The good news is that testamentary charitable gifts (gifts that are triggered at the passing of an individual) can reduce these taxes at death or even eliminate them completely.
Testamentary charitable gifts include leaving a gift to cbm in your Will, or naming cbm as beneficiary in gifts of life insurance, RRSP/RRIFs and TFSAs by direct designation.
“In Canada, charitable donations to a registered charity receive a tax credit. For amounts of $200 or less, you receive a combined federal and provincial tax credit worth approximately 25% of the gift. For amounts exceeding $200, the combined federal and provincial tax credit is worth approximately 43%.
In addition, since January 1, 2016, a new federal donation tax credit rate increase of 33% applies to gifts in excess of $200 to the extent that an individual has income that is subject to the new 33% income tax rate, that is annual income over $200,000.”
In the year of death, Canadians can claim the credit for charitable gifts equal to 100% of net income instead of the normal 75% limit. If there is any unused charitable tax credit, it can then be carried back and applied up to 100% of net income in the year prior to death also.
In addition, as a result of the 2014 Federal Budget’s new ‘Estate Donation’ rules, for a death that occurs after 2015, Executors of an estate that qualifies as a graduated rate estate (GRE) will be able to allocate the donation tax credit between the deceased and the deceased’s estate (whichever is most beneficial) as long as the actual gift transfer occurs within 60 months after death.
The testamentary gift to the charity will be deemed to have been made by the deceased’s estate at the time the property is transferred to the charity (no longer considered to be a gift made immediately before death) and the charitable receipt will be based on the actual fair market value of the gift at the time of the transfer to reflect any changes in value between death and the time of transfer.
There’s now a seven-year claim window where the charitable donation receipt can be claimed for testamentary charitable donations. However, this means if the donation from your Will or RRSPs/RRIFs, insurance or TFSAs is not distributed by your executor(s) to the charity within the 60 month Graduated Rate Estate, there will be a mismatch of tax credit and liability. This will reduce both the estate and gift value.
After the 60 months, the donation tax credit would then only be available for use in the year of transfer.
To calculate the amount of charitable gifts needed to completely off-set all income taxes in your estate, just multiply the estimated amount of taxes payable by two. This is the approximate amount of charitable gifts you will want to make.
In addition, gifts of publicly-listed securities “In Kind” not only qualify for a charitable receipt for the full fair market value, but also receive special tax treatment. Any capital gains which have accumulated in the securities you give to cbm are completely exempt from taxes. That means there will be no income tax charged on the (sometimes huge) capital gains that have built up in these securities. This is currently the most tax-effective way to make a gift to cbm either now, or at death through your Will.
The following are charitable gifts to cbm which can significantly reduce or even eliminate taxes completely at your passing because of the charitable receipt and/or special tax treatment.
Please note cbm’s legal name – Christian Blind Mission International – must be used:
- Gifts in your Will (either a portion of the Residue or a Specific Amount)
- Gifts of Appreciated Securities “In Kind” in your Will
- Naming cbm as beneficiary of your Registered Funds (RRSPs, RRIFs, TFSAs, DPSPs)*
- Naming cbm as beneficiary of your Life Insurance Policy*
- Naming cbm as beneficiary of your Tax Free Savings Accounts*
*Note: Beneficiary designations are not permitted on accounts held in Quebec.
For further information, contact Grace Soukup, Manager of Planned Giving.
Download How Gifts to cbm can Reduce Taxes in Your Estate pdf.