“Consider your possessions loaned
to you by God.”
— St. Catherine of Siena, 14th c.
One thing that sets us as human beings apart from our fellow creatures is the way we consciously control and shape the world around us. We don’t wait for fruit to fall from trees before we eat it: We plant the trees, harvest the fruit, improve the stock to develop better fruit, and develop more productive orchards.
Communities, like orchards, must be nurtured. We have to plant seeds and wait for results. We have to prune and shape. And we naturally want to share with others the fruits of our labours. We want to help family and friends, but often we also want to give part of what we have for the benefit of people we have never met, and those less fortunate than ourselves.
Charity is as old as recorded history, reflecting the human impulse to give to others. This pamphlet explores the many ways you can make a charitable gift that reflects your interests, your desire to help others, and your commitment to the work of God through your parish, diocese, General Synod, The Primate’s Fund, Anglican Journal, the Anglican Foundation, or through a theological college.
The government of Canada encourages charitable giving with numerous tax incentives, and some of these are outlined in this paper. For more information, we invite you to contact our office. We also encourage you to consult your own financial and legal advisor for a full discussion of the tax implications of charitable gifts as they apply to your situation.
Outright Gifts
A person who makes outright gifts annually can be compared to a farmer who gives apples each year from the bounty his trees produce. This is the most common type of charitable giving, annual gifts that support current programmes.
A farmer who has been making small gifts of apples for a number of years may find that as his trees have grown, the fruit far exceeds his needs. He can decide to make a larger contribution by giving one or more trees—dedicating the fruit permanently to the charity of his choice. This outright gift of appreciated property has many advantages for the farmer and the charity, as explained below.
Outright gifts—either of cash or other property—provide support for a charity’s day-to-day activities, or for special projects and needs. These gifts buy food for the hungry, furnish scholarships for young people to go to university, provide religious services, secure specialized equipment for hospitals, keep the arts lively, support medical research, and protect the environment. There are many ways of making outright gifts, but they share a common characteristic: as soon as the gift is made, it can be put to use.
Giving cash
Gifts of cash—whether by cheque, money order, credit card, or currency—are the most familiar way to contribute to charity. A cheque is treated as delivered on the day it was mailed. (For example, a gift sent by mail, if postmarked in December, qualifies as a charitable donation in that tax year, even if it is not received until January.) A gift by credit card is considered made on the date the obligation was incurred.
A tax credit is allowed for charitable gifts, which means that the net cost of the gift to the donor will be less than the amount given to the charity. If you make outright gifts, you can deduct a percentage of the value of your accumulated receipts — 15 percent for the first $200 donated and 29 percent for any additional gifts — from the federal income tax you owe. In recent years, all provinces and territories have moved away from the traditional “tax on tax” collection system, adopting what is known as a “tax on net income” (or “TONI”) system. As part of this new approach, each province and territory has its own tax brackets and its own charitable tax credit system. These credits, when added to the federal credits in respect of the same donations, produce tax relief of the same magnitude as the former system. Married couples may pool charitable donation receipts to take advantage of the higher credit on donations exceeding $200.
(Note: Although residents of Quebec file a separate tax return, they do receive a tax credit for charitable gifts on that return. Thus, total tax savings for charitable gifts in Quebec approximate that of other provinces.)
To illustrate: A donor whose combined federal and provincial tax credits equal 46 percent, and who makes a $5,000 charitable gift, would realize a tax savings of $2,300, so the actual cost of the gift to the donor would be only $2,700.
The amount an individual may claim in charitable donations for any one year is limited to 75 percent of his or her net income for that year, but the excess may be carried forward for up to five years. The 75 percent limit now applies to all gifts, whether to registered charities or to the Crown.
Giving appreciated property
Your gift of listed securities means even more now!
Thanks to the Federal Budget of May 2, 2006, the capital gains tax on publicly listed securities has been eliminated for gifts to churches and charities.
Before May 2, 2006 the tax on gifts of securities was 25% of the gain, offset by a donation receipt if the securities were transferred to a church or charity. An earlier reduction from 50% to 25% produced many wonderful gifts – but little in the way of a net tax credit for the donor.
