Canada: Making The Most Of Your Charitable Contributions

A friend asks you to buy a seat at a charitable fundraising dinner. Your colleague asks you to sponsor her walk for charity. The mail is full of appeals for your support. How do you make the most of giving back to the community?

Consider these tax tips to make sure you get the best tax benefits for your gift. In order to obtain a tax receipt, the organization must be registered with the Canada Revenue Agency (CRA). Ask about the charity's registration number and ensure that it's printed on your tax receipt. If in doubt, look up the charity on the CRA website at:

Tax credit structure

The first $200 of your donations generate a tax credit at the lowest tax bracket (20% in Ontario), and anything above that amount qualifies for a tax credit at the highest bracket (46% in Ontario). With certain exceptions, donation claims are limited to 75% of your net income.

Any donations you do not claim in the year can be claimed in any of the five subsequent taxation years.

Pool and save

Consider pooling your donations with your spouse so that you maximize the claim as the CRA allows either spouse to claim the receipts.

When you receive

If you receive something of value from the charity in return for your gift (known as an "advantage"), the amount of the advantage will be deducted on your receipt. When you buy that ticket to your friend's fundraising dinner, the value of the dinner will be deducted from the amount you paid and a receipt will only be issued for the excess.

Donating your expertise

A gift of services is not eligible for a tax receipt because it is not a gift of property. If you wish to provide services to a charity and appear as a donor, you will need to bill the charity for the service and then donate the payment back as a charitable gift. You will have to report the service income and the offsetting credit. There may be no tax advantage to this strategy unless your service income will be taxed at a lower tax rate than the donation credit.

Giving in big ways

For larger gifts, think beyond gifts of cash. Consider gifting publicly traded marketable securities from your investment portfolio. While this will be considered a disposition of the security, the CRA does not tax the capital gain that arises on the disposition, and you will receive a donation receipt for the fair market value of the gifted shares. If there is a capital loss on the share disposition, you will be able to claim the capital loss and the donation amount.

Have you received stock options from your employer? If you exercise the options and donate the shares within 30 days of exercise, you will be able to offset your stock option benefit.

Consider gifts of capital property such as real estate, artwork or collectibles. The donated property will be considered disposed of, so you will have to report any capital gains (or recapture any depreciation on the property); however, the fair market value of the gifted property will qualify for a tax credit, which will more than offset the disposition taxes and leave you with credits to claim against your other sources of income.

If the donated land qualifies as "ecologically sensitive land" (generally land that is certified by the Ministry of the Environment to be for the conservation and protection of the environment), no tax on the capital gain arises on the gift.

Similarly, artwork that is considered a "cultural gift" (i.e., items certified by the Cultural Property Export Review Board as national treasures) is also not subject to tax on the capital gain when gifted to designated institutions.

Valuation matters

When capital property is gifted to a charity, an appraisal will be required to substantiate the value of the gift. You will also have to be careful that the property was owned for more than three years prior to the donation and was not acquired as part of a 'donation scheme;' otherwise the value of the gift will be reduced to the amount paid to acquire the property instead of its fair market value at the time of the gift.

Life insurance donations

Finally, if you have life insurance coverage that you no longer require, consider gifting the policy to a charity. You will receive a receipt for the fair market value of the policy. Depending on your health, life expectancy and the replacement value of the policy, among other factors, the value could be significantly more than the cash surrender value of the policy. Consequently, even a term policy could generate a sizeable tax receipt. If you continue to pay the ongoing insurance premiums, these will also constitute additional charitable gifts as the payments are made.

Before making a significant charitable gift, please contact your Crowe Soberman advisor to discuss the tax benefits and implications to ensure that you receive the optimal tax results.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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