Understanding Donor Advised Funds in Canada
One important, yet often underutilized, tool available for charitable giving today is the Donor Advised Fund (DAF). DAFs offer a flexible and tax-efficient way to integrate charitable giving into a broader wealth and legacy plan. By combining immediate tax benefits with the ability to invest, grow, and distribute funds over time, they allow donors to separate the timing of their tax planning from charitable decisions—creating both strategic and personal advantages.
To understand where DAFs fit within a wealth plan, it is helpful to first consider the landscape of accounts available and how each supports financial and legacy objectives.
Figure 1: Accounts to support your financial goals
Within this landscape, a DAF is a restricted account held by a registered charity in the name of an individual or family. Once established, donors can contribute assets (donate) to the DAF, receive an immediate tax receipt, and recommend grants from their DAF to charities over time. In this way, a DAF functions alongside other financial accounts as a versatile vehicle for charitable giving.
DAFs continue to gain traction in Canada, with approximately $16.6 billion in assets. Today, roughly 1 in 10 donated dollars flows through a DAF, with an estimated $1.9 billion granted to charities in 2024.
Source: Blumbergs DAF Report 2024
How DAFs work
- Step 1: We help clients establish a Donor Advised Fund by selecting a charitable partner – a registered Canadian charity authorized by the CRA to administer DAFs – and formalizing the fund’s name (e.g., The Westwood Family Foundation).
- Step 2: Next, we open an investment account with the charity partner so that assets in the DAF can be invested and professionally managed.
- Step 3: The client contributes cash, securities, or other eligible assets to their DAF, and receives a charitable tax receipt for the full value of each donation (Figure 2).
- Step 4: We invest the assets in the DAF in accordance with the investment policy statement set by the charitable partner (in many cases it would be a global balanced mandate).
- Step 5: The client works with the charitable partner to define philanthropic priorities and recommends grants from the DAF to selected charities or causes. Note that when the DAF distributes grants to selected charities, this does not generate an additional donation receipt for the original donor who established the DAF.
Figure 2: How DAFs work
Disbursement quota
The Canada Revenue Agency (CRA) requires registered charities and foundations to meet annual minimum disbursement quotas based on the prior two-year average value of assets:
- 3.5% on values up to $1,000,000
- 5.0% on values over $1,000,000
These requirements apply at the charitable partner level, not to individual DAFs held within it. However, some charity partners may require a minimum 5% annual distributions at the DAF level, so it is important to confirm this with the charity sponsor in advance.
Key features and benefits of DAFs
- Quick and efficient to establish – typically weeks, not months.
- Broad range of eligible contributions, including cash, publicly listed securities, registered account assets, life insurance policies, annuities, private shares, real estate, art, and other collectibles.
- Simplified administration, record-keeping, and compliance.
- Support by the charity partner with identifying and creating unique gifting to charities you wish to support.
- Excellent tool for establishing a family giving vehicle, and/or for endowment-type giving.
- Integration into your estate planning, including establishing a DAF through a will.
- Ability for the DAF to continue from one generation to the next.
The costs of establishing a DAF and provide for the ongoing life are transparent and typically will involve fees by the charity partner (cost recovery fee), covering all the administrative, reporting, and planned giving. The investment management fee will be determined by the investment firm. Combined, these typically range from 0.85% to 1.75% annually, depending on the value of the fund.
Case study: Donations during lifetime – Sale of U.S. vacation property
To illustrate how this can work in practice, consider a scenario where a significant asset sale creates an opportunity to align charitable giving with tax planning.
Harry and Sally, retired Alberta residents who each earn regular income of $75,000, sell their jointly-owned Canadian recreation property and allocate a portion of the proceeds toward charitable giving. Let’s review how this works from a financial perspective.
Basic Tax Consequence
|
Sale price |
$1,320,000 |
|
Cost |
$440,000 |
|
Capital gain |
$880,000 |
|
Inclusion rate |
50% |
|
Taxable capital gain (TCG) |
$440,000 |
|
Tax payable on TCG |
$172,301 |
Note: Calculations are based on graduated tax rates for individual income above $75K and assume that the taxable capital gain is allocated equally to Harry and Sally.
Impact of a $350,000 donation into their Donor Advised Fund
Assuming they split the donation, both Harry & Sally would receive a tax credit of $89,009 each from their donations. Together, this $178,018 tax credit would eliminate any income tax owing from the sale of the recreation property.
The end result
Without the donation, Harry & Sally would net $1,147,699, and the government would collect $172,301 in taxes. By using a donation strategy alongside the sale of the property, Harry & Sally would net $975,716 and would have $350,000 set aside in their Donor Advised Fund, and the taxes payable on the sale of the property would be eliminated.
Bonus consideration
If Harry & Sally wanted to improve their tax situation further, they might consider donating $350,000 of appreciated investments from their personal non-registered accounts, which would allow Harry & Sally to avoid paying tax on the accrued capital gains on those investments, and use $350,000 of cash from the sale of the property to rebuy the donated investments at today’s current price. This would help reduce future capital gains.
When to review your charitable giving strategy
Certain financial or personal milestones may warrant a closer look at how your giving is structured. Revisiting your approach at these times can open the door to greater flexibility, clarity, and long-term impact.
- A significant taxable event (e.g., sale of a business, property, or investments)
- Holding significant registered accounts with pending tax liability
- No heirs, or plans to allocate a meaningful portion of the estate to charity
- Ownership of holding companies or private preferred shares
- A desire for greater control over how, when, and how publicly donations are made
- Interest in private foundations or involving family members in giving
- A need to simplify giving by consolidating donations into a single structure
- Seeking enhanced support with charitable planning, due diligence, or multi-year giving strategies
Conclusion
For families seeking to create a lasting charitable legacy, involve multiple generations, or streamline their giving, DAFs offer a practical and scalable approach. When incorporated thoughtfully into an overall financial plan, they can enhance outcomes for both the donor and the causes they care most about.
At 801 Wealth, we support clients at each stage of their charitable giving journey—from education and planning through to implementation. The goal is to ensure that giving is intentional, well-timed, and aligned with broader financial objectives, making Donor Advised Funds a valuable tool worth serious consideration.
National Bank Financial – Wealth Management (NBFWM) is a division of National Bank Financial Inc. (NBF), as well as a trademark owned by National Bank of Canada (NBC) that is used under license by NBF. NBF is a member of the Canadian Investment Regulatory Organization (CIRO) and the Canadian Investor Protection Fund (CIPF), and is a wholly-owned subsidiary of NBC, a public company listed on the Toronto Stock Exchange (TSX: NA).
The opinions expressed do not necessarily reflect those of NBF. The particulars contained herein were obtained from sources we believe to be reliable, but are not guaranteed by us and may be incomplete. The opinions expressed consider a number of factors including our analysis and interpretation of these particulars, such as historical data, and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein. Unit values and returns will fluctuate and past performance is not necessarily indicative of future performance.
NBF is not a tax advisor and clients should seek professional advice on tax-related matters, including their personal situation. Please note that comments included in this letter are for information purposes only and are not intended to provide legal, tax or accounting advice. The comments reflect the opinion of their author only and may not reflect the views of NBF. Please consult a professional.