Now gifts of securities will generate a donation receipt for the full value at the close of business on the day of the transaction…with no more worries about capital gains!
To illustrate: Michael makes a donation of listed securities valued at $120,000. He first purchased the securities when the price was $20,000, so there is a capital gain of $100,000. There is no taxable capital gain upon the disposition of the securities. Therefore Michael receives a donation receipt for the full value of $120,000. Assuming a top marginal tax rate of 50%, this would result in a tax credit of $60,000.
If Michael were to sell the securities and then donate the cash proceeds to the church, there would be a taxable gain of $50,000 (one-half of the capital gain). Income tax payable would be 50% or $25,000. So it is important to keep in mind that the tax benefits are significantly greater when the shares are transferred to the church rather than being cashed in by the donor with simply the proceeds being donated.
Offering gifts of listed securities would go a long way towards providing wonderful and generous support for the many programmes, ministries and projects of the Church.
Recent changes in tax regulations now also permit a lifetime exemption for sales or gifts of farms or shares in certain privately owned businesses of $750,000, up from $500,000, and the gain in a principal residence continues to be exempt from taxation. If any of these exemptions apply to you, you could use them to reduce tax liabilities when making your gift.
Certified cultural property
The Canadian government established the Cultural Property Export and Import Act to preserve Canada’s cultural treasures — such as paintings by Canadian artists — and to keep them in the country.
Donors of cultural property receive special tax considerations from the Canada Revenue Agency. In addition to a charitable donation receipt for the fair market value of the property given, they may claim 100 percent of the gift in a given year — up to a maximum of the donor’s net income — and they do not have to pay capital gains tax if the property has appreciated in value. Therefore, a donor of cultural property valued at $100,000 could save $44,000 to $51,000 in taxes, depending on the total value of the combined federal and provincial tax credits, and would not pay income tax on the gain.
If you have an item you are considering donating, and you think it might qualify as cultural property, you need to do several things. First, confirm that the charity you wish to benefit is designated to hold cultural property. Second, have the item certified as cultural property by the Canadian Cultural Property Export Review Board. You will also need to obtain one or more qualified, independent appraisals. The charity must retain certified cultural property for at least ten years.
Future Gifts
A farmer who needs all the apples from his orchard during his lifetime may nevertheless promise the trees—and their fruit—to charity after his death. He might make a testamentary gift, naming a charity in his will to receive either all or a portion of his orchard.
Many people who would like to make a substantial gift to charity cannot afford to part with assets during their lifetimes. Drawing up a will and directing a portion of one’s estate to charity is the most common type of future gift, but it is not the only way to give. Life insurance or retirement assets also can provide a future gift. A common characteristic of such gifts is that they are revocable: these future gift provisions can be changed at any time, should your circumstances require it.
Giving through Your will
It is estimated that only three in ten Canadians have a will, due to oversight, delay — or perhaps an extraordinary confidence in the government’s ability to deal with individual property! If you are among the many Canadians who leave no specific testamentary instructions, your lifetime accumulation of wealth will be distributed according to provincial law, which may not be the way you would have apportioned it. And if you have no heirs, the provincial government will receive your property as part of its general revenues.
Making a will need not be complicated, and it should be done with proper legal assistance. Providing for a gift to your church or favourite charity in your will can be easily accomplished. Here are some examples of various forms of bequests, with appropriate wording:
A general bequest designates a certain dollar amount of property, usually cash, to the charity you select: “I give to The General Synod of The Anglican Church of Canada the sum of $100,000 to be used for the general purposes of the Church at the discretion of its officers.”
A specific bequest directs that the charity is to receive a specific piece of property: “I give to the Diocese of Ontario 500 shares of XYZ stock. . .”
A residual bequest designates for the church or charity all or a portion of whatever remains after all debts, taxes, expenses and other bequests have been paid: “I give to the Anglican Foundation of Canada fifty percent (50 percent) of the rest, residue and remainder of my estate . . .”
A contingent bequest takes effect only under certain conditions: “In the event that my wife does not survive me, I give to The Primate’s World Relief and Development Fund the sum of . . .”
