Nilson/TRIVEST - Insight Past Articles - Estate Planning: N+1 Strategy

December 31st is the annual deadline
The first $200 per year provides a low tax break at approximate 22% for individuals
Annual donations in excess of $200 yield a tax break closer to 44% for individuals
Every dollar of donations are regular tax deductions for corporations
All taxpayers are limited in their donations to 75% of their net income
Couples can pool their donations irrespective of whose name appears on the receipt
You don’t have to claim the receipts each year; they can be kept for a later year
Donations can be carried forward for five years
Proper receipts are required; cancelled cheques and pledge forms are not accepted
The charity must be properly registered, as evidenced by a federal number
Qualified donations include cash, cheques and tangible assets
Donations of services normally do NOT qualify unless the service is declared as income as well
Donations to a charity recognized by US law are only deductible if you have US source income, which includes interest or dividends from US corporations.

Registered Canadian charities and Canadian amateur athletic organizations
Charitable trusts
The United Nations and its agencies
Canadian municipalities
Federal or provincial governments
Certain specified foreign universities
Charitable organizations outside Canada to which the Canadian government has made a gift in the year or preceding year
US charities recognized by US law (see restriction in Basic Rules)

You can verify that a charity is properly registered by locating it on the government's website at www.ccra-adrc.gc.ca/charities.

Donations should be pooled so that the $200 threshold must be crossed only once a year by one spouse
If you give less than $200 per year, it may be better to claim the donations in alternate years, so that the $200 threshold is crossed only once
The higher income spouse should claim the donations when he or she is subject to surtaxes
Ownership of a life insurance policy can be transferred to a charity while you are alive. If the policy has a cash surrender value, you must pay tax on the accrued income but will receive a donation for the value of the cash surrender value. You will continue to receive a donation for paying the annual premiums
You can donate a valuable asset "in kind" and receive a tax receipt. The asset needs to be appraised. The increase in value over original cost triggers capital gains tax. If the gift is a depreciable property, recapture of CCA is also taxable. However, tax law has evolved in recent years to provide significant incentive to donate in-kind.

In the year of death, donations can be carried back one year. In both that year and the year of death, the donation limit is increased to 100% of net income.
A charity bequest amount must be specified in the will by the testator. The testator may direct the executor to make a donation from the will without specifying specific charities, thus allowing the executor to exercise choice.
For deaths after 1998, a charity can be a named beneficiary of an RRSP or RRIF. The value of the sheltered funds will be taxable on the final return of the deceased; however, the tax value of the concurrent donation should largely equal and offset the tax.
Similarly, a charity can be named the beneficiary of a life insurance policy. The donation will create a large tax break but the payout of the insurance proceeds does not create taxable income. The policy premiums are deductible.
For retired clients who are philanthropically-minded but not well off, it may be a good strategy to retain your valuable cash flow while you are living by not making any donations. Instead, you may wish to make a generous bequest from your estate.