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Simple
Cash Gifts
An
outright gift of cash and/or property to a registered charity
entitles the donor to a charitable tax receipt.
The
simple cash gift is the most widespread form of charitable
giving. This form of giving enables donors to provide any
level of support. The
simple cash gift is the easiest donation to make. Keep the
donation receipt with the CRA Registration Number and attach
it to your tax return in order to claim the charitable tax
credit. To
maximize the tax credit, based on the CRA’s administrative
practice, spouses can pool donation receipts and report them
on one tax return. If you make small annual donations, you can save receipts for
up to six years, which includes the current year, and then
make one combined claim.
Cheques
may be made out to Muskoka Heritage Foundation and mailed with
a Membership/Donation Form
to our office at Muskoka
Heritage Foundation,
9 Taylor Road, Box 482,
Bracebridge, ON P1L 1T8.
To make a donation with Visa or MasterCard, please
contact our office during business hours at (705) 645-7393 or
consider contributing through the CanadaHelps website, which
is accessible through the link
below.
Bequests
Under a Will
A
bequest in a Will to a registered charity of your choice is a
Planned Gift. Bequests will have a significant favourable
impact on you final tax return.
Given
that “you can’t take it with you,” a bequest made in
your Will could be quite generous.
That, in turn, would produce a valuable tax credit for
your final tax return. That
credit can save your estate a considerable amount of tax if
you have RSPs
or large holdings of capital property that will be deemed to
have been disposed of at your death.
In the year of death and the previous year, you can
claim a credit for donations up to 100% of your net income.
If
a donor decides to bequeath a portion of their estate to a
charitable organization, then the CRA has stated that the
specific property or the amount of the gift should be clearly
stated in the Will in order to claim the donation credit.
LIFE
INSURANCE
This
option often makes the gift affordable.
It will not diminish your estate after death. Proceeds
are paid promptly to the charity and not reduced by taxes and
probate fees. When
planned properly, the premiums are tax deductible. The cash
surrender value of existing policies can also be given to the
charity.
Present
Gift of a Life Insurance Policy
One
alternative to a bequest in your Will is the donation now of
an insurance policy on your life.
It may be an existing policy you no longer need or one
bought specifically for donation.
Typically, it will be a “whole life” policy that
has a cash surrender value.
To donate the policy, you name the charity as
beneficiary and owner. Unlike
a bequest, that transfer of ownership cannot be changed.
If an existing policy is donated, you will receive a
contribution receipt for the cash surrender value and any
accumulated dividends or interest, less any outstanding policy
loans.
Be
aware that the transfer of an existing policy is a taxable
disposition. You
will be fully taxed on the difference between the cash
surrender value and the adjusted cost base.
For most people, the tax credit from the donation will
offset the tax due. You
will also get contribution receipts in future years for any
premiums you pay to keep the policy going.
With
a cash bequest in your Will, your estate gets a tax credit
based on the full amount given.
By donating an insurance policy now, you get tax
credits for use now, but they are based only on the policy’s
value—not the death benefit ultimately paid out.
Deferred
Gift of a Life Insurance Policy
You
could name the charity as your life insurance beneficiary
while retaining ownership of the policy.
This arrangement is very similar to the bequest
described earlier, in that the death benefit would be paid
outside your estate and would not be subject to probate taxes.
With a present gift of a policy, you cannot change
beneficiaries. With
a deferred gift, you can, whenever you want.
Furthermore, the donation credit on a deceased’s
final income tax return to those donors that designate
charities as beneficiaries of their life insurance policies.
The amount of the donation on the deceased’s final
income tax return would equal the amount of the death benefit
of the policy paid by the insurance company.
CHARITABLE
GIFT ANNUITY
A
Charitable Gift Annuity is an arrangement whereby a donor
gives a certain sum to a registered charity in return for
fixed, guaranteed payments for the life of the donor (and/or
another person), or for a term of years.
Payment may be fully or partially tax-free and the gift
may also generate a charitable tax receipt.
