At a fundamental level, donating to charity feels good. It allows you to support causes important to you and can have a lasting impact on the lives of many people. Another benefit is that there are generous tax incentives available to those who donate to charity. If you are considering a charitable donation as part of your estate plan, keep reading for some helpful information on what you might want to consider when making this decision.
Who can I give to?
The institution that you chose to donate to is completely up to you. However, to claim a tax credit based on the eligible amount of donation you plan to make, the gift needs to be made to a qualified donee. Qualified donees are:
- Registered charities
- Registered Canadian amateur athletic associations
- Registered national arts service organizations
- Registered housing corporations resident in Canada set up only to provide low-cost housing for the aged
- Registered municipalities in Canada
- Registered municipal or public bodies performing a function of government in Canada
- The United Nations and its agencies
- Registered foreign universities
- Her Majesty in Right of Canada, a province, or a territory
- Registered foreign charities
Since we are focusing on charitable donations, this concept needs to be explained in greater detail. A registered charity is a charitable organization that has been registered under the Income Tax Act. The purposes of the organization must be charitable, the organization must define the scope of the activities engaged in by the organization, and all of the organization’s resources must be devoted to these activities. If you want to know whether a particular charity is in fact a registered charity, click here to use the federal government charity search engine .
What can I give?
Gifts can take a variety of forms including:
- Cash
- Gifts in Kind (securities such as stocks, bonds, mutual funds, real estate, art, wine, etc.)
- A right to a future payment (life insurance for example)
- Certified cultural property
- Gifts of ecologically sensitive land
As you can see, there is a wide range of gifts that can be considered charitable gifts for tax planning purposes. As well, different types of gifts of the same value can result in different tax treatment. It is also important to note that there are certain donations that are not considered gifts for tax purposes like time and services or property of little value.
When considering a gift to a charity that is not merely cash, it is important to contact the charity directly to see whether they can accept such a gift. For example, if you planned on gifting real property to a registered charity, they may not be equipped to accept such a gift or may have a policy that they only accept certain forms of gifts.
How can I give?
In the context of an estate plan, the two main ways of donating to a charitable organization are by providing for a gift in your will called a “charitable bequest” or by listing a charity as a beneficiary to a policy or plan (like an insurance policy or an RRSP) outside of your will. Again, the method in which you donate can have tax implications.
For example, if you own shares of a publicly listed corporation on a designated stock exchange like the TSX, from a tax planning perspective, you are far better off donating the shares directly to the charity rather than selling the shares and donating the cash. This is because the capital gains inclusion rate is zero percent where the shares are donated directly and not when the shares are liquidated with the cash proceeds donated to charity.
The wrap-up
This blog provides a brief introduction to charitable giving through an estate plan. If you are interested in learning more, there is an abundance of information online. Alternatively, feel free to reach out to any of the lawyers practicing with our Wills and Estates team. The main takeaway I hope to convey is that there are creative methods available that are worth exploring. Just as the reasons for donating to charity are many, so too are your options for giving.
This blog post was written by Mark Fortier-Brynaert, a member of the Business Law and Wills and Estates teams. He can be reached at 613-566-0380 or at mark.fortier-brynaert@mannlawyers.com.
