In recent years the Government of Canada has increased the use of income tax incentives as a way to encourage contributions to registered charities such as The Sovereign Order of St. John Victoria Commandery. Contributions to registered charities are claimed as an income tax credit. For individuals who make gifts in excess of $200 per year, the income tax savings from charitable contributions is equal to 43.7% of the amount of the gift.
The amount of donations for which you may claim a credit is limited to 75% of your net income in the year. Gifts not claimed in the year may be claimed during the five subsequent taxation years. There are several ways one can make a donation.
Gifts include items such as cash, publicly traded securities, life insurance cash values, or life insurance death benefits. As you may know, 50% of realized capital gains on publicly-traded securities are added to your income and are therefore subject to income tax. However, when you make a charitable gift of publicly-traded securities to a registered charity, no amount of the capital gain is added to your income and you are able to claim 100% of the value of the gift as a charitable contribution. The securities that qualify include shares, debt obligations, rights listed on designated stock exchanges, units of mutual fund trusts, shares in a mutual fund corporation and prescribed debt obligations.
Included also are shares that you may have received as the result of the demutualization of Canadian Mutual Insurance Companies back in the late 90’s and early 2000’s. You may have lying around the house old modest participating life insurance policies which may have accumulated cash value over the years. If you transfer the ownership of the policy to a registered charity, generally the current cash surrender value of the policy will qualify as a charitable denotation.
If you make a gift to a registered charity of life insurance proceeds by way of a bequest in your will or by naming the charity as the beneficiary of a life insurance policy owned by you, the amount eventually paid to the charity will be treated as a charitable donation in the year of your death and may be claimed (without limit) on your final personal tax return. You may also carry back any used credits to the preceding year.
We express the importance of checking first with your tax advisor before making any contribution to be sure that you will maximize the tax savings of the contribution to the charity.