Canadian Gift Planning Handbook – By Robert A. Kleinman & Howard Berish
                     November 2024
CANADIAN 
GIFT
PLANNING 
HANDBOOK
By: Robert A. Kleinman FCPA
Howard Berish FCPA
2 CANADIAN GIFT PLANNING HANDBOOK November 2024 3
DISCLAIMER TABLE OF CONTENTS
Chapters Pages
This Canadian Gift Planning Handbook has been prepared for the use of gift planners and 
professionals involved in planned giving. The content is general in nature and the discussion 
Glossary Of Terms And Definitions 4
on each topic is not necessarily exhaustive. The information provided does not constitute 
financial, tax or legal advice. Please consult your income tax, financial and/or legal advisors Introduction 6
before arranging a planned gift. 1 A Personal Approach 7
2 The Basics: Percentage Limitations and Excess Contributions 9
3 Bequests 13
4 Gifts of Life Insurance 19
5 Interest Free Loan 22
6 Charitable Remainder Trust 23
7 Gifts of Residual Value 26
8 Gifts of Capital Property 28
9 Gifts of Marketable Securities 30
10 Gifts of Private Company Shares And Debt 32
11 Gifts of Real Estate 37
12 Gifts of Art 38
13 Individual Estate Planning 40
14 Corporate Estate Planning 42
15 Departure Tax Planning 46
16 RRSP Gift Planning 47
17 Gifting U.S. Assets 50
18 Contrasting The Federal and Quebec Taxation Acts 52
19 Mining Flow-Through Donations 54
20 Case Study 57
Note on Alternative Minimum Tax & Capital Gain Inclusion Rate 67
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
4 CANADIAN GIFT PLANNING HANDBOOK November 2024 5
GLOSSARY OF Graduated Rate Estate: “GRE” (Subsection 248(1) of The Act) • An estate arising on and as a consequence of an individual’s death 
• Satisfies the conditions in The Act to be a testamentary trust 
TERMS & DEFINITIONS • Not more than 36 months have passed since the date of death 
• Deceased’s Social Insurance Number is shown on the estate return 
• Designates itself as a GRE on its first tax return 
• No other estate of the individual is designated as such 
Adjusted Cost Base: “ACB” (Section 54 of The Act) 
Mining Flow-Through: “MFT” 
Canada Revenue Agency: “CRA” 
Non-Qualifying Security: (Subsection 118.1(18) of The Act) 
Canadian Controlled Private Corporation: “CCPC” (Subsection 125(7) of The Act) • See chapter 10 Gifts of Private Company Shares and Debt 
• A Canadian corporation that is not controlled by non-residents or public corporations 
Paid up Capital: “PUC”: (Subsection 89(1) of The Act) 
Capital Dividend Account: “CDA” (Subsection 89(1) of The Act) 
Qualified Donee: (Subsection 149.1(1) of The Act) 
Capital Gain Exemption: “CGE” (Subsection 110.6(1) of The Act) * (Throughout this handbook any reference to charity or registered charity refers to a
• A lifetime Capital Gain Exemption of approximately $1,250,000 is available on the    qualified donee.)
disposition of certain shares of Canadian Controlled Private Corporations as well as • A Canadian registered charitable organization 
certain farming and fishing businesses 
• A Canadian registered private foundation 
Cash Surrender Value: “CSV” (Subsection 148(9) of The Act) • A Canadian registered public foundation 
• Certain universities outside Canada listed by the CRA 
Charitable Remainder Trust: “CRT” 
• Certain foreign charities 
Connected Corporation: (Subsection 184(6) of The Act) • Certain municipalities in Canada 
• A payor corporation is connected to a particular corporation if: • Municipal or public bodies in Canada performing a governmental function 
○ The particular corporation is part of a controlling group that control the payor; or • Housing corporations listed with the CRA 
○ The particular corporation owns more than 10% of the votes and value of all the • A registered journalism organization 
payor shares 
Refundable Dividend Tax on Hand: “RDTOH” (Subsection 129(4) of The Act) 
Deemed Disposition: (Subsection 70(5) to 70(10) of The Act) 
• On death The Act deems a taxpayer to have disposed of all their assets Registered Pension Plan: “RPP” (Subsection 248(1) of The Act) 
Donation Mining Flow-Through: “DMFT” Registered Retirement Income Fund: “RRIF” (Subsection 146.3(1) of The Act) 
Excepted Gift: (Subsection 118.1(19) of The Act) Registered Retirement Savings Plan: “RRSP” (Subsection 146(1) of The Act)
• See chapter 10 Gifts of Private Company Shares and Debt Small Business Deduction: “SBD” (Subsection 125(1) of The Act)
Fair Market Value: “FMV” Taxable Canadian Property: “TCP” (Subsection 248(1) of The Act) 
Gifts in Kind: Gifts of property other than cash The Income Tax Act, Canada: “The Act” 
Undepreciated Capital Cost: “UCC” (Subsection 13(21) of The Act)
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
6 CANADIAN GIFT PLANNING HANDBOOK November 2024 7
CHAPTER 1
INTRODUCTION A PERSONAL APPROACH
Dear friend, Working in planned giving is ultimately about building connections with people, not about 
a specific strategy or product. There are three broad categories of potential donors covered 
This Handbook, first published in 1997, is now in its second edition. While it has been in the following pages; donors hoping to give following a large transaction, donors hoping to 
continually edited to reflect changes in the law, this new edition attempts to change some offset their taxes due at death through philanthropy, and donors who will not need any tax 
of the essence of the material. help at death. These specific donor types are highlighted over others as they are often the 
ones with the most interesting and complex gift planning opportunities.
Planned giving is often seen as a set of products – annuities, bequests, insurance, etc. – and 
the first edition examined planned giving product by product. Consider the following decision tree:
Planned giving is a flexible title that can be interpreted in many ways. To some organizations, 
planned giving simply equates to bequests. Increasingly however, more organizations When is the donor thinking about making their gift?
understand that planned giving is a blanket term to encompass any gift that requires 
planning. Planning is not a product but rather a dedicated process. This process may end with 
a product, or it may not. In its essence, planned giving is an interaction between the needs of 
At death After a large transaction that will create a tax liability
the donee and the needs of the donor, with financial mechanisms hopefully creating a result 
that is as effective as possible. 1a 1b
Will the donor need donation Life insurance Preferred shares
receipts on their final return? Wealth replacement gifts
This edition makes several changes that are intended to help the reader understand the 
process of planned giving. We set out in the first chapter a decision tree, which matches 
the needs of the donor with possible outcomes or products. Each product chapter contains 1c
No Yes Gift of existing
new information suggesting to whom the product may be best suited. The last chapter now insurance policy
introduces a philanthropic review for a fictional family. It considers a process for this family 
that reveals their best possibilities for planned giving.
Why is tax help not needed? What assets will create tax liability on the final return
The objective of the first edition was to allow fundraisers and professionals to stimulate more 
charity and good deeds. We hope this edition does the same!   
The assests they They have public They have private 
The donation own are not taxable securities or RRSPs corporate shares
receipt would be 
larger than needed 2b
on the final return Marketable
The information contained in this Handbook reflects tax law in effect as of      O   c  t  o  b  e  r   2  0  2  4       securities
3a 3c 2a 2c
Charitable Gift annuity Life insurance Redemption ofremainder trust policy preferred shares
3b 2d
Residual Insured annuity
value gift
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
8 CANADIAN GIFT PLANNING HANDBOOK November 2024 9
The second option is a residual value gift (3b). In this plan, the donor donates an asset, such as 
Scenario 1: After a Large Transaction
a personal residence, to a charity, but continues to use it for life. They obtain an immediate tax 
First, imagine a donor who foresees a large transaction in his/her future. If the transaction will receipt, but again the gift is physically given only at death. See chapter 7 for more details. If the 
create a large amount of tax liability, it presents an excellent opportunity to use a donation donor simply owns assets that are not taxable, their best option is a gift annuity (3c). In short, the 
receipt. There are three main plans for this kind of donor. The first plan (1a) is a life insurance gift annuity replaces a fixed income investment, which insures a more tax-effective life return.
wealth replacement. In this plan, the donor makes a donation to create tax savings, and then 
purchases a life insurance policy to replace the amount of wealth that they just donated. See CHAPTER 2
chapters 4 and 13 for more details. The second plan (1b) is a gift of preferred shares. In this PERCENTAGE LIMITATIONS 
scenario, the donor gifts dividend-paying preferred shares to a Qualified Donee. The donor 
obtains a large charitable receipt to help offset the taxes due on their transaction, while THE BASICS: & EXCESS CONTRIBUTIONS
dividend refunds may allow them to regain a significant amount of cash. See chapter 10 for 
more details. The third plan (1c) is the gift of an existing insurance policy. In this scenario, if The Act is structured so that donations to Qualified Donees will act to reduce one’s annual tax 
the donor has an old insurance policy that they no longer need, they can gift it to charity and liability to the Canadian and provincial governments. 
receive a large tax receipt. See chapter 4 for more details.
For individuals a donation will provide a non-refundable tax credit that will reduce taxes 
Scenario 2: Reducing Taxes at Death otherwise payable.  The first $200 of donations will provide a low credit of approximately 20%-
to 33%, depending on the province of residence.  Any donation in excess of $200 will provide 
Consider a donor who hopes to use a charitable receipt to minimize taxes owing at death. If a credit of, depending on your taxable income and the province of residence of approximately 
they hold public securities and/or RRSPs, there are two plans available to them. In the first 44.50% to 54.80%.  For purposes of this handbook (unless otherwise specified) whenever 
plan (2a), they can purchase a life insurance policy to benefit a Qualified Donee, allowing the examples are provided we have assumed a 50% credit for personal donations.  Obviously, 
yearly premium payment to be tax deductible. See chapter 4 for more details. The second plan for your purposes you may modify the example for the percentage applicable in the relevant 
(2b) involves marketable securities. In short, gifts of appreciated securities are extremely tax province of residence.  
effective, even if given in a will, as they avoid the capital gains tax. See chapter 9 to learn more 
about how this works. For corporate tax purposes, donations yield deductions in arriving at taxable income, not 
Understanding the donor’s assets is a crucial step in the gift planning process. If the donor is credits. Effectively, the corporate taxpayer’s donations reduce its taxes payable at the highest 
a controlling shareholder of a private corporation, an entirely different stream of gifts become applicable corporate tax rate depending on the corporation’s tax profile. For purposes of 
very attractive. Gifts of marketable securities (2b) are still a viable plan if held within the private examples in this handbook (unless otherwise specified), we have assumed the corporate tax 
corporation, though their application is slightly different. See chapter 9 for more details. The rate on investment income (other than Canadian taxable dividends) is 50% and on active 
second option available is the redemption of preferred shares (2c). This plan involves gifting business income not eligible for the Small Business Deduction, 27.5%.  For your purposes, you 
preferred shares to a Qualified Donee. Normally these shares would be taxable at death, so may modify the examples for the relevant province.
gifting the shares creates immediate tax savings along with a possible dividend refund upon 
redemption. See chapter 10 for more details. Finally, donors can opt for an insured annuity (2d). Percentage limitations
In this plan, the donor replaces their assets with an annuity to live on and an insurance plan, 
which is not taxable at death; this therefore eliminates taxes owing on death. Although our income tax laws encourage charitable contributions, certain limitations are 
imposed to the extent to which such contributions may be deducted or credited currently 
Scenario 3: No Tax Help Needed against taxable income or taxes payable. As noted previously, for corporations a deduction is 
taken for charitable contributions whereas for individuals it is a tax credit. The terms “credit” 
This donor is not looking to reduce the taxes owing on their final return. If this is because or “deduction” will be used interchangeably in this handbook. 
their donation receipt will be larger than the income created at death on their final return, 
there are two ideal options to consider. First, is establishing a CRT (3a). This plan creates a How much a donor may deduct as a charitable contribution in any year is determined by the 
donation receipt that can be used immediately, but dollars are still transferred to a Qualified application of the percentage limitation to the donor’s contribution base, effectively, the net 
Donee at death, essentially creating a deferred gift. See chapter 6 to learn more. income of the taxpayer.
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
10 CANADIAN GIFT PLANNING HANDBOOK November 2024 11
Net income is made up of normal income items of the taxpayer, such as salary, taxable For Federal purposes, The Act allows spouses to share their donations. Thus, if one spouse is 
dividends, rental income, taxable capital gains, business income, etc., less certain deductions limited in the use of donations due to the base limit, the other spouse may claim the donations on 
including RRSP, RPP, childcare deductions, investment expense deductions, as well as most their tax return. For cash gifts the policy also applies for Quebec purposes. However, Quebec does 
tax shelter deductions. not allow spouses to share Gifts in Kind.
For Federal purposes, a donor may be limited in the amount that can be deducted in any Effective for 2024, donations have been added to the Alternative Minimum Tax (AMT) calculations. 
given year based on net income. These limitations are as follows: Previously, this was not a factor. This will mean that in some situations, most notably when an 
individual realizes a significant capital gain and makes a donation, the AMT may be a factor.
• The basic limitation for federal purposes is 75% of net income.
• Where a donor gifts capital property to a charity resulting in a taxable capital gain Corporations
the donor is entitled to add to the basic limit 25% of that taxable capital gain. As the 
basic limit is 75%, by adding the 25% of the taxable capital gain, the taxpayer utilizes a As noted above, donations are utilized in arriving at corporate taxable income. In a situation where 
donation receipt at least equal to the income that would be recognized due to the gift. a Canadian company is the parent company of another Canadian corporation, it may be possible to 
extend the donation base of the parent company without creating taxable income.
