With Valentine’s Day approaching, we thought it appropriate to turn our attention to charitable giving. Whether you want to honour a favourite charity, remember a loved one or a special time in your life or simply reduce taxes, charitable giving should be considered as part of your estate planning.
When naming a charity as a beneficiary in a Will, most specify a cash gift (referred to as a ‘legacy’) of a certain dollar amount or the donation of an item of value such as artwork or securities (referred to as a ‘bequest’). From a tax standpoint, a gift in a Will is generally deemed to have been made immediately before the date of death. As a result, a tax credit can be claimed on the final tax return. A tax credit is a deduction in computing tax which would otherwise be payable.
Specifically, the lower of two amounts can be claimed:
(1) 100% of the deceased person’s net income, or,
(2) under proposed legislation, the eligible amount of all gifts donated in the year of death (including gifts made when the person was alive plus gifts made under his or her Will), plus the unclaimed portion of all gifts made in the five years prior to the year of death. Any excess may be claimed on the deceased’s return for the previous year (up to 100% of the deceased’s net income).
Given that a deceased is deemed to have disposed of all capital property immediately prior to death thus triggering capital gains, this tax credit can result in significant tax savings.
Clients often ask if it is necessary to specifically name a charity or whether they can let the executor choose the charity . If too much discretion is left to the executor in choosing either the charity or the amount of the gift or both, Canada Revenue Agency (‘CRA’) may deem the gift to have been made by the estate and not made in the year of death. For this reason, we encourage clients to name the charities that they wish to benefit and to specify the dollar amount or the portion of the estate that the charities are to receive.
In future blogs, we will consider the advantages of benefiting charities by means of non-cash gifts, such as life insurance policies, securities, and RRSPs.
Reproduction of this blog is permitted if the author is credited. If you have questions or if you would like more information, please call us at 613 836-9915. This blog is not intended to be legal advice but contains general information. Please consult a lawyer or other professional to determine how the information in this blog might apply to you.
Blog posts pre-dated December 1, 2015 were originally published under Neff Law Office Professional Corporation.
