Canadian charities embracing crypto donations even with market volatility
Digital currencies present challenges for smaller charities, but ‘we have a very long term view of this'
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Crypto-philanthropy is still in its early days in Canada, but it’s a hot topic in the charitable sector.
The online-giving portal CanadaHelps announced in May it will accept cryptocurrency donations for the thousands of charities it serves. Even recent volatility in the cryptocurrency market isn’t dissuading the charity from embracing the new technology.
“This isn’t a short-term solution for us,” says Jane Ricciardelli, chief operating officer and acting CEO. “We know crypto has its ups and downs, and we have a very long term view of this.”
Demographics are the driver behind crypto acceptance.
“Thirteen per cent of Canadians own cryptocurrency, but 24 per cent of Canadians 18 to 24 own crypto assets,” says Ricciardelli, quoting the results of a recent poll from KPMG. The poll also found that close to a third of Canadians 18 to 34 are interested in buying crypto assets.
Most donations to charity come from individuals older than 55, so charities are looking for ways to close the giving gap and encourage younger donors to give.
I recommend crypto philanthropists exercise a degree of patience with charities, because the charities are in really early stages of learning.
Arundel Gibson, KPMG
But crypto-donations can result in some hurdles and complexities for both donors and charities.
Taxes are one consideration. Charities issue tax receipts for cryptocurrency donations, but the Canada Revenue Agency does not treat crypto as currency.
“Legally speaking, CRA has only come out in the context of crypto being a commodity, and it’s not considered, in the legal sense, cash tender,” says Joseph Micallef, partner and national tax leader for financial services and asset management at KPMG in Toronto.
A cryptocurrency donation triggers a capital gain or loss for the donor, which means it may not be as advantageous from a tax perspective as other types of donations.
“In Canada, there are no special tax incentives for a donor to give cryptocurrency to charity, unlike the capital gains exemptions provided for gifts of publicly traded securities,” says Sharilyn Hale, the Toronto-based president of Watermark Philanthropic Counsel.
“Gifts of crypto to a charity are deemed to be gifts-in-kind, requiring an evaluation of fair market value to determine the amount of the charitable tax benefit. In most cases, it is best for the donor, and easiest for the charity, to sell the crypto and donate the cash proceeds.”
“In other jurisdictions, like the U.S. for example, donated crypto is often eligible for capital gains exemptions which may account for the rapid growth of such gifts there,” says Hale.
There is a lobbying effort under way to persuade the federal government to change the rules on crypto, says Micallef. “I don’t think we’ll see anything this year or the next year, but I know the topic has been raised with the Department of Finance. … It’s just at the very early stages,” he says.
Charities are still learning
Tax implications make up just one area of concern. Besides the usual due diligence on charities, donors need to consider how charities accept crypto, which coins they accept and the security practices they have in place, says Arundel Gibson, family advisor, philanthropy and impact, for KPMG’s Family Office in Toronto.
“I recommend crypto philanthropists exercise a degree of patience with charities, because the charities are in really early stages of learning, and the crypto philanthropists may be more advanced in their knowledge.”
For charities, Gibson recommends a “crawl, walk, run” approach to crypto.
“Crawl would be to work with a custodian that sends fiat, or cash, to the charity so the charity isn’t holding any crypto. The walk approach is building on that crawl – accepting and holding some crypto – a portion of which would be converted to fiat. And the run approach would be a much more advanced approach to the treasury investment strategy.”
CanadaHelps accepts cryptocurrency but doesn’t hold it, says Ricciardelli.
Donors come to the CanadaHelps website, select the currency they wish to donate (CanadaHelps accepts Bitcoin or Ethereum), and the charity to receive the donation.
“They give us information for their tax receipt and they are given a QR code, which if they scan that with their crypto exchange app they can make the donation,” she says.
Charities don’t want to hold crypto for long
Or they can use a mechanism that allows their crypto exchange app to send the donation into CanadaHelps’ crypto wallet. The donation is converted immediately into Canadian dollars. “We issue a tax receipt right away, so we need to know what the fair market value is. Exchanging into Canadian dollars is how we determine the value,” says Ricciardelli.
She adds that charities, hard-pressed by rising inflation, interest rates and the after-effects of the pandemic, want the money right away.
Ricciardelli adds that recent market volatility is another reason charities do not wish to hold the cryptocurrency for long.
Hale suggests that the relatively low levels of crypto donations mean current market volatility isn’t having a major impact on overall giving in Canada in the short term.
“However, those who were anticipating making charitable gifts with crypto may now be making some adjustments to how, what, and when they will make their intended gifts.”
Gibson says market gyrations aren’t the main timing factor for all donors, however. “Like many mainstream donors, crypto-philanthropists will give when they’re motived to do so regardless of the volatility.”
A barrier for smaller charities
She says some potential crypto donors prefer that charities hold on to crypto donations as an investment rather than immediately convert them to cash. “I would say that is part of the crypto enthusiast’s philosophy – the idea of crypto as an alternate monetary system. They’re really looking to use crypto in every aspect of their lives, whether it’s buying groceries or making donations.
“It’s possible charities that accept donations of crypto and hold those donations will see larger donations … because those philanthropists see an alignment of shared values,” Gibson says.
For smaller charities, the complexity of dealing with cryptocurrencies has been a barrier. Ricciardelli says the entry of CanadaHelps into the field has eased some of those concerns.
The charity uses the Bitvo exchange for its transactions.
“We’ve done all the research to ensure it’s a credible and really well secured exchange,” says Ricciardelli. “They’re regulated by FinTRAC [Canada’s financial intelligence unit]. They’re setting themselves up with securities regulators. They use a technology called chain analysis to look at every single donation as it’s coming through from an anti-money-laundering perspective and from a compliance with national and international lists of restricted accounts.”
Another hurdle is the large CO2 footprint of crypto-mining. Some environmental charities have refused cryptocurrency donations because of the carbon cost.
CanadaHelps partners with CarbonX to provide CO2 offsets for donations, says Ricciardelli.