By Sean Peach, Financial Planner, Sun Life, CFP®, CLU®, Advantum Financial Solutions
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Charitable giving: beyond generosity
Charitable giving allows you to help those who are most vulnerable. Did you know it could also benefit you? In Canada, charitable organizations include educational institutions, amateur sports organizations, religious groups and various levels of government. According to Statistics Canada, 82 per cent of Canadians give to some form of charity every year. But many donations are made without considering tax and estate planning. Here’s how you can plan your charitable giving to meet your estate and tax minimization goals.
Allowable gifts
The Canada Revenue Agency (CRA) defines gifts as a “voluntary transfer of property without valuable consideration.” Such gifts may include cash, marketable securities, life insurance proceeds and registered retirement savings plans (RRSP). The value of the gift is generally its fair market value, and charities will provide a tax receipt based on this value. However, not all gifts give you the same tax benefits or outcome.
Charitable donation tax credit
Federally, tax credits vary based on the donation amount. Higher income earners may be eligible for a 33 per cent federal tax credit rate. Depending on the province you’re in, both federal and provincial governments could offer added benefits for charitable contributions. You can claim donations up to 75 per cent of your net income annually and carry forward unused donations for five years. You can claim donations up to 100 per cent of your net income in the year of death or preceding year.
Donating cash and appreciated securities
Cash donations generate a tax receipt for the amount donated. However, donating appreciated publicly traded securities in-kind can be more beneficial than selling and donating cash, as the CRA eliminates the capital gains tax on the accrued gain. This provides you with the same charitable donation credit, but lower taxable income since you eliminate the capital gains tax.
Registered accounts
Using RRSPs for charitable giving can significantly reduce taxes. Making a charity the beneficiary of your RRSP can offset taxes linked with your account and reduce probate costs. With an RRSP, it’s important to note that the benefit is taxable.
Life insurance
Using life insurance for charitable giving can be another way to reduce taxes. Two main strategies involve either making the charity a beneficiary or changing the life policy's ownership to the charity. In this case, the benefit is not taxable.
Donor advised funds and corporate giving
Donor advised funds (DAF) allow you to donate money at any time and receive immediate donation receipts. They can be beneficial if you’re facing large tax bills from events like business sales or may want to spread out disbursement of funds over time. Corporate giving can also offers tax incentives, with donations being expensed as allowable deductions, reducing a corporation’s taxable income.
For further details on maximizing your charitable giving through estate and tax planning, contact Sean Peach in White Rock at 604-506-5838 – learn more at advantumfinancial.ca
This advertorial is intended to provide general information only. Sun Life does not provide legal or accounting advice to Clients. Before acting on the information above, make sure you seek advice from a qualified professional.
Advisors and their corporations conduct insurance business through Sun Life Financial Distributors (Canada) Inc. Mutual fund business is done with your advisor through Sun Life Financial Investment Services (Canada) Inc.