• Where a transfer of depreciable property occurs to a charity and recaptured 
depreciation results, an addition to the limit will occur to the extent of 25% of the The donation base can be extended because of the special taxation rules governing Canadian 
recapture. Again, by adding the 75% basic limit this would mean that 100% of the dividends. Canadian dividends are considered taxable to the corporation in arriving at net income. 
recapture would be sheltered from tax by the donation receipt. As part of that income, Canadian dividends form part of the limitation base for donations. However, 
• Gifts of Canadian cultural or Ecological projects can be applied against 100% of income. once net income is calculated, these same Canadian dividends are deducted in arriving at taxable 
income. Thus increasing one’s Canadian corporate dividends does not increase taxable income but 
• The limit rises to 100% for a deceased taxpayer’s final tax return in the year of death does increase the donation base. Canadian corporations pay a Part IV tax on Canadian dividends 
and for the tax return for the immediately preceding year. received, but if the payer and recipient corporation are “connected” this tax may not be exigible.
For Quebec purposes, there is no 75% limitation and gifts equal to 100% of net income may 
be claimed. (See Chapter 3 for the treatment of gifts made by wills or by estates).
The simplest method of increasing one’s base is to increase net income. Usually it is not EXAMPLE 1
logical to create extra taxable income in order to use a donation carry forward. However, if Holdco owns 100% of OPCO. Both companies are CCPC’s. Holdco has net income of $1,000,000 
the use of a donation will be lost due to timing purposes, at that point it would make sense in the year and has made a $1,000,000 gift to a qualified donee. It appears that the donation will 
to increase pre-tax income, where feasible, in order to use up the donation receipt. be deductible in the year to the extent of 75% of net income or $750,000.  Holdco causes OPCO 
to declare and pay a $333,333 dividend. Holdco retains the cash or reinvests in OPCO via shares or 
A donor who is the shareholder of a private corporation can employ a common strategy loan. Compute Holdco's net income. Can they use the full receipt?
to manage their personal net income. If available to them, by changing their remuneration 
package from salary to dividends they can increase their net income without impacting their Calculation of net income Net Income     $ 1,000,000
taxes owing. The dividend gross-up mechanism will result in a higher net income so that Taxable Dividends Received $ 333,333
higher donation tax credits can be used, while the dividend refund mechanism may ensure $ 1,333,333
the shareholder is not paying taxes in excess of a salary strategy. Adjustments in arriving Donation (lesser of 75 % of
at taxable Income $1,333,333 or $1,000,000) $(1,000,000)
In a shareholder/manager situation, one can maximize the donation base by studying both Taxable dividends (333,333)
the corporation and the individual. Put another way, if the corporation is having difficulty Taxable Income $ -NIL-
utilizing its donations the individual could start making donations. To fund the individual The full receipt can be used in the year.
making the donation, the company could pay salary or dividends to that individual. The 
donation would effectively be used to shelter the income in the individual’s hands. If an 
individual is having trouble utilizing their donations, the corporation can be used to make the 
donation and use up its percentage limit. THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
12 CANADIAN GIFT PLANNING HANDBOOK November 2024 13
CHAPTER 3
Carryovers BEQUESTS Who should use them?
Contributions that exceed the percentage limitations may be carried over for credit or 
deduction in five succeeding tax years (ten years in the case of gifts of Canadian Cultural Bequests are an easy, tax-effective, and Bequests remain the number one method for scalable type of gift that can be useful to any 
Property and Ecological Property). Whether such contributions actually may be used within charities to receive major gifts. Even so, only a very donor. Capable of incorporating gifts of RRSPs 
the carryover period depends on the extent to which the donor has net income in those small percentage of Canadians leave a bequest and life insurance, bequests can be funded for 
years.  Pursuant to The Act, taxpayers must claim or use their donations in the order in which to their community. In a study undertaken by donors with corporate estate issues through the 
they were made; a “first in, first out” basis. Thus, the carry forward will be used up before purchase of company owned insurance policies. the Council of Jewish Federations over thirty per Where possible, bequests should be made 
current donations. cent of respondents over age sixty-five indicated with appreciated marketable securities.
that they wished to leave a bequest to their local 
federation/foundation. Interestingly, only a third of 
those who responded positively actually had made 
EXAMPLE 2 such a provision in their will. ?
Mr. Stein donated real estate to a Qualified Donee resulting in a charitable tax receipt of The number one reason for why bequests remain so underutilized 
$425,000, a capital gain of $100,000, and recaptured depreciation of $200,000. His net is because not enough charities are asking for them! Professional advisors 
income would have been $125,000 without the donation. can help reverse this trend by asking their clients the following leading question: “Many of 
my other clients have left a gift to charity in their will, have you considered leaving a bequest 
Calculation of net income to charity in yours?” 
Other net income $ 125,000 There are many forms of bequests to charities contained in a will, the most basic being a 
Taxable capital gain (50% of $100,000) 50,000 specific bequest, such as the outright gift of a certain amount of money or even a particular 
Recapture 200,000 property or income source. Some testators will leave a percentage of the estate to a charity, 
$ 375,000 for example, 20% of their estate to a charity or selection of charities. 
Donation limit
In some cases, the amount given to a charity is a residual bequest after other specific bequests 
a. 75% of net income (75% of $375,000) $ 281,250
b. 25% of taxable capital gain re: donation have taken place, i.e., leaving a set sum of money to some relatives with the balance of the 12,500
c. 25% of recapture re: donation 50,000 estate given to a charity or a group of charities. Finally, you may also see donors making 
contingent bequests, where the gift to a charity is dependent on the occurrence of another 
$ 343,750 event.  For example, the donor may make a bequest to a Qualified Donee only if the original 
Use of receipt beneficiary predeceases them.
Current donation receipt $ 425,000
Used in the year 343,750 Sample Will Clauses
Available for carry forward $ 81,250
Unrestricted Bequest
Such a bequest is an outright gift to a Qualified Donee. A Qualified Donee can then use this 
money and the income arising therefrom as it sees fit. A suggested clause for such a bequest is:
I bequeath to the ‘name of Qualified Donee’ the sum of $ to form part of its permanent 
“ endowment. The gift should be made, to the extent possible, from appreciated securities.
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
14 CANADIAN GIFT PLANNING HANDBOOK November 2024 15
Bequest with Specific Income Direction Donating Via a Spousal Trust
Such a bequest is made when a testator wishes to leave a capital sum to a Qualified Donee but 
wishes to direct how the income from the capital will be used in the future. A suggested clause It seems odd to have a special section with this title in this chapter on bequests, but this 
for such a bequest is: review will help the understanding of how donations are tax effective in certain situations, 
which are counter intuitive to basic logic. In addition, the recent changes to estates law and 
“ I bequeath to ‘name of Qualified Donee’ the sum of $ to form part of its permanent CRA interpretations, which again may appear illogical, may necessitate a review of old wills endowment. The income generated by this bequest is to be used for (state the purposes effected before the tax changes.for which the income is to be used). If, in the opinion of the Executive Committee of 
‘name of charity’, the need for funds for the purposes designated no longer exists, 
the income may be used for the general purposes of the ‘name of charity’. The gift Leaving property to a spouse in a will results in a tax rollover, unless elected otherwise. The 
should be made, to the extent possible, from appreciated marketable securities. survivor inherits the deceased ACB and thus when he or she disposes of the property, or 
passes away, tax is paid at that time. The same rules apply if property is transferred to a 
spouse trust (a trust where only the spouse can benefit during lifetime) A spouse trust is 
Residual Bequest chosen rather than an outright bequest if the testator feels that the surviving spouse needs 
Such a bequest is made when the testator sets out a percentage gift to the Qualified Donee trustees to manage the properties or more commonly the testator wishes to control where the 
after specified other beneficiaries have received their payments. A suggested clause for such a assets go on the death of the second spouse. The spouse trust contains directions indicating 
bequest is: that, at the death of the second spouse, the assets are to be distributed to named entities, 
often children but also possibly charities.
“ I bequeath to ‘name of Qualified Donee’ xx% of the residue of my estate after payment to the specified named beneficiaries. The gift should be made, to the extent The spouse trust is often used for large charitable gifts to ensure that the gift is made to the possible, from appreciated securities. charity of choice and to ensure that the surviving spouse is fully taken care of during their 
lifetime. If emergencies arise which require all the funds in the trust to be used to support the 
Trust spouse, it may mean that there will be no money left for the charity.
Such a bequest is made to ensure that a spouse, family member or other individual is cared for 
during their lifetimes prior to the charity receiving the property, in essence creating a deferred An old technique (no longer effective under the new rules) was to have the will create a 
gift to the charity. A suggested clause for such a bequest is: spouse trust that is also a CRT. This meant that the spouse could not encroach on capital, 
would receive income for life, and upon death the funds in the trust go to charity. In many 
“ I bequeath the sum of $ to a trust, the income beneficiary of which will be my spouse cases, two spousal trusts were created, one for the charitable giving, and another where the (or other individual). My spouse may or may not encroach on the capital during spouse could encroach on capital.their lifetime for emerging needs at the discretion of the trustees. Upon my spouse’s 
death, the capital will be distributed, at the discretion of the trustees, to ‘name of The result was that the final tax return would contain a receipt from the charity for the CRT 
Qualified Donee’. component. It could use the receipt against income on the final tax return and the preceding 
year. One can elect not to use the spouse tax rollover to create income to be offset by the 
A trust can be used for others besides the spouse; for example, other relatives that one wants donation receipt. This technique was used to wipe out tax either at death or in the future.
to ensure are taken care of during their lifetime. However, in this case, the property transferred 
into the trust will be subject to the deemed disposition provisions on death (see chapter 13 for The new estate tax rules actually mandate the existence of a new trust. Because it is effectively 
more details on deemed dispositions). Thus, cash or other non-growth assets are usually used a trust creating the spouse trust, it does not qualify as a CRT and therefore no receipt would 
for charitable trusts for non-spouse members of the family. be issued.
If in the above trust the spouse cannot encroach on capital, this trust is in effect a Charitable Thus, the thinking then becomes; wait for the second spouse to pass away to get the charity 
Remainder Trust (see chapter 6 for more details). Unfortunately, this trust will not yield a receipt to be used against the capital gains which will arise at that time. Without using a CRT, 
donation receipt for the final return if established in the will. the spouse can also encroach on capital.
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
16 CANADIAN GIFT PLANNING HANDBOOK November 2024 17
Envision a will, which directs property with a FMV of $12,000,000 and an ACB of $5,000,000 donations in the spouse trust, but he would hope the donation would go to some suggested 
into a trust to benefit the spouse. The spouse now enjoys income during lifetime and can charities of his choosing. Within 90 days of the second death, a donation of $4,000,000 
encroach on capital for emergencies. Upon the death of the second spouse, 33.33 % of the is made to the indicated charity (and for even more tax savings, the trustees can make the 
property will go to each of the two children and 33.33% will go to charity. Let us assume that donation using appreciated securities) and useable upon the tax return of the spouse trust. 
the spouse passed away and that the property still has an FMV of $12,000,000. What are the This can be used to offset up to 75% of the tax in the trust. If the planning is to direct donation 
tax effects? to the extent of tax deductibility (or credit), perhaps the donation will only be $3,468,919.
First, the $7,000,000 capital gain ($4,625,225 taxable capital gain (50% on $250,000 and An example of the wording, which may be used to provide the trustees the discretion to make 
66.67% on $6,750,000)) is not taxed in the spouse’s final return. It is taxable within the spouse the gift, is:
trust. Can donations be used against this income? The answer is yes, but they must be donations 
made by the spouse trust. Beware, if the second spouse has their own will gift, and his/her The trustees of this spouse trust, at their absolute discretion shall have the right to 
estate trust pays the gift, it is a valid donation which can be used in the final return or the estate make donations to a Canadian Qualified Donee or charities to a maximum amount 
return, but that is NOT the spouse trust, which is a trust set up by the first spouse. So, any of assets having a value of $ or such lesser amount.
donation made in the second spouse’s will, will not be able to shelter the tax on the deemed “
disposition within the originally created spousal trust. These tax effects are as promised, odd and sometimes illogical. It’s worth the effort to chart 
when and where income will be taxable and ensure that donations are properly in the right 
But the trustees note that they will be distributing $4,000,000 from the spouse trust to the place to offset the tax on the income, which is really the intention of the donations. Repair 
charity. They make the transfer within 90 days of the year end, and thus the spouse trust the world with the government’s participation.
has $4,625,225 of income and they will use the $4,000,000 receipt against the income. You 
Planning Tip:
would imagine this results in the trust paying tax on only $625,225 ($4,625,225 - $4,000,000). 
To take advantage of the incentive to gift marketable securities at death the will bequest 
However, two problems arise.
should include that the “gift should be made, to the greatest extent possible, from appreciated 
marketable securities.”
