Here’s a good New Year’s Resolution, why not consider charitable gifting to help those less fortunate, both here at home and around the world? As a Rotarian, I am very cognisant of both the global and local reach of the many projects we support and the long term benefit that these provide. Global polio eradication is an important one, along with providing shelter, fresh water, medical or other aid for major disaster areas.
Added to the feel-good aspect of charitable gifting is the ability for each of us to make use of the generous tax strategies available to enhance the gifting process. I will highlight some of the ways to do this.
First time donors can qualify for the First Time Super Donor’s Credit. If you or your partner nave never donated to an approved charity since 2007, you are eligible to use this credit. This is an extra non-refundable credit of 25% of any donations up to $1,000 that can only be used once prior to the 2018 tax season.
Gifting stocks in-kind with significant capital gains. If you own securities you can gift them in-kind directly to a charity. This way you avoid triggering the capital gains that would happen if they were cashed in and the net cash value donated. By gifting the securities you get the full market value on the day you transfer over to the charity. The charity can cash these in if they choose with no capital gains, or they can keep the investment and use the dividends as income.
Gifting capital property: It may be beneficial to donate capital property, rather than selling the property and then donating the cash (or after tax proceeds) from the sale. Your annual donation limit is increased by 25% of any taxable capital gains triggered on the donation of this property, or income from recapture of any capital cost allowance on the donation.
Gifting life insurance: There are three ways to use life insurance to donate to a charity.
- name the charity as the beneficiary of the policy
- Donate an existing or new policy to charity
- Donate certain assets to a charity and use a life insurance policy to replace the value of those assets. You get a charitable tax receipt for the amount you donate and is a useful way to replace estate value lost to debt or tax on death.
This just highlights a few gifting options. When gifting one has to be mindful of annual donation limits, as your normal limit is 75% of your net income or 100% in the year of death or the year immediately preceding death. Gifting capital property can increase your limit higher than 75%, plus the annual donation limit can be 100% of net income with a gift of ecologically sensitive land or Canadian cultural property.
Donations exceeding your annual limit may be carried forward and claimed in one of the following five years. It’s important to make sure you are issued a charitable donation receipt by the charity to use to reduce your tax owing, either in the year of donation or subsequent five year period.
Sit down with a trusted financial advisor and discuss the gifting process and the allowable contribution limits.
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