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Charitable donations can yield tax and estate planning benefits

Ontario residents who make charitable donations may receive benefits beyond the emotional rewards of helping others. They may also pay less in taxes and see estate planning advantages as a result of their altruistic actions.

One way to reap tax benefits is to donate securities, such as publicly traded stocks or bonds, rather than cash. While half of the gains yielded by such investments are usually considered taxable income, there is no tax due on these profits when the securities are donated to charity. These gains will increase the value of the donation and the amount of the associated tax deduction.

The regulations surrounding another tax benefit were eased by the 2014 federal budget. Prior to the change, an estate could suffer a tax penalty when the charitable donations in a will were not specific. The Canada Revenue Agency felt that vague instructions left too much to the discretion of the executor. As a result, the deduction could not be claimed on the final tax return of the deceased. While the estate was allowed to claim the deduction, the tax liability of the deceased was usually larger. The new rules give executors far more flexibility; any donations made within three years of an individual's death qualify, and executors have much more latitude in deciding how and when the tax benefits will be allocated.

These regulations and regulatory changes indicate how the rules surrounding taxation and estate planning are both complex and evolving. They also demonstrate that mistakes can be easily made. The input of a lawyer with estate planning experience may help an individual to develop a strategy that provides for heirs while limiting tax liability. A wills and estates lawyer could also inform his or her clients of any possible benefits stemming from regulatory changes.

Source: Guelph Mercury, "Charitable Giving and Estate Planning", April 17, 2014

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