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TD Bank Offers Win-Win Strategy for Retired Taxpayers and Charities in Challenging Times

4 minute read
By TD Bank Group
• Dec. 11, 2008
- Charities face 'perfect storm' of higher demands, lower revenues - Mandatory RRIF withdrawals provide opportunity to boost donations while lowering taxes TORONTO, Dec. 11 /CNW/ - As the window of opportunity for making charitable donations that are tax-deductible for the 2008 tax year draws to a close, TD Economics has issued a special report that shows how retired Canadians can reduce their tax burden while supporting their favourite causes. The strategy involves reducing taxes that are triggered by mandatory income withdrawals from Registered Retirement Income Funds, or RRIFs. By December 31st of the year they turn 71, Canadians must convert their RRSP into a RRIF. From age 72 onwards, they must make mandatory income withdrawals from their RRIF, beginning with 7.38% of its value in the first year and climbing to 20% by age 94. This withdrawn amount is taxed at the owner's marginal - or highest - tax rate. Therefore, those retirees who have sufficient retirement income from pensions, non-registered assets and other sources outside their RRIF are paying tax on income they do not need. "Growth in donations to Canadian charities have been slowing in the past three years, and with the prospects of a recession, the outlook for them in 2008 and 2009 is even bleaker," says report author Craig Alexander, Vice President and Deputy Chief Economist, TD Bank Financial Group. "In the spirit of the holiday season, we have put our minds to finding strategies that are win-win for donors and charities." Doing Well By Doing Good A 72-year old Canadian with a RRIF valued at $135,501 would have to withdraw $10,000 in income. Assuming this individual has additional income of $150,000 per year from sources other than their RRIF, their marginal tax rate is 46.4% and they would have to pay $4,640 in taxes on the RRIF withdrawal. If this same individual donates exactly that amount to charity that year, they would receive a tax credit equal to that amount.(1) In effect, they would neutralize the tax hit. For residents of Alberta, the benefit would be even higher since the charitable tax credit in those provinces is higher than the personal marginal tax rate. "This year, Canada's charitable sector is facing a 'perfect storm' of increased demand for their services, potentially lower government transfers to non-profits and belt-tightening by individual donors," says Jo-Anne Ryan, Vice President, Philanthropic Advisory Services, TD Waterhouse and Executive Director of the Private Giving Foundation."Yet there is a significant and growing amount of taxes that will be paid by retirees due to mandatory RRIF withdrawals. By 'connecting the dots' between tax minimization and philanthropy, many thousands of Canadian retirees can do well by doing good." If wealthy boomers adopt this charitable giving strategy, the impact could be very significant. TD Economics estimates that there could be $655 billion in RRSP assets in 2008, potentially rising to more than $1.8 trillion by 2020. Roughly two-thirds of all RRSP contributions in recent years have been made by Canadians with annual incomes higher than $60,000, and there have been sharp increases among those with incomes higher than $80,000 this decade. Currently, about 217,000 Canadians turn age 71 every year, but this will rise to 411,000 annually by 2020. The special report, entitled Win-Win Strategies for Retirees and Charities in Challenging Times, points out that donations are too often left to the individual's estate or are made in the final years of one's life. This often results in lost tax credits due to the donation limits that may be claimed in the year of death. Accelerating some of this giving during one's lifetime will result in lower overall taxes and larger charitable gifts. "We recommend making charitable giving an integral part of your ongoing financial plan," concludes Ms. Ryan. "Your financial advisor can help you make the most of the generous incentives offered by the Canadian tax system while helping charities in a time of growing need." (1) Assumes this donation is in addition to $200 of other donations About TD Bank Financial Group The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Financial Group. TD Bank Financial Group is the sixth largest bank in North America by branches and serves approximately 17 million customers in four key businesses operating in a number of locations in key financial centres around the globe: Canadian Personal and Commercial Banking, including TD Canada Trust and TD Insurance; Wealth Management, including TD Waterhouse and an investment in TD Ameritrade; U.S. Personal and Commercial Banking through TD Banknorth and TD Bank, America's Most Convenient Bank; and Wholesale Banking, including TD Securities. TD Bank Financial Group also ranks among the world's leading online financial services firms, with more than 5.5 million online customers. TD Bank Financial Group had CDN$563 billion in assets as of October 31, 2008. The Toronto-Dominion Bank trades under the symbol "TD" on the Toronto Stock Exchange and New York Stock Exchange. For the report Win-Win Strategies for Retirees and Charities in Challenging Times, please visit http://www.td.com/economics/special/ca1208_charity.pdf. For further information: Stephen Ledgley, NATIONAL Public Relations, (416) 848-1376

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