1 The ability to use charity receipts against 100% of income is reserved for the final personal tax return and the return for the year before death. It does not apply to a Who has made the gift-Will or Estate?
spouse trust. Only 75% of the gain, in this case $3,468,919 (75% x $4,625,225) would 
Given the 100% income limit on death (see chapter 2), a will gift creates interesting planning 
be sheltered in the above scenario.
possibilities. The taxation of will gifts has changed for deaths occurring after December 31, 
2015. Gifts will be made by the estate, and not deemed to have been made by the deceased. 
2 More importantly, the charity distribution as described above is considered by CRA The date of the donation and the FMV of the charitable receipt will be determined by the not to be a valid donation. No taxes will be offset and the perceived donation is not date of transfer of the property to the charity. If the estate is a GRE (which has a three-useable anywhere for tax purposes. Why? To be a donation, CRA  contends, there must 
year lifespan after death, more information below), the estate can use the receipt in its tax 
be charitable intent. While the original testator had charitable intent, the taxpayer in 
return, its following five years or can designate the use in the deceased’s final tax return and/
question is the spousal trust and not the original testator. It is CRA’s position that 
or the year preceding the year of death. The benefits of giving listed securities, Canadian 
the spousal trust had no charitable intent. It was merely acting on the wishes of the 
Cultural Property or Ecological Property will transfer to the final return. Thus, the capital gains 
original testator; therefore it is a distribution, not a donation by the spousal trust. It 
exemptions on these gifts will be utilized on the final return. There are therefore two separate 
seems there is a catch-22.
valuations for property gifted in a will. First the deemed disposition at death of the property, 
based on the FMV at death. Second, if the property is transferred to a charity within three 
There is a solution to the problem. It deals with how one writes up the spouse trust. The 
years of death, the actual date of transfer will be the date the gift valuation should be done.
original testator should provide the trustees of the spouse trust the right, at their discretion, 
but not the obligation, to make a donation of up to 33.33%, of the assets in the trust to 
Graduated Rate Estates:
Qualified Donees of their choice.  After those donations, if any, are made, the balance in the 
A Graduated Rate Estate (GRE) allows flexibility for tax purposes on where to utilize the gift. 
spouse trust will be distributed to the two children equally. Thus by providing the trustees the 
Our current tax laws set out that the trust created at death to be the one to have made the 
discretion to make the donations, charitable intent has been created. In advance, the testator 
would send a private letter to the trustees indicating that they will have the discretion to make 
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
18 CANADIAN GIFT PLANNING HANDBOOK November 2024 19
CHAPTER 4
donation pursuant to a will. The GRE may elect in its tax return to have the gift utilized in the 
deceased’s final tax return or for the return of the year prior to death rather than the estate GIFTS OF
(which is a trust) itself. The donation must be paid to the charity to be recognized as a gift.
Consider the following: LIFE INSURANCE
John passes away on August 1 2019. On death, the trust created is a GRE. His assets include 
$1 million of RRIFs and he has made in his will a $2 million gift to charity “A”. The final return Life insurance is an important tool in the estate and gift planning process. The key to life 
will be filed on April 30, 2020 including $1 million of RRIF income but would like to claim in insurance is that proceeds received due to death are tax-free. Additionally, because 100% of 
the return at least a $1 million of donation receipt of Charity A so as not to pay tax on the RRIF gifts are deductible on the final tax return and gifts left via a will are usable in the final tax 
income. Therefore, the trust pays out to charity “A” $1 million on March 28 2020 and sets out return, interesting planning possibilities arise.
a March 31, 2020 year-end for the trust. It elects in its trust tax return to move the donation 
to the final return. Thus, when the final return is filed on April 30, 2020 the $1 million receipt It is noted that the following examples in this chapter utilize simple insurance products. These 
will be used to eliminate the tax. Of course, if one paid the donation in say August 2020, the examples are meant as a guide. When actually acquiring suitable product, more varied and 
final return would have been filed evidencing an income tax liability. After the year-end of diverse insurance products will be used in most cases.
the trust, where the election would have been made, a filing would be made to amend the 
final tax return to remove the tax that was owed. Also, note that it is not necessary for the New Life Insurance
testator to identify the institutions particularly in the will. The executors can decide where the If one wants to gift a new life insurance policy this can be done relatively simply.  The donor 
donations are made after death. would donate each year to the charity an amount equal to the premiums on a policy of which 
the charity is the owner and beneficiary.  If for example the annual premium on a $100,000 
It is important to note that gifts made by will can only be claimed by the testator or by the policy is $1,500 per year the donor would donate $1,500 each 
estate and they are not transferable to a spouse. year and receive a donation receipt in that amount 
resulting in a tax savings of $750.
Existing Life Insurance Who should use them?
EXAMPLE The contribution of a paid-up policy or a policy 
Gifts of life insurance are perfect for donors 
Mr. Goldberg wishes to leave a $1,000,000 bequest to his favorite Qualified Donee for the that has been in effect for several years but which looking to make a bigger gift while spending 
purpose of building a community center in Toronto, in memory of himself and his late wife. requires additional premiums entitles the donor to the same amount of money. As part of an estate 
an immediate income tax deduction equal to the plan, assets gifted to an organization can be replaced 
Mr. Goldberg has three children who will share equally in the balance of the Estate. His annual with funds received from a life insurance plan tax-free. value of the policy. Often the value of this policy 
income is $100,000. His accountant has calculated that his final tax return will include an It is particularly effective to combine insurance with a is greater than the cash surrender value. The gift of private company shares, since the insurance will 
additional $200,000 of taxable income due to the deemed disposition rules on death. charity should endeavor to determine the true fund the redemption of the shares after death. Donors 
On death the $1,000,000 gift, via his will, paid by the Estate or elected by the Estate, will be market value of the policy to determine the gift with existing policies should consider gifting them 
rather than cancelling them, since there is value to 
used to offset the tax on the $300,000 of taxable income in Mr. Goldberg’s final tax return and tax receipt to be issued. Under The Act, the most old policies. Meanwhile, new insurance is 
and the $100,000 taxable income on the preceding year’s return. proceeds of disposition are still the cash surrender extremely useful for a 50 – 70 year old donor 
as part of an estate and giving plan.   
It is suggested that Mr. Goldberg leave, via his will, $400,000 to the charity which can act value. Thus, you could get a large receipt and little 
to shelter the income described above. The balance, $600,000 should be left to his three corresponding income. This yields interesting planning. ?
children. The three children may, at their discretion, then gift $600,000 to the charity upon 
receipt of these funds from the estate. There is a new insurance policy in Canada, initiated by Canada 
Life, which is aimed at charities, which provides for a single 
The children will each receive a $200,000 charitable donation receipt which they can use premium to pay for the whole policy. This simplifies the process. The donor may use 
to shelter income from tax in the year of gift or in the five subsequent years. Approximately MFT shares or marketable securities to fund the premiums. This is a terrific planned gift 
$300,000 of additional tax savings will be realized. opportunity. 
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
20 CANADIAN GIFT PLANNING HANDBOOK November 2024 21
Old policies that are no longer needed by the donor or donor’s family can create current tax 
benefits. Often these policies, purchased originally to protect the spouse and young children EXAMPLE
and provide liquidity for the family, outlive their usefulness. After the children have grown and 
the protection for which the insurance was purchased has been provided by other assets, the John’s company (“Johnco”) purchases a $1,000,000 policy on his life. It pays premiums of 
insurance can be used to satisfy a charitable donation. $25,000 a year until age 100. In his will, John leaves $1,000,000 to a Qualified Donee. 
Assume John’s mortality is 20 years and the interest rate is 3.0%. Assume a corporate tax 
These matured policies have the additional advantage of providing substantial cash values rate of 27.5%
available to the Qualified Donee. The cash in the policies and future dividends earned will Pros: On his final return, John saves $500,000 of tax (50% of $1,000,000) from the donation 
often be sufficient to pay future premiums, without further contributions by the donor or cost receipt. 
to the Qualified Donee. Alternatively, the cash can be withdrawn by the Qualified Donee for 
Cons: Johnco pays $25,000 a year, non-deductible insurance premium. If it pays this for 20 
its immediate use.
years, the payments will total $500,000.
Giving life Insurance Proceeds at Death 
One can purchase a life insurance policy and not have the policy owned by the charity. The It appears that John is in the same position financially, but we must consider the time value 
premiums paid are effectively not deductible. The insurance proceeds will be directed to the of money.
charity in the donor’s will. In essence, one is switching the tax deductions from the premiums 
paid during lifetime to the proceeds of the life insurance on the final tax return. Pros: Present value of the $500,000 of tax savings ($500,000 for 20 years at 3%) is $276,838. 
Cons: Present value of $25,000 with payment for 20 years is $371,937. After tax, this cost is 
Corporate Applications effectively $269,654.
Even more beneficial is a corporately owned policy. The corporation would pay the yearly 
premiums. At death, the corporation receives the insurance proceeds tax-free and pays it out 
to the estate tax-free. The ultimate gift to charity can still be made with appreciated securities, Conclusion: The cost of creating a $1,000,000 gift today costs very little when comparing 
improving cash flow for any beneficiaries. As the corporation has been paying premiums with the present values of the premiums paid and the lump sum received on death.
cash over time, it is effectively lowering its FMV. Thus, the tax on death on the company 
shares is less (take a 27.5% discount on the effective cost of the premium). This simple gift of New Scenario: The facts remain the same, except the estate has the power to make the 
corporate insurance/will gift of securities often means the gift is made without any net cost 
gifts from appreciated securities instead of the life insurance proceeds. Assume John owned 
to the family.
securities with a FMV of $1,000,000 and a $750,000 ACB. The deemed disposition tax on 
$250,000 of gain (50% x 50% of $250,000) is $62,500. The present value of $62,500 (20 
Gifts of insurance proceeds made in a will result in a donation credit on the final tax return. 
years at 3%) is $34,605.
The credit is available for gifts of policies made through direct beneficiary designations even 
if not in the will. Additional tax savings would be accomplished by gifting marketable securities, thereby 
increasing the attractiveness of the above scenario.   
Conclusion
The tax-free value of insurance allows for exciting Canadian-made gift planning. There are 
countless possibilities, of which the professional planner can take advantage. Throughout this 
handbook various plans are explored using life insurance.
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
22 CANADIAN GIFT PLANNING HANDBOOK November 2024 23
CHAPTER 5 CHAPTER 6
INTEREST FREE LOAN CHARITABLE 
The term retractable is well known to Canadian REMAINDER TRUST
professionals. It is used to describe certain preferred 
shares where the holder of the shares has the right to A Charitable Remainder Trust (CRT) is a planned giving concept derived from the US. 
demand the redemption of the shares at any time. ? In Canada, there is no such legal entity. Unlike the US, where the Internal Revenue Code contemplates the CRT in legal fashion, there is no such mention in The Act. Under Canadian The retractable donation is a donation that can law, a CRT is a trust, plain and simple, and certainly not a charitable organization.  A Canadian be retracted at the volition of the donor. In the Who should use them? is deemed to have made a gift to a Qualified Donee when a transfer of property to a CRT by United States, it is known as a lead-trust and the interaction of various section of The Act Retractable donations are perfect for donors sometimes in Canada as an interest-free loan. who wish to donate but are stopped by a sense of insecurity about the future. These The CRT is a trust that holds capital transferred by the settler or donations are essentially loans that allow donor. Effectively, the trust will pay income to the donor or donors to support an organization, then take other named income beneficiary during his or her lifetime EXAMPLE their money back when and if needed. and then distribute the capital to the Qualified Donee Mr. Pinchuk is a successful businessman. He earns upon the death of the income beneficiary.a considerable annual salary and has accumulated Who should use them?significant capital which is invested conservatively.  Mr. CRA has clarified their position as to what they 
Pinchuk sees these funds as his nest egg.  He, of course, CRTs are perfect for donors who will leave consider a valid CRT. The most important requirement more to charity upon death than they need 
pays tax at the highest level on the investment income earned. in relation to the establishment of the gift is that from a tax perspective – often, donors with 
He wishes to build a fund within a Qualified Donee but does not want property is transferred to the trust irrevocably. In this no children. The CRT creates a receipt that can 
his nest egg impaired for himself or his heirs. way, no one can remove capital from the trust except be used during the donor’s lifetime and reduce 
the ultimate receipt on death which would 
the Qualified Donee. The donor cannot have any right otherwise not be fully used.
Mr. Pinchuk loans a trust $1,000,000. The foundation is the income beneficiary of the trust. of encroachment. This type of trust is different from 
If ever Mr. Pinchuk wishes to recover the $1,000,000 he demands repayment from the trust. the typical spousal trust, which allows the spouse to be 
Mr. Pinchuk can request that the interest accumulate in the foundation in a fund carrying his an income beneficiary for life but also allows for capital 
family’s name. At  a particular point in time, the fund can be used to “purchase” a community encroachment during the spouse’s lifetime. ?
project in his family’s name.
What are the benefits to the donor of establishing a Charitable 
Over time, as the donor is able, he may forgive the loan to the foundation. The amount Remainder Trust?
forgiven will be used to calculate the donation receipt. A forgiveness on death will yield a First, is the establishment of the gift during the lifetime, which the donor knows will be 
receipt usable on the donor’s final tax return. available to the Qualified Donee for its full use upon the donor’s death. Next, an annual 
income flow will be realized by the donor or designated beneficiary. Usually the charity 
manages the investment of the CRT, but the investment could be managed by the donor’s 
Investment Advisor.
Effectively, this gift behaves like a loan to a Qualified Donee. As the loan can be retracted, the 
transfer of property is not irrevocable and therefore no charitable receipt will be issued. The 
income earned by the charity from the loan proceeds can be used for charitable purposes at 
the discretion of the donor. Annually the donor will not be taxed on the income; neither will 
they receive a tax receipt. 
