Many Canadians generously support various charities and this can make a significant difference in the lives of others.
While the government has reduced the level of support it will provide, it has provided a number of tax incentives designed to encourage Canadians to lend their financial support. Income tax legislation increased the annual limit on most charitable donations available for the tax credit to 75% of net income. Additionally, the capital gain resulting from the donation of qualifying securities to charitable organizations after May 2006 is exempt from tax.
It is also important to note that in the year of death, the limit on charitable donations eligible for the tax credit is 100% of net income. Any excess charitable donations in the year of death may be carried back to the preceding year up to 100% of net income. Individuals making a donation will receive non-refundable tax credits.
The federal credit for the first $200 of donations is 15.5% and the credit for amounts in excess of $200 is 29%. When provincial donation tax credits are factored into the equation, the combined credit is approximately 45% for amounts in excess of $200.
Additionally, unclaimed charitable donations may be carried forward for five years, enabling you to maximize the effect of your gift within your individual tax planning strategy.
At a relatively moderate cost, life insurance can be an effective way to make a considerable gift to a favourite charity. Using insurance in planned giving also provides flexibility in structuring tax credits.
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