A
charitable gift annuity enables you to give a lump sum to a
charity other than a charitable foundation and receive
periodic income in return, usually monthly. It’s designed
for retirees; the older you are when the agreement is made,
the higher your income. This arrangement is most beneficial
for those aged 70 or over.
Charitable
gift annuities are irrevocable; you give up control of your
money. With a directly issued “single-life” annuity, the
charity invests the initial amount and provides you with
payments for life.
Charitable
Remainder Trusts
This
is an arrangement in which property or money is donated to a
charity, but the donor continues to use the property and/or
receive income from it while living.
Until
recently, most people planning to leave large gifts to charity
have done so via a bequest under their Will. Unfortunately
this method provides no income tax relief to the individual
while alive, but rather, provides the tax benefits to his or
her estate.
One
alternative to consider is the irrevocable intervivos charitable
remainder trust.
Essentially
this is a living trust you establish by contributing cash or
other property. Throughout your lifetime you will receive
income from the trust, but upon your death the “remainder”
will pass directly to the charity you name as the beneficiary.
This approach will provide immediate tax relief to you,
instead of your future estate. The trust can be set up so that
the property passes to the charity only when both spouses die.
It is also possible to appoint a corporate trustee to ensure
the trust funds are professionally managed according to the
terms of the trust.
Gifts
of Listed Securities
Gifts
of public securities listed on approved stock exchanges can be
donated to a registered charity of your choice. The donor
benefits in two ways:
- The
donor receives a tax receipt for the full amount of the
value of the security when transferred to the charity.
- The
amount of capital gain subject to tax is reduced to
zero.
The
donation of publicly traded securities is considered to be a
disposition by the donor for Canadian tax purposes. This means
that a donation of publicly traded securities to a charity
will result in either a capital gain or a capital loss to the
donor. However, since May 2, 2006, the taxable capital gain
for donated securities is reduced to zero.
In
addition to the eliminated capital gains, a donor also
receives a charitable donation tax receipt for the Fair Market
Value (FMV) of the donated securities. The donation tax
receipt can be used to reduce the donor’s income taxes. The
amount of the donation receipt that is issued by the recipient
charity is usually equal to the FMV of the securities donated
at the time that these securities are received by the charity.
Combining
the Elimination of the Capital Gain and the Donations Tax
Credit
When
you donate a security with accrued capital gains, you benefit
from the elimination of the capital gain plus the donation tax
credit. The combined tax savings can be quite impressive. The
following example illustrates this point by comparing two
alternatives for donating securities with a FMV of $50,000 and
an Adjusted Cost Base (ACB) of zero.
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Sell
shares and donate cash
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Donate
shares directly
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FMV
of donation (a)
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$50,000
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$50,000
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Adjusted
cost base
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0
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0
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Capital
gain
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$50,000
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$50,000
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Taxable
capital gain
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$25,000
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0
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Tax
on capital gain @46% (b)
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$11,500
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0
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Tax
savings from donation tax credit (c)
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$23,000
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$23,000
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Total
cost of donation
= (a) + (b) – (c)
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$38,500
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$27,000
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Recent
Federal tax act changes allow gifts of RSPs, RIFs etc. to be
made to a registered charity upon death.
Assuming the entire contribution can be used, the tax
credit would completely offset the tax payable on the
proceeds.
Under
former income tax rules, donations made as a consequence of a
beneficiary election on an RSP/RIF paid directly to a charity
upon the death of the planholder do not qualify for the
charitable donation tax credit.
To obtain the donation tax credit, the RSP/RIF assets
had to be made as a bequest under a Will.
Naming a charity as a beneficiary of an RSP/RIF will
now qualify the bequest as a charitable donation and as a
result, probate taxes can be avoided.
However, to qualify for the donation tax credit, the
transfer of an RSP/RIF should occur no later than 36 months
after the individual’s death.
Gifts
of Real Estate may be made in various ways. Significant tax
advantages may be available to donors.
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