Giving Options for your Clients

When a donor makes a gift of cash or property to a local community foundation, every dollar goes to work the moment it is given, providing vital current support to local programs and/or building endowment funds to provide support for the future.

A gift of cash gives a donor the satisfaction of seeing their gift at work today and knowing that lives are being touched right now because they cared.

Gift Examples

• Cash
• Cheques or Money Orders
• Payments on Credit Card
• Pre-Authorized Contributions (PAC), usually paid monthly

Benefits to the Donor

• Donation receipt for the full amount of gift
• Straightforward, easy-to-understand transactions
• Significant immediate tax benefits
• Satisfaction of seeing the gift at work immediately

Most Appropriate for

• Everyone (any age) who can afford to give up some principal and the income it would otherwise earn

Example

Ms. Smith has net income of $150,000 and is planning on making a $10,000 gift.

For illustration purposes a combined tax rate of 45% was used. Please note that combined tax rates vary across the provinces. 2017 Tax Table.

Additional Information

• First Time Donor’s Super-Tax Credit (2013)
• CRA charitable donation tax credit calculator
• In 2017 new tax rules of private securities and real estate will involve donating cash proceeds
• Cash proceeds can also be used when donating stock options

Note to reader:The purpose of this publication is to provide general information, not to render legal advice. In addition any changes in the tax structure may affect the examples listed in this information. Your client should consult their own lawyer or other professional advisor about the applicability of this information to their situation.

Gifts of appreciated securities that are publicly listed have an added benefit of eliminated capital gains. Donors can benefit from this added incentive to reduce the real cost of their charitable giving or increase the amount of their gifts without increasing the cost.

The transaction is generally a simple electronic transfer of shares undertaken by the professional advisor but can include gifts of paper shares when that is what the donor holds.

The recipient charity will require a direction signed from the donor indicating they are the registered holder of the shares, and this document will also, in most cases, be used to inform the charity and their custodian of the imminent transfer.

Gift Examples

• Publicly listed shares, rights and debt obligations1
• Shares of a Canadian public mutual fund corporation
• Units of widely held Canadian mutual fund trusts

Note 1: Securities that are listed on Toronto, Montreal and tiers 1 and 2 (but not 3) of the TSX Venture Exchange qualify for this incentive, as do those that are listed on the NYSE, Nasdaq (excluding the Over-the-Counter Bulletin Board) and most other major foreign exchanges

Benefits to the Donor

• Immediate donation receipt for fair market value of security, generally determined as the closing price on the day the gift is received by the charity
• Favourable reductions in capital gains taxation
• Gifts can be given during donor’s lifetime or after, through their estate.

Most Appropriate for

• Donors with investment portfolios that include significantly appreciated securities.

Example

Donor wishes to make a gift of $10,000

Option 1 – Sell stock and make $10,000 gift from cash proceeds
Option 2 – Gift stock to charity

For illustration purposes a combined tax rate of 45% was used. Please note that combined tax rates vary across the provinces.  2017 Tax Table.

Note to readerThe purpose of this publication is to provide general information, not to render legal advice. In addition any changes in the tax structure may affect the examples listed in this information. Your client should consult their own lawyer or other professional advisor about the applicability of this information to their situation.

Additional Resources

Gifts of Stock Options

2017 Gifts of Private Securities

Donor Story

“Our stock returns provided the means for giving to our community,” say Joanne and Gerald Johnson. That’s why they joined the many people who choose to contribute appreciated stock directly to their local community foundation.

Last year, the Johnson fund supported a local family outreach program, a homeless shelter, and a local theatre group. “Some of our charities are too small to accept direct stock gifts,” says Joanne. “Giving through the community foundation eliminates that barrier.”

The Johnsons received a tax credit based on the fair market value of their appreciated stock, while avoiding the capital gains tax that would otherwise arise from its sale. Gerald says, “It’s a simple, satisfying way to give.”

A Will used to be referred to as a “Testament”. It is not just a document divesting assets but a moral biography of the values of the individual. When one adds up all the accumulated assets and possessions of a lifetime, the impact on the lives of loved ones and their community can be powerful. Making a Will ensures an individual distributes their possessions as they see fit, rather than as the government determines.