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
24 CANADIAN GIFT PLANNING HANDBOOK November 2024 25
The donor appreciates that a professional methodology of obtaining such an income flow is 
now being taken from their hands and placed in others, which may be capable of obtaining EXAMPLE: Calculation of a CRT Gift
a higher return with relatively low risk. Moreover, the donor, depending upon the facts, may 
have the opportunity of receiving a donation receipt immediately upon transfer to the trust. Assume the following:
Particularly with the movement of the donations limit to 75% (100% for Quebec purposes), • $100,000 transfer
this could enable the donor to realize substantial tax savings today in relation to the disposition • Male donor, age 78
of property that effectively they will be living on the rest of their life. Lastly, costs of probate • A 10 year mortality
are avoided. • Assume bank of Canada interest rate on a 10 year security is 3%
• Present value of $100,000 discounted at 3% for 10 years is $74,409.
Realization for Tax Purposes
As a CRT is a trust like any other, any property transferred to the CRT will be deemed to have Thus, a charitable donation receipt of $74,409 is received by the donor to be used 
been disposed of for tax purposes. This may result, depending on the value of the property immediately on the donor’s tax return.
and its ACB in a capital gain or loss. 
How does one determine what are the proceeds of disposition of the property or the value 
of the gift in order to calculate a donation receipt? Legislation is not offered to determine To calculate the resulting capital gain or loss, one must also determine the ACB of the property 
the methodology for computing the gift, and thus basic logic must be used. As the donor is transferred. Presumably, the asset would have an ACB that is known. If the value of the property 
maintaining a life interest, the length of that life is very important in determining the value of is $100,000 and the gift or proceeds of disposition is determined to be $60,000, 60% of the 
the gift. Obviously, the older the donor, the fewer years in which income will be received by actual value of the property, then one would apply 60% of the ACB as the cost base for the 
the donor and the sooner the Qualified Donee will receive the gift for full use. remainder interest of the property which has been transferred to the trust. The rest of the ACB 
would effectively be the ACB attached to the life interest that is being maintained in the trust.
The discount rate is more difficult to determine. Should one use CRA’s prescribed rate? Perhaps, 
but from an economic point of view this may not be quite accurate. Probably the best discount Conclusion
rate to use is the Bank of Canada investment rate for the period of mortality. What this means The CRT is an excellent charitable giving tool. The options available are many. The trust can 
is, if mortality is two years, then the discount rate could be the Bank of Canada investment choose to invest with the charity’s other assets. The trust can invest on its own and follow the 
rate for two years. If mortality is thirty years, the Bank of Canada thirty-year investment rate investment policies of the donor. The assets transferred can vary. They can be cash, marketable 
could be utilized. This methodology is fair and probably would be accepted by CRA. CRA may securities, real estate, or even a business. The CRT set up in a will does not, due to a technical 
have some difficulty in determining discount rates for property that is not cash or similar to anomaly, create a tax receipt on death; therefore, CRTs should only be established inter-vivos.
cash, e.g. business assets.
To calculate the proceeds of the disposition, take the full value of the property at the date 
of transfer to the trust and discount this value by an interest rate (discount) factor using 
mortality as the number of years in the calculation. The result would be the proceeds of the 
disposition and this amount would be the donation receipt for the donor.
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
26 CANADIAN GIFT PLANNING HANDBOOK November 2024 27
CHAPTER 7
GIFTS OF RESIDUAL capital gain but the receipt would still be calculated in the normal manner and thus the opportunity for substantial immediate tax savings would occur.
VALUE Very similar to the CRT, the gift of a residual interest EXAMPLE:
contemplates the transfer of an asset, not necessarily 
to a trust governed by the Qualified Donee, but Mrs. Schwartz, a widow, age 82 has decided to leave her condominium to a Qualified Donee. 
directly to the charity. In this case, there will be no The condo is valued at $350,000; the original cost was $200,000.
income allocated during the lifetime of the donor, 
? but instead the use of the asset will be available to Assume the following:the donor and perhaps other members of the family The condo is a principal residence for length of ownership.for life. For example, if a donor wishes to transfer his Who should use them? principal residence to a Qualified Donee, he could do Mortality 10 yearsso as a gift of a residual interest. The use of the home Discount Rate 3%Gifts of residual value are perfect for donors for the rest of his and his spouse’s life will be kept by Value of Condo $350,000who will leave more to charity upon death the donor. On the death of the donor and the spouse, Present Value of Gift or Residual Value $260,433than they need from a tax perspective – often, the charity will then have the full use of the house donors with no children. Like a CRT, gifts of residual value create a receipt that can be used presumably to be sold at that time for cash. Mrs. Schwartz will continue to live in the condo, or a replacement residence for her lifetime. during the donor’s lifetime. She will pay all associated property taxes, insurance and maintenance costs.The reason the donor would enter into a residual interest gift (besides the act of charity), is to receive She will receive, immediately, a receipt of $260,433, which can be used to save tax on her a donation receipt immediately, even though the actual current tax return. Any unused receipt can be carried forward five years.use of the asset will be available for life.
Like the calculation of the donation receipt for the CRT, one 
In the case of a principal residence transaction, the charity would want to ensure that if the 
would examine, at the date the gift is made, the value of the 
donor and the spouse are going to use the property, that the donor contract to pay all costs 
property transferred, the mortality of the users of the property, and a 
in relation to the upkeep of the home. These would include the property and school taxes, 
discount rate based on market interest rates at that time.
insurance costs, maintenance costs and other costs associated with maintaining the home. 
The nature of the gift would be set out in a deed of gift evidencing the transfer of the property 
This type of gift would create a deemed disposition for tax purposes. Similar to the CRT, 
to the charity, evidencing the right of the donor and other specified individuals to use the 
it is not the complete asset that has been disposed of, but just the residual or terminating 
properties for their lifetime and setting out the donor’s responsibility for the costs of the 
interest of the property. The life interest in the property has been retained. The calculations in 
upkeep of the home. It is noted that the gift provision could indicate that if the donor is still 
determining the proceeds of disposition and allocation of ACB are identical to that found for 
alive, they may have the right to have the house sold by the charity and replaced with another 
CRTs.  What is key to this gift, again like CRTs, is that the gift must be transferred irrevocably 
home to the extent of the proceeds received from the sale of the first residence. The donor 
to the charity to issue a charitable donation receipt to the donor.
would continue to live in the second residence for their lifetime. 
There are very few types of assets where gifts of residual property would occur. Typically, we 
This type of gift can be achieved for other properties, e.g., artwork. The legal title to the 
are talking about personal use assets such as a principal residence or artwork. From a tax 
artwork would be transferred to the charity, but the right of use for lifetime would be kept by 
point of view, the principal residence residual gift transfer can make a lot of sense, given the 
the donor. In this case, the donor would be responsible for the maintenance and insurance 
fact that usually there is no need to recognize the capital gain on the deemed disposition of 
costs. The value of the gift would be calculated in the same manner as above. However, 
the residual interest. The reason for this is the special exemption from capital gains tax for 
because artwork is taxable, any gain realized due to the residual transfer of the artwork would 
properties that are principal residences.
be taxable to the donor.
If this is the case for the donor, then the transfer to the charity will not result in a taxable 
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
28 CANADIAN GIFT PLANNING HANDBOOK November 2024 29
CHAPTER 8 Capital Property in the Hands of the Charity
GIFTS OF CAPITAL The new donation limit rules will, in some cases, make it preferable to donate capital property to the charity rather than selling the property, and donating the cash. The reason is the additional 25% of taxable capital gain donation limit. The donor should ensure, however, that the charity 
PROPERTY is capable of disposing of the property to receive the proper amount of proceeds.  Often, the charity does not have the staff available and knowledge enough to deal with all aspects of the 
sale. Often, the donor should help the charity with the disposition to ensure that the ultimate 
gift is as high as possible.
There are two components to a gift of capital property. 
The first is to determine the value of the property for Subsection 69(11)
the purposes of issuing a charitable receipt. The second Who should use them? When a donor transfers appreciated capital property to a charity, they might elect, under the 
is that one is deemed to have disposed of the capital ? provisions of subsection 110.1(3) of The Act or 118.1(6) of The Act to reduce the proceeds of property for proceeds equal to the value of the property. Gifts of corporate capital property create capital gain, but also create a capital dividend disposition. Subsection 69(11) of The Act requires that where a taxpayer is taking advantage of This deemed disposition provision obviously will not account. They represent, then, a way to a tax rollover to transfer property lower than at FMV to a tax exempt entity, then it is necessary reduce the value of the company for estate tax for that entity to hold on to the property for a three year holding period. have any effect where ACB of the property equals the purposes.FMV. When this is not the case, the possibility of a capital If the property were sold within the three-year gain arises. period, then the presumed capital gain that EXAMPLE: was not realized by the donor or taxpayer on 
50% or 66.67% of the capital gain is taxable. There are effectively the original transaction would be realized at Mrs. Jann transfers capital property; land, to a Qualified 
two ways to offset the taxable capital gain, the first being to utilize that time. This provision, could, on a technical Donee. The original cost of the land  was $80,000; the 
the tax receipt against that income, the second via an election. basis apply to transactions where donors have value today is $200,000. Mrs. Jann has an allowable 
elected for lower proceeds on disposition, due capital loss carry forward available of $60,000.
As discussed in chapter 2, The Act does allow the donor to use the receipt to the extent of 75% to the fact that a charity is a tax-exempt entity.
(100% for Quebec purposes) of income created or 75% of any taxable capital gain created, plus Proceeds $200,000
an extra 25% of the taxable capital gain created on the transfer of property to the charity plus In discussions with the Office of the Minister of Cost 80,000
25% of any recapture realized. Thus, 100% of the taxable income will be offset by the donation Finance, they indicated that they will not apply Capital Gain $120,000
credit in the case of individuals or the donation deduction in the case of corporations. subsection 69(11) of The Act to a transfer of Taxable Capital Gain $60,000
capital property where the subsection 118.1(6) Utilization of Loss Carry Forward (60,000)
Election 0of The Act election has been made, unless Taxable Income
Using an election available in The Act, a method exists to avoid the capital gain on disposition. they feel that the objective of the donation was 
The Act allows for an individual to elect his proceeds of disposition for purposes of calculating not bona fide. This would be the case where Use of the Charitable Receipt
the capital gain on the deemed disposition to be anywhere between the ACB of the property $45,000property is transferred to a charity, an election 75% of net gain (75% of 60,000)
gifted and its FMV.  This had real value when the donation limits were only 20% without a 25% of Taxable Capital Gain 15,000to lower proceeds upon disposition occurs, and 
bonus for capital gains and recapture realized on the disposition of the property to a Qualified $60,000then the charity disposes the property back to 
Donee. In these cases, it was very possible that the income added to a tax return could have the donor or to an entity which they control. 
been far greater than the donation receipt that was usable in the year. On a cash basis, taxes Receipt Received $200,000
were paid in the year of the gift. With the new donation limits this situation should not occur. Receipt Carried Forward $140,000Another situation where subsection 69(11) of The 
There is no prescribed form for the election. The donor should include a letter with their Act might apply is where property is transferred 
tax return in the year of the gift. The donor should specify that the election is being made *Note: If Mrs. Jann has no other income she would to the charity and then the charity rents out the 
pursuant to subsection 118.1(6) of The Act for individuals or 110.1(3) of The Act if the election probably choose not to use the majority of the receipt. property to the donor or an associated entity.  If 
is made by a corporation. Note that the charity will issue the receipt based on the full value. A charitable tax credit cannot create a tax refund; it can one is planning a substantial transaction where 
Only the elected amount will be used to calculate the donation credit or deduction. only reduce taxes payable to nil, and then be carried the election will be used, one should check forward for 5 years.
with CRA to ensure that subsection 69(11) of 
This election is rarely used, but with the increase in the capital gains inclusion rate to 66.67% The Act is not applicable.
as of June 25th 2024 and the AMT changes to donations, it is possible that this election will 
be more popular.
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
30 CANADIAN GIFT PLANNING HANDBOOK November 2024 31
Tax Shelter Legislation which includes all of the Canadian stock exchanges, as well as stock exchanges in the U.S. 
Subsection 248(35) of The Act was enacted to counteract donation tax shelter schemes where and select other countries. Mutual funds based on public securities are eligible. Flowthrough 
property was purchased at a value and then donated at a much higher value. It unfortunately mining shares as of 2012 are not eligible (more details on MFT can be found in chapter 19). 
is broad enough to catch some donations without such intentions. If the donor is a corporation, the complete gain not taxed (100% of the gain) goes into a 
corporation’s CDA. 
Where a donation of property is made, subject to exceptions, if the property was purchased 
within three years of gift, or within ten years if one of the main intentions at purchase was to How to Transfer Marketable Securities
donate it, then the donation receipt to be used will be limited to the lower of the ACB of the Generally, investors hold marketable securities in two forms. Either they have securities in their 
property or its FMV at the time of gift. name or they own the securities via a broker without the security certificate in their particular 
name. To gift a security certificate with the donor’s name, the donor would endorse the 
Exceptions to the above rule include the donation of listed securities, inventory, ecological land, and security certificate and transfer it to the charity. Usually a local confirmation of the signature 
Canadian Cultural Property. What about private company shares and real estate? (See chapters 10 is required. A donation receipt will be issued for the FMV of the security at the date of the gift.
