Northern Lights: Philanthropic Trends in Canada

By John Hermans, Executive Director, Prospect Management & Advancement Research, Division of University Advancement, University of Toronto

Canada follows in the footsteps of its larger neighbour to the south in many aspects, and the world of philanthropy and major gift fundraising has been no exception. As philanthropic giving continues to evolve in the United States, several trends in Canada have mirrored those in the U.S., around nationwide donor characteristics; growth in large, transformative gifts; an increasing reliance on major fundraising campaigns at all nonprofits and the evolution of philanthropists organizing their giving through charitable foundations and donor-advised funds (DAFs). Most recently, the COVID-19 pandemic has had a profound effect on both the economy and philanthropic giving. This article will take a closer look at some of these trends.

Fewer Donors, Larger Gifts

In February 2020, Statistics Canada released its latest data on charitable donations in the country, and the results confirmed an ongoing trend that is of concern to many Canadian non-profits: while overall charitable donations appear to be increasing, the number of donors making those gifts is decreasing.

Total donations claimed on tax returns rose 3.9% in 2018 to just under $10.0 billion. However, from 2017 to 2018, the number of tax filers claiming donations declined 0.4% to 5,324,280, continuing a downward trend which began in 2011. Donor numbers were down across the country, with the exception of Ontario (+0.1%) and Quebec (0.0%). [1]

Canada3.pngEvidence suggests that growing income disparity may partially explain the trend. Tax filers with incomes of $80,000 or more represented 35% of all donors in 2018. The relative importance of this group among donors has grown steadily since 2011, when they represented 27% of all donors. [2] Focusing on the engagement and retention of these high-income donors remains a priority for all Canadian non-profits.

Growth in Principal Gifts

As ultra-high net worth donors in the United States have set ever-higher standards with their generosity, Canada has seen its own growth in principal gifts (which we’ll define as single gifts/pledges of $5 million or more) surge forward to keep pace.

The Advancement Research team at the University of Toronto tracks publicly-announced gifts of $5 million+ for prospect identification and valuation benchmarking. The last two decades have seen a noted acceleration in gifts of this magnitude. 1997 was one of the earliest years to see multiple, publicly recognized gifts of $5 million or more, with two gifts of that size. In 2017, Canadian nonprofits celebrated a record-breaking 77 “mega gifts” of $5 million or more, crossing the $1 billion threshold for the first time with a combined total of over $1.4 billion.

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Larger and More Campaigns

As the number of principal gift donors has grown, an increasing number of Canadian nonprofits have embarked on sophisticated, ambitious and long-term fundraising campaigns, in an attempt to compete for and attract these large gifts.

The University of Toronto’s Great Minds Campaign was one of the first successful mega campaigns in Canada, beginning with a goal of $400 million and ultimately raising $1.1 billion by the time it closed in 2003. Since then, campaign envy has been a driving force in Canadian fundraising, with organizations across the higher education, healthcare and cultural sectors all pursing ever-more ambitious campaigns.

Recent trends have seen the adoption of U.S.-styled comprehensive campaigns (which incorporate goals other than financial ones, such as alumni engagement initiatives), and mini-campaigns that follow successful capital campaigns to focus on specific objectives [3] (note UBC’s Campaign for Students in the list below).

Current and recently completed University fundraising campaigns in Canada with $100m+ goals:

Taxation, Foundations and DAFs

Under Canadian tax legislation, donations of cash, goods or listed securities to a registered charity or other qualified recipients are eligible for a charitable tax credit. Generally, donors can claim part or all of the eligible amount of their gifts, up to the limit of 75% of their net income for the year. The most significant change in Canadian legislation took place in 2006 with the elimination of the capital gains tax on gifts of listed securities. This change resulted in gifts of stock of more than $1 billion virtually every year since 2006. An ongoing advocacy effort continues to campaign to extend the tax credit to owners of private company shares or real estate who sell their assets to an arm's length party and donate the cash to a charity, but several successive federal governments have been reluctant to make that change. [4]

As in the U.S., the emergence of donor advised funds (DAFs) as an alternative to traditional private charitable foundations is the dominant trend of the last decade. DAFs have been a favored vehicle of community foundations in Canada since 1952, but in the early 2000s, Canadian financial institutions began marketing this model to high net worth clients reluctant to establish a private family foundation.