They also have the power to ease the transition of their passing for those who survive them. When a donor includes the local community foundation in a will, they are making a powerful public statement of values and leaving a legacy of support to help strengthen causes they care for and community programs for generations to come.

Gift Examples

• Gifts funded with cash or cash equivalents
• Publicly Listed Securities (including segregated and mutual fund units)
• Proceeds from Retirement Plan Accumulations (RRSPs and/or RRIFs)
• Gifts of Real Estate
• Gifts of other tangible property

Benefits to the Donor

• Revocable during the donor’s lifetime by changing the will
• Donation receipt for use in final income tax return against 100% of taxable income
• Satisfaction of providing for a future gift while retaining full control of property

Most Appropriate for

• All individuals (any age), but especially older persons with few or no heirs

Example

Mr. Valois leaves a bequest of listed stock* to a public charity. On the date of death the stock has a fair market value of $100,000 and a cost base of $10,000. The donor’s net income in the year of death is $250,000 not including the taxable capital gain on shares.

* In order to take advantage of preferential tax treatment of public securities the donor’s will must either list specific shares or direct the executor to use appreciated securities to fund the intended charitable gifts. The second option is preferable so that there is flexibility for the executor and in the case of investment portfolio changes there is no need to change the will.

For illustration purposes a combined tax rate of 45% was used. Please note that combined tax rates vary across the provinces. 2017 Tax Table.

Note to reader:The purpose of this publication is to provide general information, not to render legal advice. In addition any changes in the tax structure may affect the examples listed in this information. Your client should consult their own lawyer or other professional advisor about the applicability of this information to their situation.

Additional Resources

Gifts of Bequest by Will – Client info sheet
(add your own label or stamp to customize it for your clients)

Gifts of Bequests – Q&A

Donor Story

Irene Hoover and her husband owned a bakery and enjoyed a great deal of success and prominence in their hometown. After her husband passed away two years ago, Irene decided it was time for her to update her will.

Part of her plan was to give something back to the community the Hoovers had loved as both residents and business owners.

“Not only did Jim and I love our town, but we felt as though we owed it a lot for the success of our business,” says Irene.

With the help of her professional advisor, Irene revised her will to include an inheritance for the Hoovers’ university-age niece, with the remainder creating the Hoover Bakery Fund, a Field of Interest Fund designed to support community development efforts. Because it will be endowed, her gift will provide a growing source of community funding for festivals, neighborhood revitalization, publicly accessible artwork, and other community improvements.

“I like knowing that when I’m gone, our legacy will be one of helping others strengthen our community,” says Irene.

A gift of real estate can enable a donor to make a bigger charitable difference than they thought possible. If given as a bequest it can reduce estate taxes and minimize or eliminate a burden placed on heirs.

Charitable gifts of real estate range from personal residences and vacation homes to rental properties, farmland, and commercially developed land.

A donor may also choose to give the gift immediately if they realize they no longer require a property, or they may consider retaining the use of the property during their lifetime and leaving the property to their chosen charity in the form of a Charitable Remainder Trust and claiming a tax credit for the charitable portion of the gift.

Gift Examples (and CRA links)

• Principal residence
• Cottage or vacation property
• Investment property
• Farmland
• Vacant land
• Environmentally Sensitive Land

Benefits to the Donor

• Donation receipt for fair market value of property
• Capital gains tax on 50% of gain (except for gifts of principal residence or ecologically sensitive land) is offset by donation receipt

Most Appropriate for

• Donors who no longer wish to retain vacation or investment properties

Important 2017 tax change to gifts of secondary property

Example

Mr. and Mrs. Marconi rarely use the cottage they purchased thirty years ago for $60,000. They had considered selling it but decided instead to contribute it to a charity with which they have long been supporters. An appraisal of the property determines its current fair market value to be $300,000. Their net income from other sources is $150,000 per year, and both their combined tax rate and their combined tax credit are assumed to be 45%.

For illustration purposes a combined tax rate of 45% was used. Please note that combined tax rates vary across the provinces. 2017 Tax Table.

