’s a real trigger for giving.”
Jo-Anne Ryan, vice-president of philanthropic advisory services at TD Waterhouse, agrees that the dollar amount of equity giving will likely be higher than the Conservative government’s estimate that $300 million of securities would be donated in 2006.
Ryan alone has more than 82,000 charities in the private giving foundation that she runs, and she’s come across donors who’ve given millions of dollars’ worth of securities. “And I’m one of many foundations,” she says. “That’s why it’s leading me to guess that the government underestimated.”
It’s not just wealthy business owners giving securities either — many middle-class families are contributing stock rather than money. “I see it across the board,” says Burrows. “We’re not seeing more $100 donations. I believe the big driver [for the donation increase] is out of the asset pocket.”
One likely reason for more middle-class Canadians choosing the securities donation route is all the M&A activity that took place in 2006. In many cases, takeovers are all-cash deals, so investors who hold stock in a company might choose to donate their shares instead of being forced to realize capital gains.
Ryan says this will hold especially true next year, when the BCE deal goes through. “Many people who own BCE are people that will have very significant capital gains,” she explains. “One strategy is to talk to the BCE shareholder and tell them that if they just sit there they’ll have a big tax bill when all is said and done. There are lots of strategies to avoid this, but certainly a donation strategy is a great one.”
But having more money winding up in the pockets of charities doesn’t necessarily mean more Canadians are donating, as the StatsCan survey proves. In 2006 the number of people giving fell 1.4% to 5.8 million.
Owen Charters, executive director of Canada Helps, attributes the drop, which he says is a multi-year trend, to the growing number of charities and Canadians’ confusion over where to donate.
“There’s so much competition,” he says. “Donors are feeling less engaged with organizations because charities are having a struggle to get their missions and stories out.”
He adds that Canada’s tax system hasn’t provided enough incentives for the average donor.
Ryan, however, thinks the lower number could have something to do with savvier fundraising campaigns. She explains that many charities have stopped going door-to-door, instead focusing on wealthier people who can contribute larger donations. “Established charities are really focusing more on the donor who could make a huge impact rather than on many donors,” she says.
But Burrows takes a different view on the dropping donor stats. He says that married couples can get additional tax savings if the spouse with the higher income claims the family’s donations. As a result, these statistics could be accounting for only one donor, when in fact two people in a family are giving money.
No matter how people give, it’s clear that it’s not just about cutting a cheque anymore. Burrows says that today, charitable giving is a big part of financial planning.
“Giving cash flow is easy. I don’t have to talk to my wife about $100, but giving $5,000 in stock is material,” he says. “So you need to look at tax and have a family conversation. That’s where advisors come in.”
Cynthia Kett, a principal at Stewart & Kett Financial Advisors, has seen the charitable planning aspect of her business grow over the years, and even more so now that people can donate securities without paying capital gains.
She says charitable giving should definitely be part of a client’s overall financial plan. “It’s a growing area of our practice,” she says. “Some are giving significant amounts of money or donating securities, so it does make sense for them to consider that as important a decision as any other major purchases or life decisions.”
“Discussing charitable giving is good for business,” adds Ryan. “It really cements a relationship when you can say to a client, ‘you have BCE. If we do nothing it’ll be a huge liability. Let’s talk about proactive tax planning.'”