Charitable Giving

Planned charitable giving is a strategic approach that makes optimal use of financial structures and tax rules for the mutual benefit of both you and the charity. It can be done during your lifetime, in contemplation of your death, or after your death through a will.

The Donation Credit

Many Canadians donate to their favourite charities and receive a tax credit in return. The federal tax credit is 15% of the first $200 of donations and 29% for donations over $200. You can also claim an additional provincial tax credit.

During your lifetime, you may claim donations of up to 75% of your net income each year. In the year of death, donations can be as much as 100% of your net income, and any excess donations can be carried back to offset as much as 100% of the previous year’s income.

Wills and Bequests

As part of an Estate Plan, your will can be a foundation to make sure your wishes are followed upon your death. In your will you can designate a charity or charities to receive gifts from your estate using cash, transfers of properties such as real estate or stocks or life insurance.

Life Insurance

Another common method of gifting is through a life insurance policy. You can purchase a new policy in the name of the charity and designate the charity as the beneficiary. You pay the premiums during your lifetime, for which you receive an annual donation receipt.

An existing policy can also be transferred to the charity. The amount of the donation is the cash surrender value of the policy in the year of transfer, and subsequent premiums will generate donation receipts in the later years. Be aware that the policy is deemed disposed on transfer, and tax may be due at that time.

You can also simply name a charity as the beneficiary of a policy that you hold in your name. Upon death, the death benefit of the policy will be paid to the charity and your estate will receive a tax credit.

Alternatively, you could name your estate as the beneficiary of the life insurance policy, with a bequest of the proceeds to the charity in your will. In this way the proceeds could first be used to pay final expenses.

Donating Securities In-Kind

If you have mutual funds or other securities that have increased in value, consider donating them in-kind. The May 2, 2006 federal budget eliminated the taxation of capital gains on in-kind transfers of publicly traded securities and mutual funds that occur on or after May 2, 2006. You will receive a donation receipt for the fair market value of the securities on the date of the transfer.

Publicly listed securities acquired with employee stock options can similarly be gifted to a registered charity. Your employment benefit that is included in your taxable income is reduced to 0%.

Gifting your RRSP or RRIF

It is possible to name a charity as the direct beneficiary of your RRSP or RRIF so that upon death, the charity will receive the entire proceeds of the plan. Keep in mind that the date of death value of your RRSP or RRIF will be included on your final income tax return.

If you find yourself in the enviable position of not requiring the income from your RRIF in your retirement years, you can donate the annual income from your RRIF to a charity and receive a donation receipt in return.

Charitable Annuities

As we grow older and the administration of our financial affairs becomes more difficult, it is natural to look for opportunities to manage the distribution of our estate while we are still able to make critical decisions. A charitable annuity is a way of addressing these concerns by giving you a tax advantage income for life. You can contribute an amount of capital which the charity uses to purchase an annuity that will give you a guaranteed income. A portion of your capital may become a gift to charity for which you receive a receipt for tax purposes.

Charitable Remainder Trust

A charitable remainder trust is a formal irrevocable trust, created to provide you an income from selected investment assets for life and pass these assets to your chosen charity at the time of your death. The trust can provide an income to you or someone who you designate for life or for a specified number of years. When the trust terminates, the capital in the trust is available for the use of the charity.

Gifts of Residual Interest

You can make a gift of property such as art or real estate while still reserving a life interest in it. In addition to having the use and enjoyment of the property during your lifetime, you will receive a tax credit for the value of the residual interest.

Gift of Interest Free Loans

Interest free loans to your favourite charity allow the charity to receive the investment income from your money without any tax consequences to you. You do not receive a receipt for income tax purposes but you still have the option of having the capital returned to you.

Charitable Giving

Planned charitable giving is a strategic approach that makes optimal use of financial structures and tax rules for the mutual benefit of both you and the charity. It can be done during your lifetime, in contemplation of your death, or after your death through a will.

The Donation Credit

Many Canadians donate to their favourite charities and receive a tax credit in return. The federal tax credit is 15% of the first $200 of donations and 29% for donations over $200. You can also claim an additional provincial tax credit.

During your lifetime, you may claim donations of up to 75% of your net income each year. In the year of death, donations can be as much as 100% of your net income, and any excess donations can be carried back to offset as much as 100% of the previous year’s income.

Wills and Bequests

As part of an Estate Plan, your will can be a foundation to make sure your wishes are followed upon your death. In your will you can designate a charity or charities to receive gifts from your estate using cash, transfers of properties such as real estate or stocks or life insurance.

Life Insurance

Another common method of gifting is through a life insurance policy. You can purchase a new policy in the name of the charity and designate the charity as the beneficiary. You pay the premiums during your lifetime, for which you receive an annual donation receipt.

An existing policy can also be transferred to the charity. The amount of the donation is the cash surrender value of the policy in the year of transfer, and subsequent premiums will generate donation receipts in the later years. Be aware that the policy is deemed disposed on transfer, and tax may be due at that time.

You can also simply name a charity as the beneficiary of a policy that you hold in your name. Upon death, the death benefit of the policy will be paid to the charity and your estate will receive a tax credit.

Alternatively, you could name your estate as the beneficiary of the life insurance policy, with a bequest of the proceeds to the charity in your will. In this way the proceeds could first be used to pay final expenses.

Donating Securities In-Kind

If you have mutual funds or other securities that have increased in value, consider donating them in-kind. The May 2, 2006 federal budget eliminated the taxation of capital gains on in-kind transfers of publicly traded securities and mutual funds that occur on or after May 2, 2006. You will receive a donation receipt for the fair market value of the securities on the date of the transfer.

Publicly listed securities acquired with employee stock options can similarly be gifted to a registered charity. Your employment benefit that is included in your taxable income is reduced to 0%.

Gifting your RRSP or RRIF

It is possible to name a charity as the direct beneficiary of your RRSP or RRIF so that upon death, the charity will receive the entire proceeds of the plan. Keep in mind that the date of death value of your RRSP or RRIF will be included on your final income tax return.

If you find yourself in the enviable position of not requiring the income from your RRIF in your retirement years, you can donate the annual income from your RRIF to a charity and receive a donation receipt in return.

Charitable Annuities

As we grow older and the administration of our financial affairs becomes more difficult, it is natural to look for opportunities to manage the distribution of our estate while we are still able to make critical decisions. A charitable annuity is a way of addressing these concerns by giving you a tax advantage income for life. You can contribute an amount of capital which the charity uses to purchase an annuity that will give you a guaranteed income. A portion of your capital may become a gift to charity for which you receive a receipt for tax purposes.

Charitable Remainder Trust

A charitable remainder trust is a formal irrevocable trust, created to provide you an income from selected investment assets for life and pass these assets to your chosen charity at the time of your death. The trust can provide an income to you or someone who you designate for life or for a specified number of years. When the trust terminates, the capital in the trust is available for the use of the charity.

Gifts of Residual Interest

You can make a gift of property such as art or real estate while still reserving a life interest in it. In addition to having the use and enjoyment of the property during your lifetime, you will receive a tax credit for the value of the residual interest.

Gift of Interest Free Loans

Interest free loans to your favourite charity allow the charity to receive the investment income from your money without any tax consequences to you. You do not receive a receipt for income tax purposes but you still have the option of having the capital returned to you.