& 11 for more details). There is only partial relief. Gifts of real estate located in Canada are exempt; 
but foreign real estate is not. Gifts of private company shares are exempt, but only if the donor or Normally, the securities are held in a brokerage account and therefore there is no need to 
a related group controls the corporation and deals at arm’s length with the Qualified Donee. transfer the actual certificates. In this case, the donor would direct their broker to transfer the 
securities into a new account in the name of the Qualified Donee. The receipt will be issued 
Capital Dividend Account based on the value of the securities transferred at closing. To set up an account in the name 
If a Canadian corporation has made a gift of capital property and a capital gain has been of the Qualified Donee the broker will probably have the charity authorize the creation of the 
realized, a portion of the capital gain would not be taxed. If 50% of a gain is taxable then 50% account.
is not taxed and inlcuded in the CDA. If the inclusion rate for a gain, either personally for gains 
over $250,000 a year,  or corporations is 66.67 % then the CDA addition is 33.33%. Refer to the section on Charitable Remainder 
Trusts (chapter 6) for an examination of using EXAMPLE: 
The amount not taxed enters the corporation’s Capital Dividend Account (“CDA”). Dividends a trust to transfer marketable securities or 
paid out of the CDA are received tax-free by the shareholders. Thus, a corporate gift of property other capital property to a charity in order Mr. Levin donates $100,000 of Royal Bank stock to a 
can result in a taxable capital gain but also a CDA, which can be very valuable. to enhance current income of the donor. Qualified Donee. His original cost is $50,000. His alternative 
is to sell the stock himself and donate $100,000.
It is important to note that transferring 
CHAPTER 9 marketable securities to a CRT will not be Stock Donation Stock Sale
eligible for the reduced inclusion rate as a 
Proceeds $100,000 $100,000
GIFTS OF MARKETABLE CRT is not a charitable organization, even if Cost 50,000 50,000the charity is a trustee under the CRT. Capital Gain $50,000 $50,000
SECURITIES Partnership InterestsBeware the gift of a partnership interest Taxable Capital Gain $25,000 $25,000
? that is capital property. For example, a The Act provides that any gain realized on the limited partner in a real estate partnership Special Exemption (25,000) $0donation of marketable securites will not be may choose to donate his interest in the Net Income $0 $25,000Who should use them?taxed. For example, if a donor transfers shares of partnership and realize a capital gain TD Bank to a charity, a tax receipt equal to the on the transfer. His intention is to avoid Taxes payable 50% $0 $12,500Gifts of marketable securities can be useful value of the TD shares is issued. If the normal recapture on a sale within the partnership. for any individual. They are also particularly Tax Receipt $100,000 $100,000capital gain would be $80 given a value of $100 effective for reducing the value of corporations Unfortunately, section 100 of The Act will Tax Savings $50,000 $50,000and an ACB of $20, normally half of the $80 or who face estate taxation. The corporation’s add income to the capital gain negating Net Tax Savings $50,000 $37,500value is reduced by the gift and the capital $40 would be taxable. Under this rule, nothing the plan.dividends account created also reduces the would be brought into income. The rule applies value of the company. A great tool to reduce to securities listed on prescribed stock exchanges, estate tax! THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
32 CANADIAN GIFT PLANNING HANDBOOK November 2024 33
tax credit.  This doesn’t mean that the disposition for tax purpose hasn’t occurred because it 
CHAPTER 10 will have.  If the charity disposes of the security within five years or if the security ceases to 
GIFTS OF PRIVATE be a Non-Qualifying Security of the individual in the five-year period, the individual will be treated as having made a gift at that later time. The disposition of the security could occur 
COMPANY SHARES by the corporation redeeming the gift or buying back the shares from the charity for cash. For example, if the gift was 100 preferred shares worth $1 million and three years after the 
gift, the corporation redeems those shares for $1 million, and then the charity has disposed 
AND DEBT of the security. If instead, a donor “sells out” so that he is no longer at non arm’s length with the company, then the shares owned by the charity at that point would no longer be Non-
Qualifying Securities and, therefore, the donor would be deemed to have made the gift at 
The Act sets out a methodology of taxation of gifts of private company shares and debt in that time.
circumstances where a “Non-Qualifying Security” is gifted. The Act defines a Non-Qualifying 
Security as an obligation of the individual (or a person not at arm’s length with the individual), The gift made at that later time will be deemed for purposes of the charitable donation 
a share issued by a corporation with which the individual does not deal at arm’s length or any receipt to be the lesser of two amounts - (1) the FMV of the gift at the original transfer and (2) 
other security issued by the individual or non-arm’s length person. Specifically exempted from the FMV of the shares at the time when the securities are no longer Non-Qualifying.
the rules applicable to “Non-Qualifying Securities” are obligations, shares and other securities 
listed on prescribed stock exchanges and deposits of financial institutions. Thus, a gift of Reserve Mechanism
private company shares where the donor or member of his immediate family - parent, spouse, What appears as quite onerous rules are not quite so bad. First, when the original gift is made 
or child (including grandparents, in-laws and grandchildren) - controls, or as a group controls and perhaps a capital gain is realized, the taxpayer will be entitled to take a reserve against 
that corporation, would be considered a gift of a Non-Qualifying Security.  However, even that capital gain. In essence, the reserve will continue to be taken on a year-in, year-out basis 
many of these gifts will also be exempted from the rules. until, within the subsequent five-year period, the gift will be deemed to be made because of 
a disposition of the Non-Qualifying Security by the charity. Thus, if in year three, the security 
Excepted Gift has been disposed of by the charity, the donor will be deemed to have made the gift in that 
An excepted gift is a gift of a share to an arm’s length charity that is not a private foundation. year. The original capital gain, reserved for the first two years, would be effectively taxable 
The donor must be at arm’s length with the directors and officers of the charitable organization in year three, as no reserve would be allowed then. However, the donation receipt would be 
or public foundation to which the gift has been made. Therefore, a gift to a public charity will available in year three to shelter the capital gain. Of course, one only has five years to dispose 
be considered an excepted gift as long as the donor is not an officer or of the security and thus, it is possible that the gift will never be deemed to have occurred. 
a director of that charity or if that donor is not the parent, spouse Even in this case, the charitable tax consequence of having the taxable income, due to the 
or child (including grandparents, in-laws and grandchildren) of a disposition, realized without an offsetting tax receipt, will still not occur.
? director or officer of the charity. Once the five-year period is up, under the new reserve mechanism it would no longer be Who should use them? Most gifts of private company shares to public charities necessary to bring the reserved deduction back into income in year six. Thus, in essence, Because these shares are taxable at death, they should not be affected by the rules unless this non-arm’s the capital gain would fall off the table never taxed just as the donor will never receive a tax make extremely tax-effective gifts in the will of length provision comes into play. It would be necessary receipt for the gift of shares.any donor who holds them and greatly reduce for a donor to resign from the board of the recipient estate tax liability. They are also excellent for Deathdonors looking to offset tax on an anticipated large organization prior to making the gift. Since it is often the transaction. Redeeming preferred shares can result volunteers of a charity who feel most passionate about If within the five-year holding period, the taxpayer dies and the actual disposition of the Non-in an immediate tax saving, avoiding capital gain donating, this can cause problems. Qualifying Security takes place after death, then it would appear that the realization of the tax at death and possibly receiving a dividend gift will occur without the possibility of the deceased being able to use it on a tax return. As a refund. Gifts of private company shares may result, this special provision has been enacted which will treat the subsequently resulting gift be perfect for elderly donors who have built Gift of a Non-Qualifying Securityup RDTOH. If such a gift is made to a private foundation or, in some as having being made by the individual in the year of death rather than at the actual time of cases, to a non-arm’s length public charity, then the gift the disposition of the Non-Qualifying Security.will be ignored for the purpose of the charitable donation 
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
34 CANADIAN GIFT PLANNING HANDBOOK November 2024 35
Elections
The Act allows a taxpayer to elect that his proceeds of disposition could equal an amount necessary that the Board member resign prior to the gift. If the charity still owns the shares 
somewhere between his ACB of capital property gifted and the FMV. This election is still five years after the original gift, then the donor can come back onto the Board of Directors at 
available for gifts of Non-Qualifying Securities and could be made either at the time of the that point in time.
original gift or at the time of the disposition of the Non-Qualifying Security. 
Note that it is not just the donor that may not be a Board member, but also anyone related 
Loan backs to him/her including children, parents or spouse (including grandparents, in-laws and 
There is particular legislation dealing with loan backs. First, it is noted from the above review that grandchildren) for purposes of The Act. In addition, the term that is used in The Act is “not at 
a non-arm’s length debt of a corporation is considered to be a Non-Qualifying Security and an arm’s length” which is more than simply family relations.  It is a question of fact whether one 
excepted gift does not include such a gift to a public or private charity. Thus, a gift of debt would does not deal at arm’s length with another person or entity. Thus, if it could be shown that a 
be subject to the new rules and thus, the only way to receive a tax receipt would be if within the donor controls the charity without being on the Board or has undue influence, then CRA may 
five-year period the debt would be redeemed for cash. Loan back legislation comes into play determine that such a donor does not deal at arm’s length with the charity.
when an individual makes a cash gift and separately the charity holds a Non-Qualifying Security 
of the individual within five years thereafter, and the charity acquired the security no earlier than These rules will also apply if the private company shares are gifted in a will.
five years before the gift was made. In this case, the gift of the individual will be reduced in value 
by the amount of the acquisition of the Non-Qualifying Security. Gifting Non-Qualifying Securities to Private Foundations
The gifting to private foundations is not quite as liberal as it is for public institutions. A gift of 
To illustrate, assume an individual makes a $100,000 gift to a charity and then a year later the a Non-Qualifying Security itself does not result in an adverse tax result immediately or in the 
charity loans $100,000 to a corporation not dealing at arm’s length with that individual. Since the future due to the reserve mechanism. To achieve this, one may elect pursuant to Subsection 
holding of the debt of the corporation has occurred within five years from the gift, the donation 118.1(6) of The Act, to ensure the disposition will not result in a capital gain. What is lost by 
receipt issued by the charity on the original $100,000 gift must be reduced by the $100,000 donating to a private foundation is the extra ability to use a donation receipt in excess of the 
that the charity paid to invest in the debt of the corporation. To deal with timing mechanisms, taxable capital gain realized on the transaction.
if the then charity purchased the debt prior to the gift, then this provision would also catch 
the transaction. To take another example, if the charity loans a corporation $100,000 and In the case of low ACB shares where effectively 50% / 66.67% of the value of the gift would 
subsequently (within five years) an individual not dealing at arm’s length with that corporation be converted into a taxable capital gain, the loss would be the fact that 100% of the value of 
makes a $100,000 gift to the charity, then the receipt would be reduced by $100,000. the shares would be subject to a receipt and, therefore, there may be a 50% loss in terms of 
extra credit available. 
If a gift is received by a charity and the donor or non-arm’s length person uses property of the 
charity within five years of that original gift, then the value of the gift will be reduced by the In an estate-planning situation with low ACB shares, the ability to roll these shares either inter 
value of the property. For example, if a gift of real estate is made and then subsequent to the vivos or via will to the private foundation without adverse tax treatment, appears to be still 
gift the individual making the gift or his non-arm’s length corporation uses the real estate, quite beneficial.
then even if it pays FMV rent, the value of the gift could be reduced.
High Cost Base Shares
Gifting Non-Qualifying Securities to Public Charities With shares to be gifted with a high cost base normally one would expect that a full receipt 
It is clear that except for gifts of debt, the gift of private company shares is fully acceptable would be useable by the donor and the resulting capital gain would be either non-existent or 
to public charities (charitable organizations and public foundations). The only difficulty lies quite minor. In this case, the donor would expect significant tax savings.
with the special rule that the donor must be at arm’s length with the directors and officers of 
the public charity. Of course, being a member of a Board of Directors of a charity does not If these shares were Non-Qualifying Securities, a receipt would not be issued unless the 
constitute in itself the ability to control a charity. shares were disposed of within five year after the gift. It is in this particular case that the gift 
to private foundations would be limiting.
However, the fact that a potential donor of private company shares is a member of the Board 
would make any shares transferred count as Non-Qualifying Securities. Thus, it appears 
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
36 CANADIAN GIFT PLANNING HANDBOOK November 2024 37
The shares in the example are high ACB shares, albeit with low PUC. This low PUC would Conclusion
mean that on redemption of the shares, although no capital gain would arise due to the The gifting of private company shares (but not debt) is viable. Even if it is not a perfect 
high ACB, a taxable dividend would result. These shares typically sit on the balance sheet. If system, this should be a major area for development in the near future. 
an individual gives these shares to a public or private charity followed by redemption of the 
shares they may have reduced the cost of the donation significantly. What is clear is that the parameters surrounding a gift of private company shares is much 
more complicated than other gifts. It is cautioned that proper legal and accounting advice be 
Another example of the use of preferred shares: Corporation A has realized $1 million of taxable sought from both the point of view of the donor and the charity when these gifts are affected.
income and wishes to eliminate the tax on this income. It purchases $1 million of preferred 
shares of Corporation B, another company in the group. Subsequently, it gives the shares CHAPTER 11
of Corporation B to a public charity. The charity issues a $1 million receipt to Corporation A 
(assuming a valuation has confirmed the value, and it is an Excepted Gift). If, for example, 
the preferred shares were 3.5% GIFTS OF REAL ESTATE
cumulative, Corporation B would 
remit $35,000 as an annual EXAMPLE: 
dividend to the charity. An Generally, an outright gift of real property to a public charity entitles the donor to a charitable 
annual dividend to the charity contribution deduction or credit equal to the FMV of the property. There are estate planning If Mr. A gifts 50,000 preferred shares, worth $50,000, to a 
(the dividends are not taxable to charity, and the company subsequently redeems the shares possibilities in the transfer of real estate to a charity and these possibilities are examined in 
the charity, but are considered for $50,000, the following will occur: chapter 13 on Individual Estate Planning. For the most part, what makes the gifting of real 
“taxable dividends”) paid by property a little more complicated is the special tax effects.
