What are the tax benefits to including a charitable donation in your Will?
Aimee Ares, Lawyer
Westcoast Wills & Estates
Including a charitable gift in your Will can be an ideal way to contribute to a cause you care about while also reducing your tax liability.
When someone dies in B.C., the estate must pay all outstanding income tax owed by the deceased before the estate is distributed to the beneficiaries. For taxation purposes, all capital assets held solely in the deceased’s name are considered to be disposed of at fair market value on their date of death and any capital gains accrued on those assets are included in the individual’s final tax return.
For example, the combined income tax rates on income above $220,000.00 in B.C. is 53.5 per cent. Although an individual may have a much smaller yearly income during their lifetime, it is not uncommon for the capital gains triggered on assets (such as second properties, RRSPs, RIFs and other investments) to push a deceased’s final yearly income into this highest tax bracket.
As a result, taxes owed on the income of the estate can be significant, reducing the intended inheritances set out in the deceased’s Will.
One way to address this is to consider providing a gift to charity in your Will. In addition to the impact of leaving a donation for a cause you care about and want to support, the Canadian government generously rewards those who donate to charity during their lifetime or through their Wills.
At the highest tax bracket, the Charitable Donations Tax Credit (CDTC) can be between 15 to 33 per cent of your donation at the federal level and between four to 24 per cent of your donation at the provincial level.
Although an individual may have a much smaller yearly income during their lifetime, it is not uncommon for the capital gains triggered on assets (such as second properties, RRSPs, RIFs and other investments) to push a deceased’s final yearly income into this highest tax bracket.
To qualify for the CDTC, donations must be made to a qualifying charitable organization, a list of which may be found on the CRA website. Donations can include anything of value, such as property, stocks, cultural and ecological gifts, etc.
Be sure to check with the CRA about the eligibility of your donation, to avoid unqualified donation schemes and fraud. Fraudulent charities will not have a charitable donation number with the CRA and will not be able to provide you with a charitable tax receipt. It is important to also be cautious of suspicious phone numbers and phone calls whereby someone asks for the donation by money wire; donations by credit card and cheque are safer as they are traceable and cancellable.
To learn about leaving a donation in your Will, speak with an experienced Wills and estates lawyer today.
This article is intended to be legal information, not legal advice. If you wish to structure your estate plan to reduce taxes owing on your death, you should work with an estate planning professional on a plan that works best for you.