Charitable Donations

Although it may be difficult to contemplate for both you and your parent, their estate plans should be considered. Time has probably passed and given their illness, they need to determine if their Will is still in keeping with their desires and plans. Part of the estate plan may include making charitable donations. Not only do donations give the satisfaction of contributing to worthy causes, they also provide tax relief whether the donation is made while the individual is alive or through a Will.

Eligible Charities

Although saving money on tax may not be the primary incentive to contribute to a particular cause, your parents will want to be confident that the intended recipients of any donation will actually benefit. Unfortunately, various schemes have been created that appear to represent legitimate charities but are in fact fraudulent. The Canada Revenue Agency (CRA) provides this resource that allows you to determine the status of a charity of interest:

The Charitable Donation Tax Credit

The charitable donation tax credit has two levels as well as maximums allowed in a particular tax year. The first $200 of eligible donations will reduce tax payable at a rate of 15% of the donation amount. Any amount donated over the first $200 per year reduces tax payable at a rate of 29%. The amount of credits claimed can generally not exceed 75% of net income in the year the credit is being claimed. The credits cannot be carried forward but the donation itself can be spread out over up to five years. Please speak to your advisor for more details.

Enhanced Charitable Donation Tax Credit

The 2013 Federal Budget included an enhanced Federal Tax Credit for first time charitable donors. First time donors are those who have never claimed a charitable donation tax credit or those (or their spouses) who have not made a claim subsequent to the 2007 tax year. Please speak to your Advisor for more details.

Making a Charitable Donation

There are different ways to make charitable donations which will have different tax/financial effects. For example, your parents can donate to an eligible charity or to the government. Cash, life insurance or property can be donated. Property can include gifts of eligible securities. If your parents donate securities (such as stocks or bonds), they will receive a tax credit for the fair market value of the donation and they do not have to pay capital gains tax on any increase in value from when the securities were bought to when they were donated. This is clearly preferable to selling the security and donating the cash since capital gains taxes would have to be paid. Your advisor can provide more details.

There are also advantages with respect to ordering of gifts. Your advisor will have much more specific information in regards to the details of charitable donations and the best approach for your parents.