Corporation B and may result Assuming a $50,000 cost base and a nil paid-up- capital 
in a dividend refund (Note that Mr. A will receive a $50,000 charitable receipt which will There are no special tax incentives for gifting real estate. Thus, there is typically no difference 
if one of the main objectives of save him $25,000 of tax. whether one gifts real estate or sells the real estate and gifts the cash. There are two tax 
a transaction with a tax-exempt aspects upon the sale or gifting of real estate. The first is the calculation of capital gain on Mr. A is $25,000 richer as it is the company which is remitting 
charity is to obtain a dividend the property whereby the proceeds upon disposition or the deemed proceeds of disposition $50,000 to the charity via the redemption of shares.
refund, CRA has the right not upon the gift will be compared to the original cost of property or of the land to determine if
to pay the refund. Beware there is a taxable gain realized. The second part, which is a bit more complicated, is that Due to the low PUC, the redemption will result in a dividend 
of transactions where large to the charity. The charity, of course, is exempt from during this time it was treated as a business asset. Depreciable property is depreciated (capital 
dividend refunds are expected). taxation on its income. The dividend, however, is considered cost allowance is taken on it) in order to reduce annual net income from the property. Thus, 
The preferred shares may be real to the payer corporation and it may be eligible for a on an annual basis, the original capital cost of depreciable property is reduced by capital cost 
redeemed over time and/or dividend refund. (Note that if one of the main objectives of a allowance and every year a new UCC is formed. Upon sale, death, or gifting of the property 
funded by life insurance. transaction with a tax-exempt charity is to obtain a dividend any capital cost allowance that was taken is reversed, if the proceeds of the disposition are 
refund, CRA has the right not to pay the refund. Beware of greater than the UCC at the time of the tax transaction.
transactions where large dividend refunds are expected.)
The numbers here work very well 
to create philanthropy efficient For example, if a building, which originally cost $100,000 was depreciated so that its UCC In summary, the corporation has paid $50,000 and the 
for both taxes and finances. was $60,000 and if the sale or gift were valued at $120,000, there would be two separate shareholder has received $25,000. Normally, via a dividend, 
the corporation would spend $45,500 for the shareholder tax transactions. The first is to compare the proceeds to the original cost of the building, 
Estate Planning to retain $25,000 after the payment of personal tax on the $100,000. A $20,000 capital gain would be realized. The next would be to take the original 
The advent of these rules $45,500 dividend. cost – $100,000 – and compare that to UCC of $60,000; $40,000 of recapture will be 
does confirm numerous estate realized. Whereas 50% of capital gains are taxed, 100% of recapture is taxable. The donation 
planning possibilities that could Thus, for only an additional corporate cost of $4,500 a receipt can be used to offset all capital gain and all recaptured depreciation.
donation of $50,000 has been achieved. The “cost” of the 
occur regarding the ownership of 
donation is 9%. If a dividend refund is received on a dividend, 
private company shares. then the cash outflow on the gift is nil.
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
38 CANADIAN GIFT PLANNING HANDBOOK November 2024 39
receipt will be received for the FMV of the art. Bona fide appraisals must be done in order to 
issue a proper donation receipt. It is noted that, unless part of a business, art is considered 
  EXAMPLE: personal use property for the purposes of the The Act. This means that although capital gains 
   will still be taxable, capital losses arising from the disposition of personal use property cannot be 
Mr. Cohen wishes to donate an apartment building to a Qualified Donee. The building was purchased applied against other capital gains, only against capital gains arising from personal use property. 
in 1975 for $300,000. $270,000 is allocated to the building and $30,000 to the land. Today the value Another rule which one may take advantage of is that personal use property, regardless of the 
of the building is $1,000,000, of which 20% is allocated to land. The UCC of the building is $50,000. ACB or FMV, is deemed to have proceeds of a minimum of $1,000 and a minimum ACB of 
Charitable Gift Receipt: $1,000,000 $1,000. Therefore, a gift of art that is valued at $1,200 which costs $500 would be deemed to 
have an ACB of $1,000, proceeds of $1,200 and a $200 capital gain would result.
Tax Effects Land Building Taxable Income Some taxpayers own vast collections with numerous pieces of art e.g. etchings, where the 
Disposition $200,000 $800,000 value of each piece is not great, but the value of the entire collection is substantial because 
Original Cost $30,000 $270,000 of the numerous pieces. Using this deemed $1,000 ACB can create 
Capital Gains $170,000 $530,000 $700,000 a situation where no or very little capital gain is realized but the 
Taxable Capital Gains   $425,000 ($250,000 x 50% plus donation receipt received is based on the FMV of all the art. 
Original Cost $270,000                         $450,000 x 66.67%) Note that although deemed proceeds are a minimum 
UCC $50,000 of $1,000 for personal use property, if the value of the 
Recapture $220,000 $220,000 property is only $600, the donation receipt will only 
Total Taxable Income $645,000 be $600. However, the $1,000 deemed ACB and 
deemed proceeds of disposition will not apply for 
property acquired after February 27, 2000, as part of 
Donation Limits Who should use them?
an arrangement in which the property is donated as 
Charitable Gift Receipt $1,000,000 a charitable gift. Owners of art should be aware that
75% of net income     $483,750 (75% x $645,000) obtaining Canadian Cultural
25% of tax capital gain    $106, 250 (25% of $425,000) Property Status will result in the best
25% of recapture tax treatment.     $55,000 (25% x $220,000) 
Receipt Used    $645,000 EXAMPLE:
Available for Carry Forward    $355,000
Mr. Moscovitz wishes to give five pieces of art to a
Qualified Donee. Values and original costs are described below. ?
CHAPTER 12 Charitable Receipt $9,200
GIFTS OF ART Taxable Capital Gain (50% x $4,000) $2,000
Artwork Value Cost Deemed Deemed Capital 
Proceeds Cost Gain
There are two distinct tax mechanisms for gifts of art. One involves a gift of Canadian cultural property 
that is governed by the Canadian Cultural Property Review Act of Canada. Where these art pieces are #1 $3,000 $2,000 $3,000 $2,000 $1,000
donated the gift will not result in a disposition for tax purposes and therefore, no capital gain will be #2 $4,000 $500 $4,000 $1,000 $3,000
realized. The donation receipt at FMV is useable against 100% of income. Unused receipts can be #3 $800 $900 $1,000 $1,000
carried forward ten years, rather than the normal five. #4 $900 $100 $1,000 $1,000
#5 $500 $100 $1,000 $1,000
Most art donations made to the majority of registered charities within the system would not be $9,200 $6,000
subject to the Canadian Cultural Property Review Act of Canada and would be subject to the normal 
disposition rules for capital property. Thus, capital gains will arise on disposition and a full donation 
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
40 CANADIAN GIFT PLANNING HANDBOOK November 2024 41
CHAPTER 13
INDIVIDUAL EXAMPLE:
ESTATE PLANNING Mr. and Mrs. Cohen own a vacation condominium (acting as a second residence) valued at 
$500,000. Its original cost was $100,000. They have three children; none of whom would 
like to keep the property. They prefer cash. In their will, on a last-to-die basis, the Cohens 
Canada does not levy succession duties (estate taxes). However, The Act does provide for bequeath the property to a Qualified Donee.
deemed dispositions on death of the individual’s assets. For married couples (including 
common-law spouses), taxation on deemed disposition is left for the second death. There is a The Cohens purchase a last-to-die insurance policy for a face value of $500,000.
tax rollover available for assets left for the spouse. For assets not left to a spouse in this way, 
the disposition may be particularly onerous for those who hold real estate as not only taxable On death the gift receipt issued by the Qualified Donee will more than offset the taxable 
capital gains will be realized but also recaptured depreciation. capital gain realized upon death. In fact, the excess receipt can reduce other taxes payable.
The estate, and therefore the children, will receive $500,000 of cash, free of tax. Again the 
Further, the value of RRSPs or RRIFs not left to a spouse will be brought into the tax return family will receive greater after tax proceeds and a terrific gift for the community has been 
on death. That can also result in an onerous tax. Please refer to the chapter 16 on RRSP Gift realized.
Planning.
Two major factors contribute to the merger of gift planning and estate planning. The first 
is that The Act provides for a donation limit of 100% on death. Donations can be utilized to Insurance proceeds on death are received tax-free by the corporation but are not included 
offset 100% of the income on the final tax return which is dated at the date of death and in the value for deemed disposition purposes on death of the shares of the company. Upon 
100% of the income realized in the year prior to death. Donation can also be claimed by the receipt, the insurance proceeds can be flowed-through to the beneficiaries tax-free via the 
estate (see chapter 3). CDA, created by virtue of the insurance proceeds. An examination of corporate and estate 
planning techniques is found in chapter 14.
The second factor is that estates can make donations after death which can be moved into 
the final tax return of the deceased and therefore reduce or eliminate the taxes payable at Summary
death. The objective of combining estate and gift planning is to recognize the potential for tax, and 
use gift planning to reduce the tax bill while making a gift. The planning will only work with 
Wealth Replacement Life Insurance charitable intent. One can replace tax liability with donations, but in the end, the gift will 
The insurance technique can be worked in reverse. If appreciated assets are owned, that do reduce family wealth, even if the “cost” of the gift is reduced by the planning.
not need to be maintained in the family, the asset can be gifted to a Qualified Donee pursuant 
to the will. Insurance can be purchased to replace the asset for the benefit of the family (see 
chapter 4).
Utilizing the Corporation
If insurance is to be used to fund a gift or to replace other wealth gifted by the family, the 
corporation may be the best place to hold and own the insurance policy.
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
42 CANADIAN GIFT PLANNING HANDBOOK November 2024 43
The Theoretical Solution
CHAPTER 14
The key lies in how The Act reads in prescribing when to calculate the deemed disposition. The 
CORPORATE Act prescribes that the deceased be deemed to have disposed of their assets immediately prior to death. The proceeds of disposition is equal to the FMV of the property immediately before 
ESTATE PLANNING the death. The solution would therefore be to reduce the value of assets before death and to replace the capital with assets received after death. The charity will help the donor reduce the value of assets prior to death and insurance will be used to replace the capital after death.
Corporate Shares Insurance proceeds received upon death are received tax-free. If a corporation owns a policy 
The shares of private corporations remain one of the largest potential causes for capital gains at the time of death, the proceeds from the policy will not be included in the value of the 
taxes on death. Further in this chapter, we will examine methods to reduce the value of these deceased’s shares for deemed disposition purposes as the policy is not payable immediately 
shares. prior to death. CSV is attached to the policy, this CSV will be included in the value of the 
shares for deemed disposition purposes.
Alternatively, in some situations we might consider an outright gift of the shares. For estate 
planning purposes, one might consider the gift of preferred shares with a low ACB in order to A gift to a Qualified Donee from the company during the donor’s lifetime will reduce the value 
avoid the death tax on the shares. This topic is described in chapter 10. of the shares upon death. Replacing the gift with insurance will convert a taxed asset on death 
into a nontaxed one, as described in the following example:
The Private Company
The ability to pay tax-free intercorporate dividends, tax deferral and corporate limited liability 
have led to the frequent use of private companies in Canada. Owners of operating companies EXAMPLE 1:
(“OPCO”) wishing to protect excess earnings transfer the ownership of their shares in OPCOs 
to newly incorporated holding companies (“HOLDCOs”) which became the parent companies Mr. Caplan owns Company M, a holding company used to own a diverse group of assets. Its 
of the OPCOs. value is $10,000,000. His shares have a nil ACB and the company earns $500,000 a year. 
On death, Mr. Caplan’s estate would remit capital gains tax on the $10,000,000 value of the 
HOLDCOs may receive tax-free dividends from the OPCOs. The movement of wealth to company. Company M donates $1,000,000 to the Jewish Community Foundation ($250,000 
the HOLDCOs allows for a separation of assets from the OPCOs. If ever a business setback a year for four years). Over the four-year period, the company will save $500,000 of tax.
would occur in OPCO, wealth would still be kept separate in HOLDCO. Usually HOLDCOs are With a portion of the tax savings, the company purchases a $1,000,000 insurance policy on 
used for diversification; perhaps holding real estate or investing in the stock market. Many the life of Mr. Caplan (premiums costing $60,000 per year).
Canadians have their wealth tied up in these HOLDCOs.
