Simplest Case: Charitable tax credit offsets tax on the withdrawal.
Eligible gift receipt = Value on the date of death
The charitable tax credit helps to offset the tax burden on the Estate.
The tax burden can be considerable for registered funds such as RRSPs and RRIFs. When you die, it is as if you cashed in your asset all at once and it is added to your taxable income. You could then be taxed at the highest income rate.
This is an appropriate planning vehicle for individuals who have other assets e.g. stocks, GICs, bonds.
Giving RRSPs/RRIFs in combination with a gift of stock: The donor pays no tax on the capital gain on the stock. The donor receives a charitable tax credit for the full value of the stock gift. The tax credit offsets the tax on the RRSP/RRIF withdrawal, giving the donor the full money withdrawn.
This is an appropriate planning vehicle for any individual with RRSP/RRIF assets.
Giving RRSPs/RRIFs in combination with a gift of stock:
The donor pays no tax on the capital gain on the stock. The donor receives a charitable tax credit for the full value of the stock gift. The tax credit offsets the tax on the RRSP/RRIF withdrawal, leaving the donor with money realized from the withdrawal.
Probate and executor N/A.
A significant charitable gift can be made while reducing the tax burden on the withdrawal through your charitable tax receipt for the gift amount.
No probate fees because it does not go through your Estate. You can name your beneficiaries directly on your RRSP/RRIF.
No executor fees.
Donor has full access to the funds during donor’s lifetime.
Can be multiple beneficiaries.
Can be a large gift for charitable work.
Please note: There is a Revenue Canada withholding tax that applies. Under $5,000 it is 10%; up to $15,000 it is 20%; over $15,000 it is 30%.
Therefore careful planning is required to realize the charitable gift that the donor desires to make.