As of January 2019, Canadians have established an estimated 10,000+ DAFs, holding assets estimated at nearly $4 billion. [5] While private foundations must disburse an annual minimum of 3.5% of the value of their assets, it is the accommodating foundation (or host) for the DAF that must meet this requirement: because many DAF account holders disburse more than 3.5%, others may not make any grants at all. 

In 2019, the Canadian Senate suggested some solutions to the problem of assets sitting idle in DAFs in perpetuity, including: extending the annual minimum 3.5% disbursement requirement to each DAF account; imposing a limited payout term for DAFs (possibly 5 to 10 years); and delaying the issuance of tax receipts until funds are distributed to an operating charity. For now, the situation remains unchanged pending further study and legislation. [6]

Impact of COVID-19

While the current COVID-19 pandemic is expected to have a significant negative impact on Canada’s economy and philanthropic giving, the full extent of that impact remains unclear. Several studies have established that charitable giving in North America tracks closely with growth or retraction in GDP. While the Bank of Canada has declined to release a definitive projection, it has estimated that GDP will decline by 2.6% in the first quarter of 2020, representing a 10% or greater drop at an annualized rate.

Preliminary data suggests that the health and economic impact of the pandemic will fall disproportionately on lower-income Canadians [7], and that high net worth Canadians are relatively insulated from the economic downturn. Canadian stock prices have been volatile, but the S&P/TSX Composite Index has illustrated the degree to which they remain resilient. For example, the Index gained 10.5% in April after losing 17.7% in March, suggesting that high net worth investors have recouped much of their earlier losses.

The full impact of the pandemic likely won’t be known until well into 2021. If the much-hoped-for “V-shaped” rapid recovery takes place, Canadians can expect a similar recovery in philanthropic giving. (As a point of comparison, see the table above titled $5m+ gifts in Canada, and note both the decline and rapid increase in such gifts that followed the 2008-2009 economic crisis.)

As in the U.S., and around the world, the pandemic has inspired an unprecedented response from corporations, foundations and individual philanthropists in Canada. As of July 2020, a total of number of gifts of $5m or more have been pledged to pandemic-related initiatives, including a notable gift of $60 million from one of the country’s wealthiest families, and $25 million from one of its largest banks. As with all of the trends noted above, Canadian philanthropy will likely continue to follow in the footsteps of its U.S. neighbours as both countries adjust to their new normal.

Additional Resources

Imagine Canada (formerly the Canadian Centre for Philanthropy) is a non-profit organization dedicated to supporting and advocating for Canadian non-profits. Subscribe to their 360 Blog for news and updates on the sector.

KCI is one of Canada’s leading consulting firms in the charitable sector. See the Trends section of their website for articles of interest.

Statistics Canada is the best source of raw data (and analysis) on Canadian economic and non-profit sector performance. See their latest data release on Charitable Donors in Canada in 2018; additional data releases on the charitable sector can be found in the subject page for Society and Community.

Sources

[1] https://www150.statcan.gc.ca/n1/daily-quotidien/200214/dq200214a-eng.htm

[2] https://www150.statcan.gc.ca/n1/daily-quotidien/200214/dq200214a-eng.htm

[3] https://kciphilanthropy.com/fundraising-campaigns-in-canada/

[4] https://www.theglobeandmail.com/business/commentary/article-why-trudeau-government-should-consider-tax-changes-for-charities-when/

[5] https://www.theglobeandmail.com/investing/globe-wealth/article-what-kind-of-giver-are-you-five-donor-profiles/

[6] https://business.financialpost.com/opinion/are-donor-advised-funds-just-another-tax-break-for-the-wealthy

[7] https://www.theglobeandmail.com/canada/article-how-covid-19-is-exposing-canadas-socioeconomic-inequalities/

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