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Charitable donations: Ordinary and exceptional gifts explained

The majority of Canadians make annual donations to charity. Charitable donations can be made online, at the office, in response to a social media appeal or through a special event. This kind of “ordinary” giving is widespread, so it creates a feeling of comfortable familiarity.

However, there is another type of donation which is rarer and more complex. An “exceptional donation” might be a once-in-a-lifetime gift such as a donation of assets and/or an estate.

These two categories of donations – ordinary and exceptional – are good to explore when you’re planning a charitable gift.

Ordinary donations

Before we take a closer look at exceptional donations, let’s start with our baseline experience. Donations made from income or cash flow are known as “ordinary” donations. Anyone can donate an ordinary gift at any age or income level, and the motivation may be highly personal.

Ordinary donations are typically made because:

  • a charity asks for them
  • a social issue or news story sparks interest
  • the donor has ongoing involvement with the charity

Ordinary donations are repeatable, and usually of a value that is personally affordable for the donor.

Cause and community matter a lot, so ordinary donations are typically gifts from the heart. These gifts are motivated by belief in a cause or organization, and are often triggered by a solicitation. Whether the solicitation is from a charity, colleague or friend, it comes with some social expectations and possibly even peer pressure. If you give, you’ll be benefiting the community. The community may recognize you for that, perhaps through a donor list. Appreciation and recognition are considered extrinsic or external motivations for giving.

While individual donors receive a receipt that produces tax savings when they file their income tax returns, tax is rarely a primary consideration. Indeed, given the tiered and opaque nature of Canada’s donation tax incentives, most donors have no idea how much they will save. The amount ranges from 20% to 54% of the donation, and the rate depends on the taxpayer’s total annual donations, income and province/territory. Tax savings are a nice bonus, but they aren’t a major consideration for ordinary donations because of the small amounts involved.

Exceptional donations

As the name implies, exceptional donations don’t often happen in a person’s life. This is because they are made from personal assets (i.e., capital) instead of income. To put it another way, these are gifts that arise from wealth.

With exceptional donations, everything is different: the thinking, scale, planning, timetable and the social impact. Of course, those making exceptional donations don’t have to be wealthy, but statistically they are likely to be age 50+, have accumulated some assets, have an altruistic spirit and, often, have no children.

Individuals considering an exceptional gift from assets will face several factors that don’t apply to ordinary gifts. These include:

  • Intrinsic or personal motivation. Exceptional donations are usually prompted by donors reflecting on their life and circumstances, not by a fundraising solicitation.
  • Catalytic life event. Examples include a major asset sale, such as business or real estate, which creates a large tax event — or it could be a consideration of one’s estate and beneficiaries.
  • Ensuring sufficient assets for living. As donations are irrevocable, financial planning is advised to ensure enough money remaining to support one’s family and lifestyle.
  • Donating an appropriate amount. Due to the higher value of exceptional gifts, the donor often has multiple charitable interests, which may not be well articulated or developed. The value of a gift may be too much to give at one time, or to one charity.
  • Attractive tax benefits. Canada has a robust tax regime, among the most beneficial in the world, to encourage donations from assets.
  • Aligning donations with other life choices and needs. The decision to make an exceptional gift may be made well in advance of knowing which charity to support. This challenge may be exacerbated by a tax deadline or the momentous decisions regarding choosing beneficiaries and executing a will.

For more information on exceptional donations or how to integrate philanthropy into your wealth or estate plan, contact an MD Advisor*.

* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.

The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.