Tax Benefits of Charitable Giving

Knowing the tax rules for charitable gifts of cash and property, and seeking professional advice about those rules, helps donors maximize their giving and minimize taxes. Gifts take many forms including cash, life insurance, real estate, publicly traded securities (like stocks, bonds and mutual funds) and gifts in wills. This variety allows donors to choose gifts that fit their lifestyle and take advantage of special tax incentives.

Tax Benefits for 2008

Recent changes in federal legislation and Alberta charitable tax credits are important to understand for people reviewing their estate plans. In 2007, the Alberta provincial tax credit increased to 21%. When combined with federal charitable tax credit, Albertans now receive a 50 cent tax credit for every dollar (over the first $200) donated to a registered charity. For example, if you donate $10,000 cash to a charity, a tax credit of $5,000 will be created. The after tax cost of the gift is only $5,000.

Other incentives include new federal tax provisions to exempt capital gain tax of gifts of publicly traded securities to registered charities. In this case, the donor would receive the 50% tax credit, plus the net value of any applicable capital gain tax.

Limits

Donors are free to give whatever amount they wish to charity; however, the maximum tax credit they can claim is generally based on 75% of their income in that year. The excess may be carried forward 5 years and claimed in years where the 75% income limit is not exceeded. An exception to this rule applies in the year of a donor's death and the year immediately preceding when the maximum credit that can be claimed is based on 100% of the donor's income.

(Gifting Tip: Make gifts over time. The limit of 100% of income during the last two years of life may not allow for tax credits for the full amount of a large gift from an estate's assets).

Each donor's tax situation is unique. Consulting with your professional advisors will ensure your gifts fit into your overall estate and tax plans.

Used with permission from the Edmonton Community Foundation