Note to reader: The purpose of this publication is to provide general information, not to render legal advice. In addition any changes in the tax structure may affect the examples listed in this information. Your client should consult their own lawyer or other professional advisor about the applicability of this information to their situation.

Capital gain tax exemption for farms and privately owned businesses

There is a capital gain exemption for sales and gifts of Qualified Small Business Corporation (“QSBC”) shares, qualified farm property, and qualified fishing property. The exemption level, which is indexed for inflation, is $813,600 in 2015.

The exemption can flow through partnerships, trusts, and certain other investment vehicles. It is available to individuals while resident in Canada but not to non-resident persons.

To qualify, farm property must have been “used in the course of carrying on the business of farming in Canada” by the individual or a member of his or her immediate family, and the QSBC shares must be ina corporation incorporated or resident in Canada,which is not controlled directly or indirectly, by oneor more non-resident persons, or one or more publiccorporations.

Also, the gain in respect to the disposition ofone’s principal residence continues to be exempt fromtaxation. Donors to whom these exemptions applyshould be reminded to consider them when makinga gift. Amounts deducted under section 110.6 reducethe total amount of taxable income and, consequently,the maximum contribution limit for the year.

Source:“Planned Giving for Canadians: 3^rdEdition 2015 Update”

Donor Story

Sandra and Cliff Stewart owned a summer home and had no heirs interested in inheriting it. At first, the Stewarts planned to sell the home and give the proceeds to charity. But after talking with their local community foundation, they realized that giving the home directly to the foundation would create the biggest, most effective gift, while providing the greatest benefits to them as donors.

 “It was a great option – we could give our house to charity through the foundation and start any type of fund, not to mention the tax benefits,” says Sandra. The Stewarts learned they could also retain use of the home for their lifetime.

 “This way,” Cliff explains, “we can spend our summers enjoying the home for the rest of our lives. And after our lifetime, the community foundation will use the proceeds to make grants from the Sandra and Cliff Stewart Fund.”

Life insurance is the one asset almost everyone has.

For the young parent with limited dollars, it is a way to protect the family against economic loss in the event of a parent’s premature death. For the business owner, it may provide dollars to buy out a deceased partner’s interest or compensate for the loss of a key manager. For older individuals, it provides the liquidity needed to settle an estate and pay taxes.

Life insurance has another important use: it is a popular and practical way to make a significant gift to charity. A gift to a community foundation will be wisely administered through their investment program which will result in a stable source of income to the foundation for years to come.

Gift Examples

• Any whole life policy
• Many term policies
• Many group insurance policies

Benefits to the Donor

• Donation receipt for cash surrender value and any future premiums* paid on policies where the ownership is transferred to the charity.Small current outlay leveraged into larger future gift
• If policy ownership rights retained by donor during lifetime and charity named as beneficiary:
  • donation receipt to estate for full value of death proceeds;
  • satisfaction of providing a future gift while retaining full control of policy.

Most Appropriate for

• Persons (generally ages 30-60) who:
  • have an older policy no longer needed, or
  • want to make a large gift but have limited resources
• Persons (any age) whose personal needs and family situation may be subject to change
• Professionals with good cash flow, but limited capital assets.

* Advisors may want to suggest that donors use gifts of appreciated stocks to the charity to fund the premium payments as a way to take advantage of the preferential tax treatment – see Gifts of Appreciated Securities.

Example

Charity is designated owner and beneficiary

Mr. Palayew gives a charity a paid-up policy with a face value of $100,000 and a policy value of $48,000. His adjusted cost base in the policy is $20,000.

Charity is designated as beneficiary

Ms. Aziz would like to make a significant gift to her favourite charity and has a $100,000 life insurance policy that no longer has a specific purpose and is evaluating whether to continue the policy and pay the annual premiums and gift the proceeds to the charity. Her net income in the year of her death is expected to be $200,000.

The donor must also consider the annual cost of the policy premiums.

For illustration purposes a combined tax rate of 45% was used. Please note that combined tax rates vary across the provinces. 2017 Tax Table.