In addition to choosing the form of a bequest, you also have choices as to the purpose for which your gift will be used. Most bequests to the church or charity are unrestricted, supporting the general purpose of the charity, but you may choose to make a restricted bequest directed to support a particular program, ministry or service.
Many charities maintain endowments, and you may be able to specify that the principal of your bequest is for endowment, with only the income expended for the purpose you designate. It also may be possible, subject to the policies of the beneficiary charity, to establish a named fund — in your own name or as a memorial to a family member, friend, or colleague.
If you are planning a bequest, it is important to confer in advance with a representative of any charity included in your will to be sure that your wishes can be met and that your bequest provision is properly worded. Once you have completed your will, you should provide each beneficiary charity with a copy of the clause pertaining to your bequest. Your intention can be kept confidential, if you wish.
Tax Implications of a Charitable Bequest
When you make a bequest to the church or charity, your estate is entitled to a gift receipt for the full value of the bequest. This can reduce significantly the tax payable when your final income tax return is filed. If the total bequest exceeds 100 percent of your income in the year of death, the excess (again, subject to the applicable limits) may be carried back to the preceding year, producing some credit for that year.
To illustrate: In his will, a widower leaves $100,000 to a registered charity and the remainder of his estate to his two children. Assuming the net income on his final income tax return is large enough for the entire bequest to be claimed for a charitable tax credit, the bequest may result in combined federal and provincial tax savings of approximately $46,000. If he had left the $100,000 to his children, taxes would have consumed that part of it, leaving them with $54,000.
You should consider giving your executor the discretion to choose the particular assets that fulfill the charitable bequest. If your executor is able to select listed securities for the charitable bequest and distribute cash or other properties to your heirs, only half as much tax will be payable on the gain in the securities.
Many individuals find peace of mind and satisfaction in knowing that they have provided not only for their immediate families but also for the charitable organizations that enriched their lives and those of others.
Life Insurance
There are several ways to make a future gift to charity through life insurance, and all provide a significant future gift at a modest present cost to you. You can contribute a policy you already own but no longer need, or purchase a new one as your gift.
Transferring ownership
If you have a life insurance policy that exceeds your current needs — for example, if your children are grown and you no longer need to provide for their financial security — you can make a future gift by naming a charity as the beneficiary of that policy. If you make the charity both the owner and beneficiary of the policy, you will be entitled to a charitable donation receipt for its value (normally the cash surrender value). Any premiums you pay after you assign ownership of the policy to the charity are eligible for a charitable donation receipt. The premiums can be paid directly to the insurance company or by gift to the charity, which in turn will pay the premium.
Similar benefits apply to a new insurance policy: if you make the charity the owner, each premium you pay (directly or via gifts to the charity) entitles you to a charitable donation receipt. (If you stop paying premiums, the charity may continue them or elect a paid-up policy for a reduced amount.)
To illustrate: A man, age 48, has some discretionary income but cannot afford to contribute any capital to his parish church. He purchases a new life insurance policy with a face value of $50,000, names the charity as owner, and pays annual premiums of $1,800 for five years. Each year he receives a donation receipt for the premium paid. His tax credit is $828 (46 percent), so his out-of pocket cost to ensure a future gift of $50,000 is only $4,860 ($972 per year for five years).
Naming the church or a charity as beneficiary
Another way to make a gift with life insurance is to name a charity as beneficiary of a policy, while you retain ownership. This option is preferable for donors who wish to have access to the cash value of the policy during their lifetimes, or to be able to substitute a different beneficiary if their circumstances change. At death, the estate will be entitled to a donation receipt for the amount of the proceeds, yielding a credit to be applied to the donor’s final tax return.
Replacing donated assets
Life insurance can be part of your charitable planning even if you do not give a policy or its proceeds to charity. Many people who set aside some of their assets for charity use life insurance to replace the value of those assets for their heirs.
