Could retirement accounts become the next driver of charitable giving in Canada?


A couple of decades ago, some of the largest Canadian charities were suffering. Federal cuts to transfer payments, seen as necessary to balance the national government books, were a body blow to universities, hospitals and others.

Help for the charitable sector came in the form of a policy change in line with what donors enjoy in the U.S.  After considerable lobbying, Ottawa agreed to “temporarily” reduce in 1997, then permanently eliminate in 2006, the capital gains tax on appreciated securities when donors gifted them in kind to charity.

By some estimates, that single change resulted in charities receiving an extra $1 billion in donations almost every year since 2006.

With the Canadian donor pool aging and reportedly shrinking, maybe it is time for the sector to look to the U.S. once again for a big idea to kick start the next wave of giving.

In December 2015, Congress passed a bill making permanent a charitable gifting option that allows donors aged 70.5 and older to withdraw IRA funds – a tax-deferred retirement account analogous to our Canadian RRSPs - to donate to their favorite charities. Withdrawals of up to $100,000 each year can be made without these distributions registering as taxable income.

Given the billions of dollars of RRIF (Registered Retirement Income Fund) income that Canadian baby boomers have to begin drawing down as they turn 72, there are massive possibilities here. Not only do some people not need all of the income they are forced to begin drawing, many are not looking forward to the accompanying tax hit.

I recently worked with a couple on updating an estate plan that is predominantly charitable in its focus. After providing for children through seven-figure life insurance policies, they want the residue of their estate to be distributed to a handful of causes they support. This couple gives such a large portion of their income to charity that they are continuously in a carryforward position with charitable receipts. They have a seven-figure amount in RRSPs that they will never need, owing to the amount they have in other investments, their holding company and operating company. This family would happily donate RRSPs or RRIFs they do not need to charity, instead of paying most of that money in tax.

A significant number of Canadians will move into the top tax bracket when they draw their last breaths, if that occurs before they have depleted their RRIFs.  In Ontario, that top bracket current stands at 53.5%. (The top rate is almost that high in Quebec and New Brunswick, and .5% higher in Nova Scotia.) Charitable tax credits have been adjusted to match.

Getting a cash-strapped federal government to consider a break for retirement funds donated to charity will not come easily. Many leaders in the charitable sector will say their top lobbying priority will be convincing Ottawa to reinstate the proposed capital gains exemption for gifts of real estate and private shares that was accepted, but not enacted, by the former Harper government.

(Donald K. Johnson, who led the successful lobby for favorable treatment of donated securities some years back, is also pushing Ottawa to give exemptions for real estate and private share gifts. A Toronto Star story says such a change would result in additional donations to charities of about $200 million a year. The cost to the federal treasury would be between $50 million and $65 million.)  Our own CAGP Government Relations Team has been hard at work in 2016 on a number of recommendations (click here to read them). But it’s also time to start asking whether the lowest-hanging fruit for growing charitable donations could lie with the ever-increasing wave of RRSP savings that need to be converted to RRIFS and withdrawn.

Lots of good causes sure could use the help. 

Great reads this month:


Great idea Mike. Even getting the annoying "at source" with-holding tax removed on withdrawals used to make charitable contributions would be a big help. Even though such withdrawals are tax neutral in the end, trying to explain that to donors is very difficult as they have to come up with additional funds upfront to pay the tax. Your idea takes that one step further. Good luck. We're all watching! Charles


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