PLANNED GIVING

Common Questions & Answers:

Q: Is an outright gift always made in cash?

A: Not necessarily, but a cash contribution – paid by cheque, money order or credit card – is the simplest way to give.

Q: What is the tax benefit of an outright cash gift?

A: Because a donor receives a donation tax credit for their gift, it is worth more than its actual cost.

The federal tax credit is equal to 16 percent of the first $200 of donation receipts plus 29 percent of receipts in excess of $200. Since a federal tax credit also reduces provincial taxes, a donor’s combined tax savings could be nearly half of the contribution made.

Here’s an example assuming a combined tax credit of 45 percent. You write a cheque for $1,000 to the Canadian Warplane Heritage but the net cost of the gift to you is only $550, because your donation receipt for $1000 reduces your income taxes for that year by $450.

You may claim up to 75 percent of earned income in charitable donations each year. Donations exceeding the limit can be carried forward and claimed on future tax returns for up to five years.

Q: What other kinds of property can a donor contribute?

A: Non-cash assets such as publicly listed securities, real estate, artworks and other tangibles are also suitable as outright gifts and may be especially suitable if the property’s practical worth is less than its market value or it does not fit your investment objectives. In any case, you are entitled to a donation receipt for the fair market value of the property contributed..

Q: If the property has appreciated in value, you have to pay tax on the capital gain at the time when the property is donated?

A: Yes, but for certain types of property, less tax than if you sold the property. When listed securities (including mutual funds) are contributed to a registered charity, you are taxed on only 25 percent of the gain. If those same securities are sold, you are taxed on 50 percent of the gain.

In the case of other property, such as real estate and artworks (other than cultural property), you are taxed on 50 percent of the gain whether the assets are first contributed or sold. Prior to 2000, a donor would have been taxed on 75 percent of the gain.

Whatever type of appreciated property is contributed, your tax credit will exceed the tax on the gain, so a net tax saving will always be realized. For example, if you contribute listed securities having a current fair market value of $10,000 and a cost base of $2,000, only $2,000 of the gain (25%x $8,000) will be subject to tax. The tax on the gain (assuming a 50 percent combined tax credit) will be $1,000, but the tax credit will be $5,000. Thus, net tax savings of $4,000 will be realized.

If you had sold the securities first, $4,000 of the gain would be subject to tax, and you would have paid $2,000 in taxes, again assuming a 50 percent combined rate.

Larger Contribution Limit: When appreciated property is donated, the amount claimed for credit is actually larger than 75 percent of your income. In this case, the contribution limit is 75 percent of income from all other sources plus 25 percent of the gain arising from the contribution.

Bottom line: No matter how large a contribution or how much the property has appreciated, you will always be able to use enough of your contribution for a tax credit to exceed the tax on gain that would otherwise be owing.

Q: Is making a will difficult?

A: Ordinarily it’s quite simple. The process begins by listing assets and most important personal possessions (nothing should be overlooked!), and the persons, institutions and causes for which you would like to provide. Then a lawyer should be consulted to review intentions and draft the final document in proper language.

Q: What if you change your mind later on?

A: A will is fully revocable by you while you live – you retain control and can easily make revisions should your wishes or circumstances change, either by having a new will drafted or adding a codicil to an existing one.

Q: Does a charitable bequest provide a tax benefit?

A: For most people, yes. At the death of the donor, your estate is entitled to a donation receipt for the full value of a bequest, providing a significant tax credit on your final tax return. Here’s an example:

(Margaret J), a widow, leaves $10,000 to the Canadian Warplane Heritage and the remainder of her estate to her two children. Her bequest results in a tax saving of $4,500 (assuming a combined tax credit of 45 percent). If she had left the $10,000 to her children instead of giving it to the Museum, taxes would have consumed $4,500 and only $5,500 would have passed to the children.

Q: Does a charitable bequest have to be in cash?

A: No, you may also give publicly listed securities or real estate. Because a charitable bequest is creditable up to 100 percent of income in the year of death, the tax credit will almost always exceed tax on the gain, resulting in some tax savings. Whether the bequest consists of cash or other property, any portion not usable because of the 100-percent-of-income limit can be carried back to the prior year, again subject to the 100-percent limit.

Q: What is the best way to make a bequest to the Canadian Warplane Heritage?

A: A bequest may take any of several forms. Consider these possibilities:

A general bequest is for a certain dollar amount of property, usually cash:
“I give to the Canadian Warplane Heritage the sum of $100,000 to be used for its general purposes.”

A specific bequest directs that the Canadian Warplane Heritage is to receive a specific piece of property:
“I give... 500 shares of XYZ stock...”

A residual bequest designates all or a portion of whatever remains after all debts, taxes, expenses and other bequests have been paid:
“I give... fifty percent (50%) of the rest, residue and remainder of my estate...”

A contingent bequest takes effect only under certain conditions:
“In the event that my wife does not survive me, I give to the Canadian Warplane Heritage the sum of ...”

Q: How will a bequest be used?

A: Most bequests will be contributed for general purposes, but you may also make a restricted bequest to be used for the endowment fund.

Q: You wish to name the Canadian Warplane Heritage in your will. How can we assist you in doing this correctly?

A: Let us guide you! We can provide you with helpful information on how to make a will and sample bequest language appropriate to the forms and purposes described above. At your request, a Museum representative would be happy to refer you to a qualified financial advisor to discuss your intentions for giving.

For more information, please contact Pamela Rickards, CWH Deputy Director at (905) 679-4183 ext 230 or e-mail: pam@warplane.com

Please click here to return to the Planned Giving Home Page or click the 'back' button on your browser.