The Tax Problem Results
Unlike the US, Canada does not impose succession taxes. However, The Act does impose a 1. A $1,000,000 gift is made to a Qualified Donee from which the charity will make Mr. Caplan’s 
deemed disposition of assets upon death, or if left to a spouse, on the spouse’s death. This charitable gifts for the rest of his life. Assuming a 5% distribution policy, the Qualified Donee 
disposition results in tax paid on assets that have appreciated in value over the course of will make $50,000 of donations annually, based on the advice of Mr. Caplan.
ownership by the deceased. The basic exception to this disposition occurs if the assets in 2. A The tax savings less the insurance premium cost creates a net profit.
question will be transferred to the spouse or a spousal trust. Thus, tax is imposed on the 3. One million dollars is removed from the company balance sheet reducing its value 
death of the second spouse. Since many Canadians maintain their wealth within HOLDCOS, for purposes of deemed disposition on death.
the advantage of tax deferral comes full circle upon death. All that value within HOLDCOS 4. A million dollars of insurance proceeds are received after death tax-free (and not 
and OPCOS becomes taxable. For those that have amassed incredible wealth, as they pass included in the deemed disposition except for the CSV of the policy).
away, will be left with huge tax bills. Our Canadian charities recognize this problem and offer 5. The beneficiaries receive the insurance proceeds personally tax-free to the extent of 
a means to mitigate this problem. the CDA created by the life insurance proceeds.
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
44 CANADIAN GIFT PLANNING HANDBOOK November 2024 45
Insurance
If a corporate insurance policy is treated as an investment the estate gift planning possibilities EXAMPLE 3:
are extended.
Mr. Aaron’s shares of Aco are worth $10,000,000. Aco takes out a $3,000,000 policy on Mr. 
Aaron’s life. Mr. Aaron’s will provides for a discretionary gift to a Qualified Donee for up to 
$3,000,000.
EXAMPLE 2:
On death Mr. Aaron’s final return will indicate $6,000,000 of taxable income due to the 
Mr. Abitbol has his corporation purchase a universal insurance policy as described below:
deemed disposition of Aco shares. The Estate’s shares in Aco are redeemed for $3,000,000 
The premiums are $180,000 a year for three years or $540,000.The policy is set to pay a death cash (funded from the life insurance policy) and a $7,000,000 stock dividend of non-voting 
benefit of the premiums plus a 4% return plus $500,000. full ACB and PUC preferred shares.
On death the premiums are repaid/cashed in and if the death occurs in say 20 years $1,571,000 The redemption creates an $10,000,000 dividend to the estate of which $7,000,000 is 
will be received evidencing a 4% after-tax investment. In addition $500,000 will be received taxable as Aco elects $3,000,000 out of the CDA account created by the insurance proceeds. 
tax -free by the corporation which will be used to fund a gift to a Qualified Donee ($2,611,000 In addition, a capital loss of $10,000,000 is incurred which by virtue of subsection 164(6) of 
less the ACB of the policy will go into the CDA). The Act is carried back to Mr. Aaron’s return to eliminate the taxable capital gain. The estate 
This gift will be paid in one of two ways. Either the company will make the $500,000 gift and pays the gift to a Qualified Donee. The donation receipt is used by the estate and not the final 
receive the charitable receipt, or alternatively, Mr. Abitbol will set up a $500,000 gift in his will. return (see chapter 3 on Bequests).
The company will declare a $500,000 dividend to the estate out of the CDA created by the 
insurance proceeds. The dividend will be received tax -free and the estate will have $500,000 
to pay the chairty gift, but will still pay the gift with marketable securities if possible. Thus, Mr. 
In summary, on a net basis, using subsection 164(6) of The Act to carry back using insurance 
Abitbol’s final tax return will contain a $500,000 receipt applied 100% against other income.
will save about $1,000,000 of tax and the same insurance proceeds funding the gift will save 
a further $1,500,000 and a large endowment is gifted upon death.
Subsection 164(6) of The Act and Will planning
A basic corporate estate planning strategy has been to have the corporation take out a policy 
on a shareholder. On death, the deceased’s shares are redeemed by the company funded by 
the life insurance proceeds. In effect the capital gain in the deceased’s return is replaced by a 
dividend to the estate which is non-taxable as the dividend is elected out of the CDA arising 
from the life insurance proceeds. If the estate so elects, The Act will reduce the capital loss to 
the estate upon the redemption of shares, which by virtue of subsection 164(6) of The Act is 
carried back to offset the deceased’s capital gains to, simplistically, 50% of the original gain. 
Consider utilizing the 50% opportunity and make a will gift to double the tax savings. And, 
since, as of January 1, 2016 the will gift can directly be used against the estate’s dividend 
income, planning is furthered with a will gift.
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46 CANADIAN GIFT PLANNING HANDBOOK November 2024 47
CHAPTER 15 EXAMPLE (continued):
DEPARTURE No receipt will be useable (See chapter 11, Gift of Private Company Shares and Debt, to determine if the receipt can be used without the election).
TAX PLANNING The Qualified Donee and OPCO agree on a timing formula for redemption of the preferred shares. Perhaps OPCO will purchase $2,000,000 of insurance on Mr. A’s life, the proceeds of 
which will fund the redemption. Perhaps the redemption will fund the annual gift of the family. 
Canada taxes individuals on the basis of residence and consequently every person residing Perhaps a special community project is endowed in the name of Mr. A.
in Canada is taxed on their worldwide income. 
When an individual ceases to be a resident of Canada, The Act levies a “departure” tax in an Departure tax gift planning is not for everyone, but shows how important it is to consider 
attempt to ensure that Canada receives its fair share of tax revenue on income earned while one’s charitable gift options in order to meet one’s financial and charitable objectives.
resident. The departure tax is, for the most part, aimed at taxing the appreciated value of 
capital property that grew in value during residency.
CHAPTER 16
The departure tax is computed by deeming an individual to have sold at FMV their capital 
property immediately before ceasing to be a resident. One either pays the resulting tax or RRSP GIFT PLANNING
elects to defer the payment of the tax until actual disposition by depositing security with the 
government. There are assets that were exempted from the rule, namely Taxable Canadian Canada’s individual income tax system is premised on an annual calculation of income. Thus, 
Property (“TCP”). 
salaries earned in the year, dividends received in the year, interest income earned in the year or 
gains on dispositions of property within the calendar year are all taxed in the year. Exceptions 
Shares of private companies are subject to departure tax and thus on any appreciated value 
the taxpayers must either pay the tax on filing their return for the year of departure or post to this rule exist by means of government-sanctioned tax shelters or tax deferral mechanisms.
security. The CRA has discretion to determine the amount and form of the security. These include Registered Pension Plans (“RPP”), Registered Home Ownership Savings Plans, 
Deferred Profit Sharing Plans, Registered Education Savings Plans, Registered Retirement 
Gift Planning Savings Plans (“RRSP’s”), Tax Free Savings Accounts and Registered Retirement Income Funds 
The inclusion of private company shares in the departure tax net has a significant effect on (“RRIF’s”). Income earned within these registered plans are not taxed annually, but instead are 
Canadians contemplating giving up residency and may result in residency being maintained. allowed to accumulate as long as the funds remain within the plan.
Across Canada, RRSPs and RRIFs contain billions of dollars and are potential sources of 
donations. They also contain potential tax liability.
EXAMPLE:
One can envision situations where the combination of estate, gift and departure tax planning The objective of this chapter is to briefly review the mechanics of these plans to understand 
may enable a Canadian to achieve his or her objective. when tax consequences do arise and then to determine if charitable giving plans can be 
adapted to benefit the taxpayer and charitable institutions.
Consider a situation in which Mr. A aged 70 wishes to retire to the Bahamas. Mr. A owns 
shares of a private company, OPCO, which his children now run. In 1980, an estate freeze was Charitable Donations
affected whereby Mr. A’s common shares of OPCO were exchanged for preferred shares, with There are no specific provisions in The Act which combine charitable giving and deferred plans. 
new common shares issued for nominal value to the children. The planning is not a question of legislation, but of logic. The logic being to marry-up the 
Today the common shares of OPCO are worth $10,000,000 and Mr. A’s preferred are valued possibility of income inclusion to the possibility of charitable giving and thus a corresponding 
at $2,000,000. Assuming a nil ACB, the potential departure tax liability is $645,862 (50% x tax credit. For most Canadians, the creation of an RPP is a meaningful mechanism to create 
$250,000 and 66.67% x $1,750,000 (x 50% )). Prior to departure Mr. A gifts his preferred shares retirement income. This is not necessarily the case for RRSP’s, because for some Canadians 
to a Qualified Donee. He elects pursuant to subsection 118.1(6) of the Act that the disposition 
occur at cost to ensure no capital gain be realized.
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48 CANADIAN GIFT PLANNING HANDBOOK November 2024 49
their retirement funding is secure regardless of RRSP contributions. A basic premise of an income of the donor. It is possible that the lump sum payment may carry some taxation that 
RRSP is that one receives a tax deduction, presently up to $31,560 a year for contributions. is not sheltered by the donation receipt. On the other hand, if the individual is in a situation 
For a taxpayer earning significant income who does not need all those dollars for living where, for example, they are transferring a $100,000 RRSP to a charity but has $75,000 of 
expenses, it is often suggested to contribute to an RRSP to defer tax and to allow for a tax-free other income, the charity receipt of $100,000 will be fully usable against income of $175,000 
accumulation of income within the RRSP. In essence, it is partially the government’s money based on the 75% (Federal) test.
that is growing and accumulating for the taxpayer that creates a terrific investment vehicle 
regardless of the pension objective. Due to the 100% donation limit on death, and the income 
recognition on death due to a RRSP or RRIF, it may lead to a 
The mental framework for many Canadians is that it is not a pension-gathering tool but a tax different style of planning. If one anticipates, say a $500,000 
deferral device. As a result, however, when the dollars are available to come out or must start RRSP income inclusion on death, this would result in a 
to be taken out commencing at age 72, these dollars may not be needed for the lifestyle of $250,000 tax liability. A $500,000 charitable donation 
the individual but instead create a tax problem. receipt could be used to eliminate the tax liability.
Who should use them?
Consequently, in the cases of RRSP and RRIF’s, there are thousands of Canadians who have One mechanism to achieve this credit is to purchase 
significant dollars in these accounts who may not need the funds either personally or for While there are more tax efficient life insurance to fund a gift on death. As the RRSP 
estate planning purposes. These dollars could very well be available for charitable purposes gifts, RRSPs represent is an income inclusion for a couple would occur after 
incredible amount of relatively
given that these amounts are taxable and a corresponding charitable tax receipt would be liquid assets, which makes it a the second death, one would purchase a last to 
valuable. fertile ground for gift planning for die policy so that the gift, set out in the will, would 
charities. occur at the same time. The cost of the insurance is 
Pension Annuity or RRIF Payments often far less than the ultimate tax liability. The family 
If the taxpayer is in receipt of a pension annuity or RRIF payment, these amounts are taxable. is, in effect, using the government’s tax money to fund 
If the amounts are not needed for lifestyle purposes, a program of transfer to a charity will ? the charitable gift.
effectively allow for an offset of the income against the tax donation. For example, a $1,000 
taxable annuity at a 50% tax rate would leave the individual with $500. A transfer of that 
$1,000 of income to a charity will allow the tax credit to offset the income inclusion from the 
annuity so that no tax is paid. EXAMPLE 1:
Anticipated RRIF value at death $500,000
RRSP and RRIF Gifts to Charity
On death, the donation’s tax credit will be available on the final tax return, both for these gifts Potential tax liability $250,000
made via the will or for RRSP, RRIF and insurance proceeds made through direct beneficiary Cost of premiums over 6 years to purchase a 
$500,000 life insurance policy to be gifted in the will $150,000
designations.
This 100% donation limit on death is important for taxpayers in their planning as it allows Net Savings
for a very easy methodology of reducing significant taxes at that time. Caution is called 
The $500,000 RRIF income on death will be offset by the $500,000 gift. No tax will be paid. 
for, however, if an individual wishes to transfer the value of their RRSP or RRIF within the 
The cost of the insurance is less than the ultimate tax cost; however, the true value of money 
course of his lifetime. Unlike a donation of capital property, whereby a taxpayer can elect a 
is not calculated in this example.
disposition at any amount between his ACB and the FMV, no such provision exists for the 
transfer of RRSP’s or RRIF’s. These trusts, for these purposes, will not be considered to be Further, the anticipated RRIF value is questionable. How does one know when one dies? 
capital property and, therefore, the election cannot be made. Further, unlike capital property, However, this planning is possible to reduce taxes generally on death, whether the taxes arise 
there are no increased donation limits for transfers of these trusts. Thus, a transfer of a lump due to RRIF’s or appreciated property or both.
sum payment during lifetime will result in an equal donation receipt to the income recognition 
but the donation receipt can only be used against 75% (100% for Quebec purposes) of the 
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50 CANADIAN GIFT PLANNING HANDBOOK November 2024 51
gain property. Contributions in excess of these annual limitations can be carried forward up 
EXAMPLE 2: to five years. However, for lifetime gifts to Canadian charities these limits will be based on 
the American’s Canadian source income. For example, if an American has $100,000 of US 
RRSP Cash-in source income and $20,000 of Canadian source income, he will be entitled to make a gift 
to a Canadian Qualified Donee to the extent of 100% of their Canadian source income or 
Mr. Schwartz has always wanted to cash-in his $300,000 RRSP but he does not want to $20,000. Any excess contribution could be carried forward five years to be applied again to 
pay the heavy tax. He has made a special gift to a Qualified Donee of $300,000. His annual Canadian source income in those years. This provision, allowing Canadian donations to be 
income is $100,000. applied against Canadian source income, is based on the Income Tax Treaty between Canada 
and the United States (“The Treaty”).
