Planned charitable gifts: What you can donate, and the tax benefits

June 30, 2020

If you’ve had a successful medical career and are now thinking about your legacy, a planned charitable gift is a thoughtful way of giving to a charity. The charity benefits from your gift, while you or your estate benefits from tax savings.

When you donate to a registered Canadian charity,1 you get a charitable donation tax credit. Since it’s a non-refundable tax credit, it can be used only to reduce tax owed against your net annual taxable income. If you do not owe any such tax, your donation does not result in a tax refund.

For example: Dr. Mazza, who lives in Alberta, donates $5,000 to her favourite charity, Doctors Without Borders (Canada). The charity gets the entire $5,000, and Dr. Mazza receives $2,450 in tax savings. The after-tax cost of her donation was $2,550, not $5,000. While alive, she can claim an amount up to 75% of her net income as a donation.2

Find out how much you could save in taxes with the charitable tax credit calculator from CanadaHelps.   

You can make charitable gifts as an individual and through your corporation. In general, the tax benefits are the same for an individual and a corporation. We recommend you discuss this with your tax advisor.

What can you donate?

There are a variety of ways you can donate to a charity.

Cash: Donors and charities often prefer cash gifts because they are easy to give and easy to receipt.

Public corporation shares: These are essentially stocks that are listed on a stock exchange (e.g., the big banks, utility companies, etc.). You can donate “in kind”, which means donating the stocks directly. If you have capital gains, they would not be subject to tax.  

RRSPs, RRIFs or TFSAs: You can donate the assets held in your registered retirement savings plans, registered retirement income funds or tax-free savings accounts by designating a registered Canadian charity as a beneficiary of these plans. On your death, the charity will receive the proceeds of the plan and issue a donation tax receipt equal to the fair market value of the plan at that time.

Donor advised fund: This is a flexible personal foundation, established with a gift in cash, private company shares, or other complex assets. It enables you to: make annual grants of any amount to your favourite charities (minimum annual payout is 3.5% of the average market value); make additional gifts through your estate plan; continue working with your investment advisor; and if you wish, name family members as co-advisors or successor advisors to continue active involvement with granting decisions.

Real estate: You’ll need to get the property appraised to determine the amount of the donation receipt. Your tax advisor can help ensure the donation is structured properly.

Life insurance: There are a few ways to donate your permanent life insurance policy:

  • Charity-owned policy — you name the charity as both the owner and beneficiary on either a new or existing life insurance policy. You receive a donation tax receipt from the charity for the current value of the policy, if any. You continue to pay the premiums and also receive a donation tax receipt for each premium payment you make. On your death, the charity would receive the life insurance proceeds directly.
  • Donor-owned policy — you are the owner of the policy while you’re alive, and the charity is the beneficiary when you die. You would pay any required premiums. Upon your death, the insurance company would pay the insurance proceeds to the charity. Your estate would receive a donation tax receipt for the proceeds of the policy.

Securities from corporations: Many incorporated physicians have retained earnings, typically invested in pooled or mutual funds and publicly traded securities. You can donate them in two ways:

  • Sell the investments and gift cash — half of any capital gain net of available capital losses would be subject to corporate tax. The non-taxable half would be added to the corporation’s capital dividend account (CDA), which could be distributed as tax-free dividends to the shareholders of the corporation. The after-tax cash would be gifted to the registered charity, and the charity would issue a tax receipt to the corporation for the gift. 
  • Gift the investments directly — this is also called a donation “in kind.” The capital gain would not be subject to corporate tax, making the addition to the CDA account twice as large.

Before making any final decisions, talk to your tax advisor and MD Advisor* to review how each option could affect your overall financial and estate plans.

* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.

1 The federal Income Tax Act only provides tax credits for gifts to "qualified donees," defined in the Act.

2 At death, her estate can claim up to 100% of her net income in her year of death and the immediately preceding year.

Estate and trust services are offered through MD Private Trust Company.

Insurance products are distributed by MD Insurance Agency Limited. All MD employees dealing with clients regarding insurance products hold life licences.  

The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice, nor is it intended to replace the advice of independent tax, accounting or legal professionals.

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