To illustrate: A couple in their 60s contribute $100,000 cash to General Synod for an endowment in their names. During the two years they take to report their contribution (maximum of 75 percent of net income per year), their tax savings total $50,000. They use $25,000 of the tax savings to pay up a life insurance policy on the husband’s life, naming their children as the beneficiaries. As a result, the Church receives $100,000 now, their children receive $100,000 in the future, and they keep $25,000 that otherwise would have been paid in taxes.
Life insurance can help you make a truly generous gift at an affordable cost. As with all charitable gifts, if you are considering using life insurance in your gift and estate planning you should consult your financial or legal advisor as to which option is appropriate for your situation.
Gifts of retirement fund accumulations
Retirement funds constitute one of the major assets of most people. Billions of dollars currently reside in registered retirement funds, as workers prepare for the years when they no longer will have a steady paycheque. Individuals enrolled in a registered retirement savings plan (RRSP), or who have already converted their RRSP to a registered retirement income fund (RRIF), can make a charitable gift of all or a portion of any retirement funds remaining at death.
If you are married and your spouse survives you, he or she would ordinarily be the beneficiary of your retirement funds. If you had an RRSP at the time of your death, your spouse could keep the funds in a tax-deferred plan. If you had already converted to an RRIF, your spouse could continue to receive payments, and those payments would be taxed only when received. If you have under-age children at the time of your death, the retirement funds can be rolled tax-free into an annuity paying them instalments until age 18.
If you are not survived by a spouse, and if you have no children or already have made arrangements for your children, leftover retirement funds can make an excellent charitable gift because the charitable tax credit will offset the tax otherwise payable on the distribution.
To illustrate: A single woman dies at age 75 and names The Primate’s Fund as beneficiary of her remaining RRIF funds. The Primate’s Fund receives the $30,000 remaining in her RRIF. The tax on her RRIF funds (46 percent combined rate) is $15,000 but the tax credit on the $30,000 contribution is also $13,800, so the tax credit offsets the tax. Thus, she is able to transfer her remaining retirement funds without ever having them taxed.
Gifts That Give Back
Some gift arrangements can be compared to a farmer who gives his orchard to a charity while keeping the fruit during his lifetime. He may choose to receive a certain number of apples each year (a gift annuity), or to keep as many—or as few—apples as the trees produce (a charitable remainder trust).
Gifts that provide lifetime income to the donor are a type of future gift, but with a very important difference. Unlike bequests — which are revocable gifts that allow the donor to change his or her future provision — annuities, trusts, and other life income gifts require an irrevocable transfer of assets from the donor to the charity. These irrevocable gifts provide immediate tax benefits, although the donation receipt is not as large as for outright gifts.
Gift annuities
A gift annuity provides both a gift to the church or a charity and guaranteed payments for life to the donor(s). The annuity rates depend on the age of each beneficiary, but they will often be higher than the return the donor(s) received from the donated assets. In addition, a significant portion of the annuity payments — in some cases 100 percent — will be received tax-free. Gift annuities can be arranged in a variety of ways, but the most common are as follows:
If you wish to have a General Synod self-insured annuity, the Church will invest the principal you contribute and pay you and/or another beneficiary a guaranteed fixed amount based on your age(s). After the death of the last beneficiary, the remaining principal will be used by the Church for the purposes set out in the annuity agreement. General Synod of the Anglican Church of Canada self-insures annuities for parishes, dioceses, the ministry and programme of General Synod, The Primate’s World Relief and Development Fund, Anglican Journal, the Anglican Foundation of Canada, and for Anglican-related theological colleges.
If you wish to consider a Gift Plus (reinsured) annuity, the Church will use part of your gift to purchase from a licensed insurance company an annuity that will pay the guaranteed amount agreed between you and the Church. The balance of your contribution, after purchasing the annuity, will be retained by the Church for current use or to accumulate for an endowment, as you direct. General Synod reinsures annuities for all levels, programmes, and ministries of the Church.
A gift annuity brings a special bonus at tax time, because a sizeable portion of the payments will be tax-free. While older annuitants will receive payments that are totally tax-free, all donors are entitled to a donation receipt that will result in a tax credit.
To illustrate: A widow, age 78, contributes $10,000 for an annuity to her parish for which she served for many years. She receives a lifetime annuity of almost $800 (8%) each year, of which 92% is paid out tax-free. She is also entitled to a donation receipt for $2,500.
