The Changes in Ordinary and Exceptional Donations

The majority of Canadians make annual donations to charity. These donations are done online, at the office, to places of worship, in response to a telemarketer, mail or social media appeal, or through a special event. This kind of “ordinary” giving is widespread, and so it creates a feeling of comfortable familiarity.

But this familiarity can be misleading. It’s easy to think we “know” charitable giving, only to find out there are actually different models of giving and tools required. The habit of ordinary giving obscures the increasing prevalence, complexity and importance of “exceptional” donations.

These two categories of donations — ordinary and exceptional — are useful to explore. They are helpful to anyone interested in charities today, but also for individuals considering a once-in-a-lifetime donation. Understanding that much rarer type of donation — the exceptional — is key to planning a gift from assets and/or an estate.

With exceptional donations, everything is different: the thinking, the scale, the planning, the timetable, and the social impact. This article is intended to help would-be philanthropists of exceptional donation to rethink their approach to giving. Exceptional donors don’t have to be “rich”. Although they are likely to be age 50+, have accumulated some assets, have an altruistic spirit, and, often, have no children.

Ordinary donations
Let’s start with our baseline experience. Donations made annually from income or cash flow are “ordinary” donations. Anyone, at any age and income level, can be a donor of an ordinary gift. Although the motivation may be extraordinarily personal and provide significant help to a charity, ordinary donations are made everyday.

More than 99 percent of donations are “ordinary” and they share certain characteristics. Ordinary donations typically occur because: a) the charity asks for them; b) a social issue or news story; or c) ongoing involvement with the charity. Ordinary donations are repeatable and usually of a value that is personally affordable to the donor.

Cause and community matter a lot. These gifts are from the heart. They are motivated by belief in a cause or organization, and they are often triggered by a solicitation. Whether the solicitation is from a charity, peer or friend, it comes with some social expectations and, maybe even some peer pressure. Give and you will be participating in the community. It’s likely that community will recognize you in some way, maybe through a donor list. Thanks and recognition are extrinsic or external motivations for giving.

Although individual donors receive a tax receipt that produces savings, tax is rarely a primary consideration. Indeed, due to the tiered and opaque nature of Canada’s donation tax incentives, most donors have no idea how much they will save. (It ranges from 20 percent to 54 percent of 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 with ordinary donation due to the smaller amounts involved. In fact, approximately $2 billion in donation tax receipts don’t get claimed each year.

Exceptional donations
As the name implies, exceptional donations don’t happen very often in a person’s life. They are made from personal assets; that is, capital as opposed to income. Or, to put it another way, these are gifts from wealth.

Individuals considering a gift from assets face several factors that simply aren’t present for ordinary gifts. These include:
• Intrinsic or personal motivation. Exceptional donations start with donors reflecting on their life and circumstances, not with a fundraising solicitation.
• A catalytic life event. For example, a major asset sale, such as business or real estate, which creates a large tax event. Or, it could be consideration of one’s estate and beneficiaries.
• Assets are needed to live in and live on. As donations are irrevocable, financial planning is advisable to ensure there is enough for lifestyle and family.
• Due to the higher value of the gift, the donor often has multiple charitable interests, which may not all be well articulated or developed. The value of the gift may be too much to give at one time or to one charity.
• Canada has a robust tax regime to encourage donations from assets, which is among the most beneficial in the world.
• The decision to make an exceptional gift may be made well in advance knowing which charity to support. This gulf may be made greater by a tax deadline or just the enormous decisions involved with choosing beneficiaries and executing a will.

Broader context
The number of donors of exceptional gifts and the value of these gifts has increased significantly over the past 30 years in Canada. This is primarily due to the increase in wealth (albeit unequal distribution) driven by the stock market, business and real estate values.

Exceptional donations are difficult to quantify, but one measure is the increase in $1 million+ gift announcement by charities in the last 25 years. At the mega gift end of the spectrum, there has been at least five donations over $100 million announced since 2019. There has also been an unprecedented increase in private foundations and donor advised funds at public foundations.

Unfortunately, Canadian donation data is not detailed enough to provide a clear view on individual donation, although the trend is evident. Long-term, Statistic Canada has reported that the percentage of taxpayers who claim charitable donations is shrinking, dramatically.

In 1990, over 30 percent of Canadian claimed charitable donations, and in 2019, it is 19 percent. At the same time, the value of donations claimed has increased, which means fewer donors are giving more, and some, a lot more. In 2019, there were $10.3 billion in donations claimed, an increase of 3.6 percent over 2018.

The decline in donors is a worrying trend in terms of citizen participation in the community. The increase in exceptional donations represents both an opportunity and challenge for charities and donors. We’re experiencing an historical change in the way Canadians are giving to charity. We need to think differently about planning, engagement, support, equity and social impact.