The Benefits of Charitable Gifting

We all want to make a difference in our lives and supporting our favourite charity with an annual donation is a wonderful start. The charity gets our cash donation, and we get a Tax Credit reducing our income tax liabilities – everyone wins!

Canadians can support a registered charity, foundation, non-profit, museum, educational institution, or religious group of their choosing. If you wish to make a meaningful contribution here are six ways to do so, regardless of your budget.

Leaving a gift through your Will

  • After liquidating assets and paying final expenses, your executor makes a cash donation to the charity.
  • In turn the Estate receives a Tax Credit which helps settles any final income tax owing to CRA.

Donating securities or real estate

  • Donation either while you are alive or at your death through the Will.
  • Items may include individual stocks, bonds, mutual or segregated funds, raw land, or an existing piece of real estate.
  • Capital Gains liability may be offset with the resulting Tax Credit receipt.

Naming the charity as beneficiary on RRSPs, RRIFs or TFSAs

  • An offsetting Tax Credit receipt would eliminate most or all the taxes owing on the individuals’ final tax return

 Gifting a Life Insurance Policy

  • An existing life insurance policy can change the current beneficiary to the intended charity. At death, the proceeds will go automatically to the charity, without incurring probate fees.
  • Conversely, a new or existing policy can be assigned to the charity where they become the new owner.
  • Annual premiums paid by the individual are now eligible as a Tax Credit once the ownership is changed to the charity.

Using a Life or Term Certain Annuity

  • In exchange for an agreed capital contribution, an annuity pays a periodic stream of income to an individual either for a set period (called a Term Certain Annuity) or for their lifetime (called a Life Annuity).
  • Annuities can be structured to allow the charity to purchase the annuity to pay the individual this periodic stream of income. At death, the charity receives the remaining annuity payments due, or an existing contract can be transferred to the organization.

 Creating a Charitable Remainder Trust (CRT)

  • A CRT has many advantages including privacy, avoiding dependent claims, and managing assets like real estate or private shares.
  • The individual still has use of the asset (such as living in their condominium) during their lifetime.
  • Once assets transfer into a CRT, they are irrevocable and can not be unwound. Use a lawyer who specializes in Estate Planning when creating Trusts.

As with any tax planning strategy, deal with an accountant, financial advisor and lawyer who are comfortable with the nuances of each approach.