What definitely turns me on most about this time of year is the spirit of giving that infuses the community. Through the year this spirit tends to wane however, and some stats recently published by the Canada Customs and Revenue Agency may surprise you. Of those Canadians earning between $70,000 and $100,000 in 2001, just shy of 60% claimed charitable donations on their tax returns, giving an average of 0.76% of their income, and of those earning in excess of $100,000, 69% claimed donations, and gave an average of 1.4% of their income to charities. What disappoints is that 4 out of 10 Canadians in the first bracket, and 3 out of 10 in the second bracket gave not one dollar to a worthy cause. Maybe they just forgot to claim it on their tax returns 😉
These numbers look even worse when our charitable inclinations in Canada are compared to those of citizens of other countries, particularly when stacked up against donations made by our oft-maligned neighbours to the south. This despite the encouragement offered by CCRA in the form of credits that can be claimed against gifts to charities. Donations that may be eligible for tax deductions or credits can take many different forms: gifts of cash, shares of publicly-traded securities, shares of a privately-owned corporation, tangible personal property, life insurance proceeds, or outright gifts of real estate all may qualify.
A gift, for the purposes of the Income Tax Act, is a voluntary transfer of property by a donor to a registered charity without consideration. This means that no benefit to the donor or anyone designated by the donor may result from the transfer. For example, a gift of real estate, if subject to the assumption by the charity of a mortgage on the property, does not qualify as a gift. (See CCRA Interpretation Bulletin IT-110R2 Deductible Gifts and Official Donation Receipts).
Individual donors may claim a federal tax credit of 17% on the first $200 of charitable gifts and 29% on gifts in excess of $200, subject to certain limitations. The maximum amount of charitable contributions made prior to the year of death that can be claimed for credit in any one year is 75% of net income. Contributions in excess of the annual limit may be carried forward for up to five years. As such, the donor can choose whether to claim the excess in a particular year, and how much to claim, subject to the annual limit. The contribution limit in the year the donor dies is 100% of net income, and any excess can be carried back one year.
It can often make sense for individuals who own RRSPs or RRIFs to make arrangements to pass on some portion of these assets to a charitable organization, either during, or after their lifetimes. This can particularly make sense for single persons without dependents and surviving spouses who have made other provisions for heirs, as their RRSPs will be subject to full taxation in the year they pass away. Faced with the prospect of having nearly half of one’s life savings evaporate (yeah I know you can’t take it with you anyway), many choose to create a personal legacy by making a charitable gift that reduces tax otherwise owing to the feds.
For a more in depth look at the strategies one can employ in leaving a legacy, the book Planned Giving for Canadians by Frank Minton and Lorna Somers is highly recommended. Their website is at www.plangiv.com In addition, The Stewardship Centre for BC has recently delivered copies of their excellent guide, Green Legacies, to the offices of those working in the legal, accounting, taxation, and financial planning professions. Copies of this guide can be ordered for a mere $8, call 1-800-387-9853 Extension 4, or 1-250-387-9853 in Victoria. You may also visit their website at www.greenlegacies.ca
There are many ways to arrange such affairs. Some gifts are immediate, others bear fruit in the future. With a great deal of encouragement from the non-profit sector, Parliament has enhanced the tax incentives for these acts. They could go further still, but all in all, this is one of those win-win scenarios for everyone involved.