A short guide to private giving

A short guide to private donation


True to tradition, the chiefs unveiled their net assets as part of the election campaign. Many have hooked on the decrease of more than $2 million in the fortune of François Legault and his wife.

A private donation of $1.5 million would be the main explanation, according to the information provided by the CAQ leader's entourage.

This generosity can be directed to a loved one, children most of the time, or to a cause. Let's explore the question, because you too might be tempted to let go of a piece of your assets to help others. Let's start with cash donations. If I give you $20, you won't have to report it to the revenue agency. $1000? No more. A million dollars? No more.

The recipient of a pecuniary gift does not have to fear the tax authorities. It may seem obvious to you, but when “big” money is involved, the question may arise. 

If there is tax to be paid, it will be on the donor side. And in this regard, it is necessary to be careful. It all depends on the source of the funds.

If to support a loved one you have to dip into an RRSP or a RRIF, the withdrawal will be taxed as ordinary income.

If you have to liquidate investments, you will be taxed on capital gains, unless the investments are in a TFSA, where the returns are tax-sheltered.

Giving shares directly from a non-registered account? In most cases, it is unnecessarily complicated, such a transfer generates paperwork. If you insist on it, you will have to pay capital gains tax anyway as if you had sold them.

If you have cash, as it is already tax-free , no problem in sight.

Another option: the home equity line of credit (often used to help a young person put down money on their own home), but the solution is expensive in interest.

Giving away real estate

You can also make a donation “in kind”, for example with real estate. There, it can be tricky, unless you donate your main residence (to go where?). Apart from this one, which benefits from a tax exemption, all real estate accumulates capital gains over time. If given, the tax bill will still come.

Take a family cottage, a classic case. Rather than selling it to a third party, it can be given to a child. But in the eyes of the taxman, the chalet will be presumed to have been sold at its fair market value. The capital gain will be taxed in the hands of the person who disposes of the property (not the person who receives it), even if he receives no profit. 

Donation to a charity

The least “expensive” approach is to sign a check to an organization that can issue a donation receipt, which entitles you to tax credits. The value of credits varies depending on the size of the check, the income of the donor, but also the activities of the entity for which your funds are intended. In Quebec, cultural donations are eligible for more generous credits. 

Only charities and foundations registered with the Canada Revenue Agency can produce receipts.

Tax credits alleviate all the tax pitfalls discussed so far. Do you want to tap into an RRSP or a RRIF? The tax authorities will be more lenient. Do you want to donate company shares? You will get a credit equivalent to the value of the securities, without paying capital gains tax. 

Paying, making donations? Get rid of this idea! Despite the tax breaks, we always find ourselves poorer after giving. Except that we will have put the public treasury to work for a cause that is close to our hearts.