Tax Effectiveness For Charitable Donation Part II - Annual Donation Limit at Death

As we mention in a previous article, the federal government has creates a tax reduction program for people making donation to charities because giving money to charity provides many benefits to both the community and the donor, most people do not give much thought to developing a tax-effective strategy for charitable giving. Although many people make charitable bequests in their wills, other ways of giving may be less costly to them and their estates. In this article, we will focuses on the tax effectiveness of annual donation limit at death for individuals.

I. Definition
Any charitable made in a person will are deemed to be contributed in the year of death.

II. Limitation of contribution
a) The donation claim limit from 75% of net income to 100% in the year of death.
b) Any excess donations made in the year of death can be carried back one year.

III. Donation of capital property

Making a donation of capital property rather than selling the property and then donating the cash has become more attractive for taxpayers as result of recent changes in the income tax rules. These tax rules provide for preferential treatment of capital gains from specified securities. The following rules apply for gifts of capital property
a) Donation receipt

The charity must issue a donation receipt for an amount equal to the fair market value (FMV) of the property. Care must be taken to establish an appropriate FMV for the donated property and The receipt issued by the recipient will record their acceptance of the FMV of the donation. In some cases, more than one appraisal may be required.
b) Claim limit

In addition to the annual general charitable donation claim limit of 75%, the charitable donation claim limit will be increased by an amount equal to 25% of any taxable capital gains realized as a result of the donation.

c) Private company shares or debt
Gifts of this type of asset are limited by recent changes in the income tax rules. The donation of flow-through shares is made through the use of private corporations might resulting in additional tax savings, because this type of donation is not subject to capital gains tax, the full value of the flow-through shares donated would be non-taxable.

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