General Synod, acting on behalf of the whole Church, will provide a personalized illustration showing the amount of payments you would receive from a certain contribution and how those payments would be taxed.
Charitable Remainder Trusts
A charitable remainder trust is a deferred giving arrangement under which a donor transfers property (cash, securities, or real estate) to a trustee. The donor (and/or other beneficiaries) retains the right to the income from the trust either for life or a specified term of years. The Church receives whatever remains in the trust after that specified term, or after the death of the last beneficiary, whichever has been agreed to in the trust document.
Donors who establish a charitable remainder trust receive a charitable donation receipt for the present value of the future gift (the “charitable remainder”), which the Church will receive when the trust terminates. That value is calculated based on actuarial tables, taking into account the value of the property transferred to the trust, interest rates, the age(s) of each beneficiary, or the term of the trust if it is for a specific number of years.
To illustrate: At age 70, a widower wants to establish an endowed fund for a diocese with which he and his wife were involved, but he cannot afford to give up any of his investment income. He transfers property worth $250,000 to a charitable remainder trust from which his net income will be approximately $15,000 a year for his lifetime. When he funds the trust, he receives a donation receipt for $120,675, which, assuming a 50 percent tax credit, will translate into tax savings of $55,510. After his death, the trust principal will be used to create the endowment.
Charitable trusts can have many advantages in addition to providing you and/or others with income — including freeing you from the responsibility of managing the asset(s) you contribute, saving probate fees, and protecting privacy.
Gifts of residual interest
Suppose the farmer had built his home in the middle of the orchard, and wanted to continue living in it and managing the orchard during his lifetime. He could donate the orchard, and his home, but retain the right to occupy it.
A gift of a residual interest allows the donor to make a gift of real estate, get a donation receipt, and retain the use of that property during his lifetime. That is, you may donate your residence but continue to live there. You receive a donation receipt for the present value of the “residual interest” you give — irrevocably — to the Church. However, you remain responsible for maintaining the property that ultimately will go to the Church.
There are many benefits to the donor and the Church under this arrangement. The tax benefits include a donation receipt for the present value of the “residual interest” — the value, in today’s dollars, of the property the Church will eventually receive. This is based on the market value of the property, current interest rates, and the life expectancy of those retaining a life interest in the property.
If you decide to contribute your personal residence, you will not be taxed on the gain in its value since you purchased it. If it becomes necessary for you to give up the house during your lifetime, you will have several options: You can rent the house and retain the rental income; give your life interest to the Church and receive an additional donation receipt; or agree with the Church to sell the house and receive a share of the proceeds based on the value of your life interest.
Gifts to the crown
The Crown refers to the federal or a provincial government, but the Canada Revenue Agency takes the position that a gift to a corporation that is an agent of the Crown will be treated as a gift to the Crown. Prior to the 1997 Federal Budget, gifts to the Crown or an agent of the Crown were creditable up to 100 percent of net income, while gifts to registered charities were creditable only up to 20% (1995 and prior years) or 50% (1996). Consequently, donors of very large gifts often made them to the Crown or a Crown agency in order to obtain a larger credit.
This led many provinces across Canada to establish Crown Agency Foundations, particularly for universities and hospitals but in some cases for other types of institutions as well. However, the 1997 Budget levelled the playing field, making the limit 75 percent of net income for both registered charities and the Crown. Thus, a donor no longer derives any benefit from directing a gift to the Crown, and presumably the attraction of establishing a Crown agency is significantly diminished.
Conclusion
This paper has tried to suggest the many ways that gifts can be made to benefit Canada’s charities, taking into account tax implications and personal considerations that can make different types of gifts suitable for donors with varying needs and interests. For more information about how you can help a particular organization, you should contact the Church or your favourite charities to determine how best to match your interests with its needs.
If, like the farmer in the orchard, your labours in life have provided a bountiful harvest, you can experience pride and satisfaction by sharing with others. With careful planning, you have the opportunity to make a generous gift to charity and do yourself a favour at the same time.