Note to reader:The purpose of this publication is to provide general information, not to render legal advice. In addition any changes in the tax structure may affect the examples listed in this information. Your client should consult their own lawyer or other professional advisor about the applicability of this information to their situation.

Donor Story

When his two daughters were young, Zachary Ding bought a life insurance policy to provide for his family in the event of his death. Now, he’s 65, and things have changed. “My daughters are both grown and doing very well for themselves, and over the years, my wife and I have become fairly comfortable – she will no longer need the death benefit from my policy,” says Zachary.

The Dings support and volunteer for a youth mentoring program as well as their local museum. “We’ve always planned to leave something for important community organizations,” says Zachary. After talking with their financial planner, Zachary decided to give his life insurance policy to his local community foundation.

“After giving my policy, I received a significant tax credit,” says Zachary. “We had owned the policy for so long that we could choose to stop paying the premiums and maintain a sizable death benefit.” The Ding Fund will be established with the proceeds from the insurance policy to benefit youth development and other community organizations.

Charitable remainder trusts (CRT) have been a popular gifting method in the United States for many years largely due to their special tax treatment.

While the taxing of these gift instruments is not as advantageous in Canada they can still be of interest to donors who have significant assets and wish to continue the income of the assets for their or their heirs’ lifetime and are interested in gifting the remainder to their favourite charity.

Gifts of residual interest are a similar structure but refer to gifts of real property, such as a principal residence or vacation home, where the donor will retain the use of the property during their lifetime or that of a specified heir and afterwards the property will be gifted to the charity.

Gift Examples

• Investment assets for CRTs
• Principal residence, vacation property, artwork, cultural property

Benefits to the Donor

• Donation receipt for the present value of the remainder interest
• Donor retains income generated
• Elimination of probate fees if trust is established during lifetime of donor

Most Appropriate for

• Donors who have considerable assets and still require income or wish to provide income for an heir but are interested in making a gift of the remainder interest.
• Donors who wish to continue to enjoy property or art collections but would like to make a gift of the residual interest to their chosen charity

Example

Ms. Nakamura transfers securities that currently pay her an annual dividend of $12,500, have a fair market value of $500,000 and a cost base of $300,000 to a charitable remainder trust established with a trust company.

Ms. Nakamura is 65 and subject to a 45% combined tax rate. The present value of the remainder gift is calculated using the Canadian Life tables and a discount rate of 6%, resulting in a present value of the remainder of $200,297. The trustee sells the current assets and invests in corporate bonds resulting in a net income after trust expenses of $25,000.

For illustration purposes a combined tax rate of 45% was used. Please note that combined tax rates vary across the provinces. 2017 Tax Table.

Note to reader:The purpose of this publication is to provide general information, not to render legal advice. In addition any changes in the tax structure may affect the examples listed in this information. Your client should consult their own lawyer or other professional advisor about the applicability of this information to their situation.

Types of Charitable Remainder Trusts

Charitable Remainder Trusts (CRT) can be established during the life (inter vivos) of the donor or through the will (testamentary). The donor may decide to establish a trust where the beneficiary may be changed (revocable) or make the decision permanent (irrevocable). If the donor establishes a trust that meets the following conditions a charitable receipt may be issued by the beneficiary charity:

• Transfer is irrevocable
• The property must be held by the charity at the time of transfer
• Value of the residual interest is ascertainable
• No encroachment on capital and any administrative fees are to be paid from income of the trust

The trust may allow any of the above and still provide a gift for the charity, however as the value of the gift is not certain or ascertainable it is not eligible for a donation receipt.

Donor Story

James Assad was retired and in his late seventies. The stocks he owned had high market values, but they paid limited dividends. In addition to increasing his personal income, James was interested in giving back to the community in which he had lived his entire life.

James decided to transfer his securities to a Charitable Remainder Trust that eventually would create a fund with his local community foundation.

“The income I receive from the trust is more than what I was collecting in annual dividends,” says James. He also receives an immediate tax credit by making the community foundation the irrevocable beneficiary of the remainder.

“Plus,” he says, “I know that when I pass on, I’ve done something good.” In time, James’ gift will create the Assad Family Unrestricted Fund to address ever-changing community needs.