At the Alzheimer Society, we believe completing your Will and Powers of Attorney for Personal Care and Property makes you a Super Hero. Why? You are putting the needs of others before yourself and protecting what’s important.
Death and taxes – two certainties?
While working at Royal Trust as a Will and estate planner, many clients would sit in a chair across from me and blurt out … there are two certainties in life: death and taxes. For years, even centuries, such statements were met with resignation.
However, most Canadians may be surprised to learn there is a way to avoid taxes. It all depends on the wording of your Will. Did you know that you can help your favourite charity and help your estate save taxes? How?
When you donate to your favourite charity, like the Alzheimer Society of Ontario in your Will, the donation is considered to be made immediately before your death. Similar rules apply when you name charitable organizations as the beneficiary of your RRSP, RRIF or TFSA, or of a life insurance policy. On your final tax return, your Executor can claim all charitable donations made in the year of your death. These include donations in the Will and those directly transferred to charities from RRSPs, RRIFs, TFSAs, or life insurance policies, and any carried forward donations from the previous five years that were not claimed, to a maximum of 100% of your net income. Any excess can be claimed on the tax return for the previous year, again to a maximum of 100% of your net income for that year.
Depending upon your net income in the year of death and the previous year, and the total donation amount, taxes paid in the year before your death may be rebated and taxes owed in the year of death may be eliminated.
What? Taxes eliminated and rebated?
So let’s see how that works!
The Government Rewards YOU!
TAX ELIMINATION AND A REBATE TOO!
|Mr. Generous gives a charitable Will bequest in his Will totaling =||$50,000|
|Tax payable—Final year:
Mr. Generous’ net income in year of his death =
|Minus: Tax credit for donation (100% x $40,000 net income) =
$10,000 to be used against previous years taxes
|Tax payable =||$ 0,000.00|
Mr. Generous’ net income in year before death =
|Tax paid in previous year = (assuming 35% rate x $36,000) =||$ 12,600|
|Donation carried back to previous year
($50,000 bequest – $40,000 tax credit used in final year) =
|Taxable income = $36,000 – $10,000 donation =||$ 26,000|
|Tax payable (assuming 35% rate x $26,000) =||$ 9,100|
|Taxes rebated to estate ($12,600 – $9,100) =||$ 3,500|
The tax for the year of death has been eliminated. The tax for the previous year, which had already been paid, is reduced and rebated.
Imagine the social impact – if all Canadians did their Wills (only 50% of us do) and included a charitable bequest in their Wills! Giving to a charity like the Alzheimer Society in your Will would benefit our world significantly while ensuring that your estate eliminates unnecessary tax burdens – a win – win!
November is Make a Will Month. And this month YOU could be our Super Hero! By doing your Will and including a charitable gift you can save taxes, protect those you care about and help save the world from dementia! Act now! Click here to request your free Estate Planner and Guide or call Kristy Cutten at 416-847-8915.
Chief Development Officer, Planned Giving
Alzheimer Society of Ontario