We Canadians have a strong tradition of donating to charities. Unfortunately due to government funding cutbacks, the amount of public funding going to charities has been dramatically reduced. This leaves many charitable organizations scrambling for adequate funding in order to cope with the demands of our aging population and ever escalating operational costs.
When gifting to a charity it’s important to make sure they are registered with CRA so that you get a legal tax receipt with their registration number on them. To confirm a charity is legitimate you either can call CRA at 1-800-267-2384 directly or visit their web site at: cra-arc.gc.ca/chrts-gvng/lstngs/menu-eng.
It’s important to be aware of the “tax-sheltered” donation scams out there, such as gifting trust arrangements, leveraged cash donations and buy-low donate-high arrangements, so once again it’s important that you check these out.
For a gift to charity to obtain special tax considerations it must qualify as a “voluntary transfer of property without valuable consideration”. In other words, when made by an individual or a corporation, it must be done so without the expectation on receiving something in return. Property under this definition usually falls into one of the following categories.
Cash, gifts in kind such as stocks, bonds and real estate, certified cultural property such as works of art, historical or other cultural artifacts, or proceeds of life insurance can usually gifted to charities. When gifting publicly traded securities, mutual funds or segregated fund contracts in kind, the charitable donation receipt reflects the value on the day of transfer and the capital gain inclusion at that time is reduced to zero.
Registered plans (RRSPs or RRIFs) can be paid out to a charity. This can be an attractive option, as the executor can ask for a charitable donation receipt from the charity for the amount of the donation. One advantage of this is that the donor retains control of the investment contract while they are living, and if they change their mind they can change who gets the benefit.
A life insurance policy can be owned by the charity or be transferred to the charity while the donor is still alive. Or the insurance proceeds can be donated to the charity on death. These provide different tax-saving scenarios, depending on whether you want the tax deduction while you are living or would rather save the tax saving for your estate.
Another option that may be attractive to some people are charitable gift annuities. These provide an immediate gift of cash to the charity while still providing the donor with a guaranteed amount of income for a set number of years or for life.
There are plenty of options with charitable gifting. It’s important to consult with a qualified financial professional, your lawyer and accountant to ensure that you can come up with the best gifting solution to suit your philanthropic gifting requirements. There is no one-size-fits-all. With many options to choose from, a personalized gifting strategy can be custom designed to suit your needs.
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