Simply put: planned giving is the process of making a significant charitable gift during a donor’s life or at death that is part of his or her financial or estate plan. Though often understood as a testamentary act, such gifts can also have immediate value, helping Central Heights today as well as for the future.
These gifts may take the form of cash, stocks, bonds, or mutual funds. By making your gift through any of these investments, you can eliminate the capital gains tax on the gifted securities.
Since 2006, gifts of listed securities or mutual funds to charitable organizations in Canada can eliminate the capital gains tax otherwise payable by the donor on the gifted securities. The Canadian government introduced this initiative to encourage such gifts, benefitting both the church (charity) and the donor. If you intend to give appreciated listed securities, it is important that you transfer the securities directly to the church. If you first sell the securities and then donate the proceeds from the sale to the church, you will have to pay capital gains taxes.
You own shares that you purchased a few years ago for $4,000 and that are now worth $10,000. When you sell the shares, you will have a capital gain of $6,000 and half of the capital gain, i.e. $3,000 will be taxable to you. Assuming your tax rate is 40%, your tax bill from the sale is $1,200. However, if you donate the shares to a charity, then the gift of the shares is exempt from the capital gains tax. Making a gift of the shares valued at $10,000 results in the following tax savings:
- Donation tax credit: 43.7% of $10,000 $4,370
- Capital gains tax savings: $1,200
- Total tax savings: $5,570
In this example, the $10,000 gift of shares resulted in additional tax savings to the donor of $1,200.
Charitable gift annuity
Donors who have savings outside their RRIFs and use these savings to generate retirement income, can generate a much higher retirement income through a gift annuity than with bonds or GICs along with an immediate gift to Central Heights. The gift annuity combines a gift to Central Heights with a guaranteed retirement income for as long as you live. The annual annuity income depends on your age, gender and marital status. The older you are the higher the annuity income will be.
- Based on a deposit of $100,000, a gift annuity would provide a 65-year-old couple with the equivalent of a pre-tax annual GIC interest income of about 5.5% plus a tax receipt of $25,000 (and a gift of $25,000 to the church).
- 70-year-old couple would receive the equivalent of a pre-tax annual GIC interest income of about 6.3% plus a tax receipt of $25,000 (and a gift of $25,000 to the church).
- An 80-year-old couple would receive the equivalent of a pre-tax annual GIC interest income of about 10% plus a tax receipt for $25,000 (and a gift of $25,000 to the church).
- An 80-year-old man would receive the equivalent of a pre-tax annual GIC interest income of about 11% plus a tax receipt for $30,000 (and a gift of $30,000 to the church).
- An 80-year-old woman would receive the equivalent of a pre-tax annual GIC interest income of about 11% plus a tax receipt for $25,000 (and a gift of $25,000 to the church).
Supporters of Central Heights who are considering both an immediate gift and a bequest through their estate should explore a Legacy Bond. By rearranging your savings you could make a significant gift to Central Heights, leave a larger bequest to the church, and increase your retirement income.
Based on a $100,000 investment, couples between the ages of 70 and 80 could:
- Make a one-time gift to Central Heights of $25,000,
- Leave a $125,000 bequest to the church, and
- Receive the equivalent of a pre-tax annual GIC interest income of about $5,500 for as long as they live.
The actual results from the legacy bond concept depend on several individual factors, such as your age, gender, taxable income and province of residence, health status, current interest rates and giving goals.
Please contact our office for additional information if you are interested to learn more about this giving option.
People who have large amounts of assets in their RRSPs/RRIFs but only small amounts of assets outside their registered plans may want to consider withdrawing funds from their RRSP or RRIF to support the church. Before doing so, be sure to consult with your tax advisor to determine the tax consequences of a gift from your registered plan.
Many people have substantial savings in RRSPs/RRIFs, but less cash on hand and so withdrawal from these accounts creates a tax problem, such as the charging of withholding taxes – $30% if over $15,000. This can be avoided by preparing and submitting CRA Form T1213 with a direct transfer of proceeds to Central Heights. The donor still reports income, however, the donation receipt fully offsets tax liability. The general annual limit on charitable donations as a percentage of net income is 75%.
An Example: Assuming a 44% tax rate
Impact of a normal RRSP withdrawal of $25,000:
- The withholding tax of $7,500 creates a balance of $17,500 available to donate
- $9,800 taxes owed, $7,700 donation credit
Impact of a RRSP withdrawal using Form T1213:
- No withholding tax deducted at source
- Balance of $25,000 available to donate
- $14,000 taxes owed, $11,000 donation credit
A gift in your will
A bequest is a gift made in your will – and a highly effective way of carrying on your support for the people and causes that mattered most to you during your lifetime. Whether or not you already have a will, the easiest way to include a gift in your will is to get professional help from a legal advisor experienced in preparing wills. If you need help finding a suitable legal advisor, we will be very happy to help you. We can also help ensure your gift will be used as you intend by providing suggested bequest wording for your will, which you can bring to your legal advisor.
As part of a service to our members, we have professional, independent financial planners available to meet with you upon request to confidentially discuss specific giving opportunities. No products will be promoted other than in a generic fashion, and the final decisions will be left to the individuals. For assistance with planned gifts, please contact our office at 604-852-1001.