With 84% of Canadians contributing to charity on an annual basis, charitable giving is becoming an increasingly important part of your client’s overall financial plan.
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Six Gift Options for Canadian Donors
This section provides practical information about six common and effective
gift options for Canadian donors, including:
- Appreciated securities
- Real Estate
- Life insurance
- Charitable remainder trusts
But what constitutes a gift? Read on…
Defining a gift
The Income Tax Act, while having many references to charitable gifts, does not provide a definition of a gift. The Canada Revenue Agency defines a gift as “a voluntary transfer of property without valuable consideration to the donor.”
The choice to make the gift must rest solely with the donor in order for it to be considered voluntary. For example, if a contest prize was a gift of $500 to a charity of the winner’s choosing, while they may choose the recipient of the gift they would not be eligible for a receipt as they did not choose to make the gift.
“transfer of property”
The gift must involve an absolute transfer of property to the charity. As donor advised funds have become increasingly popular in Canada and the United States over the last few years, there has been scrutiny by tax officials with respect to whether these constitute a transfer of property. In particular, if the donor continues to make investment decisions as well as distribution decisions without the recipient charity appearing to have the final say, it may be debatable whether the charity has ownership.
In general this refers to the gift causing a benefit to the donor greater than the value of the donation receipt. Examples might include tickets to charity galas, where the value of the dinner, prizes, entertainment. The consideration must be deducted from the price of the ticket in order to obtain the value of the donation receipt. Where CRA finds proof that the consideration to be significant to the donor (greater than 80% of the value of the gift) than to the charity, a receipt is disallowed and in some cases may be identified as unregistered tax shelters and charities have been deregistered.