There is no shortage of causes and missions to which we adhere, and there are many organizations appealing to our generosity, especially on the eve of the holiday season, which is already upon us. Quebecers have big hearts and our society benefits from volunteer time spent with non-profit organizations. However, we would be less generous, financially speaking, and philanthropy would therefore lag behind the rest of Canada here.
Some will tell you that the Quebec state is more generous in its social programs. Thus, it takes more responsibility for the redistribution of wealth with, as a consequence, higher levels of taxation which can slow down the momentum which pushes us to put “the hand in our pocket” again.
“General public” fundraising campaigns are generally based on monetary donations. You certainly know that there is a tax credit for donations, both federally and in Quebec, which is non-refundable. This applies to donations made to registered charities or registered Canadian amateur athletic associations. For a cash donation, the credit represents the amount of the donation. But did you know that you can donate certain goods to these same organizations while benefiting from this credit? It could be anything from works of art to investments or even your life insurance policy!
Donate your old life insurance policy!
Estate planning makes it possible to establish the adequacy between your existing life insurance coverage and the needs of your estate. For some, the amount of life insurance may exceed established needs. Before canceling a life insurance policy, it is entirely possible to consider the option of naming a charity as the beneficiary. Your estate assets will be optimized since your liquidator can choose to apply the entire tax credit for donations against the estate tax.
If your objective is rather to reduce your tax bill during your lifetime, then you must immediately bequeath ownership of the insurance policy already in force to the benefit of the organization, which will become its owner and beneficiary, while you remain the payer. Certain tax considerations must be taken into account; it is thus possible that a gain on a policy is realized with the transfer of an old contract. In return, the market value of the policy (to be established with an independent actuary) will also give right to the credit. Moreover, it is obvious that the old premiums paid will not give right to this credit.
Whether it is to optimize your taxes during your lifetime, or when settling an estate, you can even take out new life insurance to benefit from the credit. Finally, you could decide to donate part of your life insurance in your will. The advantage here is that you can then share between several organizations, or even between members of your family and a cause that is dear to you, the death benefit.
Accumulate small donations
Haven’t reached this stage of your financial life? Don’t underestimate the importance of keeping and accumulating your receipts for the “small amounts” of donations you make here and there. Contrary to what you might think, it is not mandatory to use them for the tax year of the donation. It may even be more interesting to postpone them and apply for a credit in the following five years. For example, for Quebec taxpayers, waiting to claim a minimum amount or greater than $200 allows the credit rate to increase from 35% to 54%.
In Quebec as in Canada, you will also be able to combine donations for spouses without taking into account who actually gave the money; it is therefore imperative that the person with the highest tax rate benefit from it.
For the wealthiest among you, it should finally be considered that donations are subject to a ceiling! You cannot claim more than 75% of net income, more than 25% of the amount of taxable capital gains or recaptured capital cost allowance applied to your income when considering the gift of property.
In any case, you will understand that estate planning is an exercise to review as you progress through the financial stages of your life. It is not necessary to “sign a check” to use one’s family patrimony and thus achieve one’s philanthropic objectives.