Market volatility should not directly affect an investor’s approach to charitable giving, said experts in philanthropy from TD Waterhouse today.

The elimination of capital gains tax on donations of publicly listed securities to registered Canadian charities enacted by the federal government in 2006 has been a boon for donors and charities. But some donors may be holding back on account of market volatility and significant price pull-backs in the first few months of 2008.

According to TD, overall charitable giving jumped 8.3% in 2006 after the capital gains taxes were eliminated, and much of this increase has been attributed to donated securities.
For this reason, TD notes, if donors to put their giving on hold while they wait for the price of a stock to recover, charitable organizations reliant on philanthropy will be negatively impacted.

“If you’re trying to wait out current volatile conditions in order to maximize the value of your stock donation, I would say that your heart is in the right place, but your strategy is wrong,” said Jo-Anne Ryan, vice-president of philanthropic advisory services at TD Waterhouse Canada Inc., in a news release. “Timing the market is a feat that virtually all investment professionals and experts agree is impossible to accomplish.”

Instead, Ryan recommends adopting a personal giving strategy as part of a long-term plan that should include contingencies for market volatility. Rather than trying to time the market, donors should take a ‘dollar cost averaging’ approach where they spread donations over a period of time in an organized and disciplined manner.

“This means applying the same disciplined approach to giving as you would to investing, said Ryan. “Not only does this reduce the risks and pitfalls of making poor market timing decisions, but it also addresses charities’ fundamental need for stable funding.”

“When organizations have stable funding, they can conduct long-term planning and design programs with greater impact,” says Waseem Syed, vice-president of community investment at the United Way of Greater Toronto. “Being able to plan how resources are invested – and having the certainty that the funding will be there – makes a big difference to a charity’s effectiveness.”






In addition to dollar cost averaging, Ryan suggests considering donating the security and then re-purchasing it. By doing so, she says, investors will avoid paying capital gains tax on profits to-date and get a tax credit for the donation.

For those who own securities that have depreciated since purchase, Ryan suggests selling one or more ‘underperformers’ and donating the cash proceeds to charity. With this strategy, investors get a tax credit for the donation and also generate a capital loss.

Another option is always to donate cash instead of stock, for which the giver will receive a charitable tax receipt resulting in a tax credit of approximately 46%.

“You can donate both your winners and losers with substantial benefits,” concludes Ryan. “The bottom line is that neither your investments nor your charitable endeavours need to be held hostage by the market. By taking a strategic approach to charitable giving, you’ll maximize your tax savings and the value of your donations over the long-term. You’ll also contribute to the stable, long-term funding that is vital to Canada’s philanthropic community.”