Donating Now or In Your Will

Many people wish to leave a lasting mark on the world before they depart – and one of the most common ways to leave a legacy behind is to donate money to a charity within a will.

It’s a great thing to do, giving money to an organization that can put it to great use. Doing so can also help with the taxes that will be owed on your final tax return.

Donating a large amount of money at once to a charity sounds great and easy if you have the money to do so.

Take for example the following scenario:

Jane is in her 80s and earns about $20,000 per year between her Old Age Security, CPP benefits, and interest from a modest savings account – she pays a tax of roughly $200.

In her will, she would like to leave $10,000 to the SPCA. Assuming she only received minor income in her estate (the CPP death benefit), she would only be using $1,875 of her donations to reduce her taxes on her estate tax return. She could carry the remaining $8,125 of her donations to the year preceding death, but that still leaves about $6,500 of unused tax credits.

From the charity’s perspective, they still get that $10,000 donation – but what if Jane had decided to donate small amounts to the SPCA over the course of a few years?

Let’s say Jane decided to donate $800 per year instead.

  1. The federal charitable tax credit rate is 15% on the first $200 and 29% on the remaining $600. Her federal tax credit is therefore (15% × $200) + (29% × 600) = $204.
  2. The provincial charitable tax credit rates for Alberta for 2017 are 10% on the first $200 and 21% on the remaining $600. Therefore her provincial tax credit is (10% × $200) + (21% × $600) = $146. But because she only earns $20,000, Jane doesn’t pay provincial tax, so she wouldn’t be able to claim these credits.
  3. Her charitable tax credit is $204 per year.

In the latter example, if Jane donated for just five years, she would end up donating $4000 to the SPCA, but she would receive just over $1000 in tax credits over those years, and she wouldn’t owe any taxes in any of those years.

The best course of action for anyone considering leaving money to charity is to consider talking to your tax advisor. They can help determine how it can be done most effectively. Not only can this help reduce your overall taxes but it also leaves more money in your pocket to donate. That rings true for everyone, regardless of age or situation – any time you may be considering donating a substantial amount of money to charity, contact us at JMHCA, your trusted financial partners.