Give to Get: Tax Benefits of Giving

The current COVID-19 crisis has, in many ways, created a sense of anxiety throughout our communities. However, it has also demonstrated that people will come together during times like these and ask, without reservation, “How can I help?”

There are numerous non-profit organizations and charities working to assist vulnerable persons in the community as well as provide programs and supports to those in need. This article discusses the tax benefits of donating and gifting to registered charities and qualified donees, both while alive and through an estate.

There are tax credits offered by both the Federal and Alberta governments when a person donates to a registered charity or a qualified donee. The donated amount will be referred to as “eligible amount”. Note, if you make a donation and receive something in return, then the eligible amount will be the difference between your donation and what you got in return (called the advantage).

When a donation is made to a registered charity or qualified donee, you will receive an official tax receipt issued to you, in your name, with a registered charity number and the eligible amount.

While Alive

Generally, you are only able to claim a charitable donation tax credit up to 75% of your net income (some exceptions). This is your donation limit. You may also carryforward any unclaimed eligible amounts for 5 years.

When you donate capital property to a registered charity or qualified donee, it is considered to be donated at fair market value which may trigger capital gains tax. However, you may designate the donation at an amount less than fair market value (but not less than the advantage or cost). This can eliminate the resulting capital gains. The designated fair market value will be the figure used to calculate the eligible amount.

Also, any capital gains or recapture resulting from the donation of capital property (if you did not designate the fair market value to be equal to cost) can be used to increase your donation limit up to 100% of your net income.

After Death

In the year of death, your donation limit is increased to 100% of the net income. Eligible amounts from the year of death can be claimed, as well as any carryforward eligible amounts from the prior 5 years.

If there is a donation made in the Will or by designating a registered charity or qualified done as the beneficiary in an RRSP, RRIF, TFSA or life insurance policy, then those donations are deemed to have been made by the Estate of the deceased.

The Estate may claim the related donation tax credit in the year that it was made or carry it forward for 5 years.

It is also possible to designate an Estate as a graduated rate estate or “GRE” (GREs are highly complex and will not be discussed in detail. If you have questions regarding a GRE, we would be happy to discuss them with you.) A GRE may allocate the eligible amount to:

• the year it was made;
• in any year after death while the estate is an GRE;
• the year of death or the year prior to death; or
• carryforward for 5 years.

There are many reasons to donate to charity, such as supporting your community and assisting causes that you are passionate about. The government recognizes and supports a charitable spirit in the community by offering charitable donation tax credits for qualifying donations. As described above, there are numerous tax benefits for donating while alive, as well as including donations in your estate plans.

If you have any questions about the tax benefits of charitable giving, estates, or estate planning, please contact Crista Osualdini, Michelle Fong, Sarah Levine or Moe Denny