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INSURANCE STRATEGIES

New tax benefits from charity

With charitable donations it's as beneficial to give as it is to receiveIf you want to leave a portion of your estate to a charitable cause that's close to your heart, a life insurance policy or annuity can make it possible to contribute more and contribute it sooner. And thanks to the latest federal budget, you can donate more than before and increase the amount of tax credits you can claim.

Tax advantages

Donations to registered charities earn a federal income tax credit of 17% on the first $200 donated and 29% on anything above that. Above the $200 mark, every dollar donated reduces taxes by about 50 cents when surtaxes and provincial taxes are included.

Recent budget changes increase the benefits of charitable giving:

• The maximum donation eligible for tax credits in a given year has been increased to 50% from 20% of net income.
• The maximum eligible donation has been increased to 100% of net income for the year of death and the preceding year. This could be particularly beneficial if the proceeds of a life insurance policy are bequeathed in your will to a charity, as more credits may be available to your estate.
• Donations of property (corporate shares or investment funds, for example) will no longer trigger taxable capital gains.

How to proceed

There are several ways that life insurance policies and annuities can be used for charitable giving:

• Buy a life insurance policy and name the charity as the beneficiary. The cost of the insurance won't earn you any tax credits, but no tax is payable when the benefits are collected.
• In your will, bequeath the proceeds of your policy to charity. Your estate will earn tax credits.
• Purchase an insurance policy and donate it irrevocably to a charity. Your annual premium payments may qualify for tax credits.
• Donate an existing policy to receive tax credits for the cash value and future premium payments that you make. Accumulated earnings might be added to your tax bill, but you may be able to arrange for the charity to pay the taxes due.
• Buy an interest-income annuity and donate the interest earnings to the charity. You'll pay little if any tax on the interest earnings. You can retain the principal amount of the annuity for any emergency or unforeseen need; otherwise, the principal also could go to the charity.
• Buy a prescribed life annuity so you can make a donation to charity while still retaining income from the annuity, within certain limitations.

There are many details that should be checked carefully. Professional advice can help you make the right choices.