Income $100,000
Add: cash-in of RRSP $300,000 Americans may have a substantial estate tax liability. In this particular situation, the status 
of Canadian charities is much more beneficial. A bequest to a Canadian Qualified Donee 
Total $400,000
would qualify as a US gift, if the Canadian charity e.g. the Qualified Donee would have been 
Use of receipt $300,000 considered a US charity if the organization had been situated in the US. A bequest to a 
Qualified Donee would be totally deductible in arriving at estate tax liabilities. This rule does 
Instead of creating a large charitable carry forward, Mr. Schwartz has cashed in his RRSP’s. not apply if one is attempting to achieve an estate tax deduction by the creation of a CRT for 
the Canadian charity.
Canadian gifts of U.S sited property
It is clear that there are billions of dollars invested annually in RRSP’s and further billions It is permitted under The Act for gifts to be made to Canadian charities of non-Canadian 
of dollars earned within RRSP’s on a tax-free basis annually. It is an incredible amount of sited property. The normal income tax effects will occur for Canadian purposes, based on 
relatively liquid assets, which makes it a fertile ground for gift planning for charities. the deemed disposition rule for gifts. Depending on the type of property transferred, the 
disposition to the charity may be subject to US income tax.
CHAPTER 17 U.S Shares
Under The Treaty, it is doubtful that shares of US corporations gifted by a Canadian taxpayer 
GIFTING U.S. ASSETS to a Canadian charity will be subject to American tax unless the shares’ basis of value is U.S. real estate. The Treaty exempts Canadians generally from taxation on disposition of American 
capital assets except for real estate. US corporation shares are subject to American estate taxes 
Canada – United States (“US”) Charitable Transactions on the death of a Canadian. The Treaty does create an exemption to reduce or eliminate this 
This handbook is intended to act as a guide for professionals in dealing with donors. This is tax. However, if there is an estate tax problem and it is intended that these assets be gifted, 
even more the case for this chapter on cross-border gifting provisions between Canada and then it seems preferable to gift them during the lifetime rather than at death as The Treaty 
the US. The chapter is not intended to review all of the income tax and charitable aspects will eliminate the US taxation on the capital gain arising from the sale of the US shares (other 
between these systems; instead, it will offer a few directions that may aid the professional to than shares deriving their value from real estate) during lifetime. Please refer to competent US 
begin their research. professionals for tax advice in arranging any of these gifts.
Americans Donating to Canadian Charities U.S Real Estate Gifts
An American may make a gift to a Canadian Qualified Donee. The tax effects vary, however, A Canadian will be subject to US capital gains tax on the gifting of US real estate to a Canadian 
with the facts and the types of assets that are being gifted. Qualified Donee. Of course, for Canadian purposes, the transaction is taxable as well, and of 
course for Canadian purposes a charitable donation receipt can be usable on the return. Given 
For U.S. tax purposes, an American will have an annual limitation on contributions to 100% of that both tax jurisdictions will be taxing the transaction, a foreign tax credit will be allowed on 
adjusted gross income for cash and ordinary income property and 30% for long-term capital the Federal Canadian return for any tax paid within the US on the transaction.
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52 CANADIAN GIFT PLANNING HANDBOOK November 2024 53
A special “gift tax” exists in the United States, and a gift to a Canadian charity may be subject For gifts to other charities where it is assumed that the art will be sold, Quebec legislates a 
to this gift tax. There are allowable credits that can be used by Canadians to offset the tax system whereby the donation receipt received will not be equal to the value of the art. For 
due. If the real estate was given by bequest to the Canadian charity, there will be no capital Quebec, the receipt will be equal to the actual selling price of the art piece by the charity. The 
gains tax in the US on the gift but the donor’s estate will be subject to estate tax, offset by the charity will have five years to make the sale. When it does sell the art, the charity receipt will 
allowable credit. Also, note that due to The Treaty, the estate tax paid in the US is allowed as be used by the taxpayer in the year in which they actually donated the art. The donor may 
a foreign tax credit on the Canadian income tax return. have to refile their Quebec tax return.
What is a little upsetting from the Quebec situation is that in the year of gift one will realize 
CHAPTER 18 and pay tax on the disposition. Presumably, the FMV would be what the evaluation is in the 
CONTRASTING THE year of gift and one would report a capital gain based on the disposition. The donation receipt, although usable in the year of disposition, may only save tax at a later time and the amount of the receipt can be less than the value at the date of the gift. Therefore, tax may be prepaid 
FEDERAL AND QUEBEC unfairly and it is possible that the donation receipt may never be usable if the charity does not dispose of the art. Quebec does have tax stimuli for gifts to cultural charities. A $25,000 cash 
gift to a cultural institution in Quebec could yield an additional $6,250 of Quebec tax credit. 
TAXATION ACTS Gifts of $250,000 also yield special benefits.
Donation of Appreciated Assets
On the subject of real estate, Quebec’s rule for transfer or mutation taxes is onerous for 
The Federal and Quebec tax rules as they relate to charitable giving are very similar. Some of charities as the calculation is based on the greater of two amounts, the proceeds of sale (nil 
the differences highlighted in other chapters are: for a gift) and the municipal evaluation. In other provinces, the municipal evaluation is not 
considered and thus the transfer taxes are nil.
1. For Federal purposes, charitable gifts that can be claimed (other than gifts made by a 
will) are generally limited to 75% of net income. For Quebec purposes, the limit is 100% Quebec Taxpayers with Jurisdiction inside Quebec and Outside Quebec
of net income (See chapter 2). There are a number of taxpayers who can utilize the credit system to their advantage if 
2. Federal law permits spouses to share donations (other than donations made by will). For they have establishments in Quebec and outside Quebec. Consider an individual who has 
Quebec purposes, by administrative policy, spouses can share cash gifts, but not Gifts in Kind. a professional practice in Quebec and in Ontario. Assume half of their income is derived 
from Quebec and the balance in Ontario and, therefore, half of their provincial tax is paid in 
Other differences are discussed below. The list is not exhaustive. Quebec and half is paid in Ontario. Assume further that their spouse is resident in Quebec with 
Quebec taxable income only. A donation receipt used for Federal purposes by the professional 
Gifts to US Charities would result in a tax saving on both their Federal tax and their tax in Ontario, which accounts 
For Federal purposes gifts to US charities may be claimed to the extent of 75% of US source for half their provincial tax. Thus, the effective use of the donation receipt would mean an 
net income. Quebec does not allow this. Thus, gifts to US charities generally cannot be approximate 37.5% saving. If they use the donation receipt on his Quebec tax return also, 
claimed for Quebec purposes. 12.5% would be saved based on the fact that half of their provincial tax is payable in Quebec. 
It would be preferred in this situation to have their spouse utilize the donation credit for 
Art and Cultural Property Quebec tax purposes. As the spouse pays all of their provincial tax in Quebec, there would be 
The donation of certified cultural property yields the identical tax results for Federal and an approximately 25% tax saving on that return.
Quebec purposes. However, gifts of other art are taxed differently. For Federal purposes, a 
donor of art to a charity will receive a donation receipt equal in value to the art. The taxpayer The professional would still use the donation receipt on their Federal return. As a family, the
is deemed to dispose of that art at its FMV and could realize a capital gain in relation to the professional would be saving 37.5% on their Federal return and the spouse would save 25% on 
gift. For Quebec, the rule is similar if the charity is in the art “business” e.g. museums. In this their Quebec return which would mean that a donation receipt would actually save $0.625 on 
case, Quebec will allow a credit based on 125% of the gift. the dollar therefore making it much more amenable to make donations.
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CHAPTER 19 The Quebec individual investor of, say, $100,000 of exploration mining stock is entitled to 
MINING FLOW-THROUGH claim a $100,000 deduction on his federal return and a $15,000 ($30,000 in some cases) investment tax credit. He could claim a $120,000 write-off on his Quebec tax return. Based on the top tax bracket in Quebec on income over $246,752 which is 53.31%, a donor’s cost of 
DONATIONS giving can be as low as 10%, and if the purchase of stock structured so that only a portion of the shares purchased are donated, the cost of giving can be as low as 1%.
A relative newcomer to the Canadian planned giving scene, mining flowthroughs (“MFTs”) EXAMPLE 1:
have enabled many Canadians to reduce their cost of donations substantially.
John Sample has $285,000 of salary income and $25,000 of investment income annually. 
MFTs were introduced in The Act decades ago, as a means of helping Canadian public He purchases 53,936 shares of Goldco, a Quebec mining company, for a subscription 
mining companies finance their risky exploration ventures. These companies are entitled to price of $53,936. He donates about 75% of the shares to charity and retains about 25%.
enhanced deductions and tax credits on their operations, but as they were not in a taxable 
position, their tax incentives were not effectively useable. Both the charity and John sell their shares. The charity is left with $17,412 after fees, 
while John has $8,611 after fees. John is now $45,325 out of pocket, but Goldco allocates 
This spurred the creation of MFTs, where the investors of treasury him $53,936 of exploration expenses.
stock would have the tax credits and deductions allocated to 
them instead of to the companies (flowed through). These 
MFTs, then, were a way of stimulating investment and ? John claims $53,936 of exploration expenses on his federal return and his Quebec return. In addition, he claims a further 20% deduction ($10,787 on his Quebec return and a financing the companies. The investors would effectively 15% investment tax credit ($8,090) on his federal return. For federal purposes he adds reduce the cost of their investments with the tax effects that they would enjoy, while the companies would $16,086 of taxable capital gains this year and the investment tax credit amount, $8,090, Who should use them?receive cash and give up their tax benefits, which could on next year’s federal return. There are no Quebec effects for these last two income only be useful to them in the future anyway. Investors Mining flow-through donations are additions.most effective for donors with highwere required to hold the stock for a certain amount of personal taxable income – overtime before being able to sell them on public markets. According to the offer sheet, the cost of the net donation is 4.95% after all the tax ins $250,000 annually. They can beThese tax shelters were effective and helped Canadian used both for annual giving and for and outs. This is based on the assumption that the deductions are all saving tax at the mining companies finance and build incredible mining building up a fund. highest rate (53.31%) applicable on income over $246,752 and that John’s total capital operations, primarily in Alberta and Saskatchewan. gains are less than $250,000. Given John’s net income of about $285,000, this appears to be the case here.The Donation MFTs (DMFTs) were created as an extension of this project. Promoters put together the concept of investing 
in the companies and immediately donating the shares to charity. Note that the 2022 Federal Budget took out Hydrocarbons from the program. In addition, for 
The promoters found off-market purchasers for the shares and thus critical metal exploration the investment tax credit moved from 15% to 30%. Also note, effective 
the investment today was converted into charitable dollars tomorrow. The 2024, AMT may be a more significant factor in purchasing these shares and that the 2024 
investor-donor knew the cost of shares, the deductions and credits they would utilize, and budget has increased the inclusion rate for capital gains over $250,000 which increases taxes. 
the amount of cash proceeds the charity would receive. The credits are particularly beneficial 
for Quebec mining, as Quebec has its own incentives for strategic mining investments in Every deal is different, and the numbers vary according to the agreements that the promoter 
Quebec, which allows an extra deduction of 10% or 20% of exploration expense. makes with the mining company, the fees charged, and the price that the ultimate buyer pays 
for the shares.
The Canadian and Quebec governments have given tax rulings on these DMFTs and they have 
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56 CANADIAN GIFT PLANNING HANDBOOK November 2024 57
operated successfully for over fifteen years, but investor-donors need to obtain professional their personal tax returns in April of the following year. One can apply to have deductions at 
advice before purchasing such a shelter. There are risks involved, the chief of which is that the source reduced and installments can be reduced or eliminated, thus reducing the financing cost.
mining company must do the exploration within a certain amount of time. If it does not, the 
donor will find that without mining deductions and credits the cost of giving will be prohibitive. Qualifying Canadian mining companies do not always have product available. Interested 
donors should plan ahead and be ready to make a purchase.
The bigger risk is the donor’s own tax return. The deductions and credits are huge and thus to 
save tax at the highest rate, one needs qualifying income ordinarily taxed at a high rate. AMT, One way to expand the tax return is to use the spouse. The donation credit can be used by 
particularly in Quebec, is a factor – you have to pay some tax! To buy $100,000 of DMFT, you a spouse (other than for Quebec purposes), thus effectively utilizing spousal income in the 
might need income of at least $300,000. Any donor contemplating buying DMFT should calculations. Tax savings are also usually assumed to be at the top rate, but this rate is not 
prepare a pro-forma tax return prior to the purchase to ensure that the anticipated tax benefits always applicable – sometimes the top rate is applicable against some income, and a lower 
will be realized. rate (4% less) on another part of the income. This would affect the cost of the gift; while lower 
rates could increase the cost of giving by 10%, this would still be a great result.
Corporations can also buy DMFTs but they tend to be different. There are no specific Quebec 
incentives so mining from anywhere in Canada works, even in Quebec. These shelters are often CHAPTER 20
not exploration but development, meaning that the write-offs are done over a period of years. 
Corporate purchases and subsequent gifts and sales create capital gains. A by-product of the 
DMFT, then, is the creation of CDA which allows for tax-free dividends to be paid to shareholders. 
The cost of giving for corporate DMFTs can be high, even 50%. However, the value of CDA can CASE STUDY
be tremendous and if these values are added into the calculations, the cost of giving can be 
brought close to zero. If CDA is not of use (either because the company does not use it, or 
because the company has so much of it already that more does not give them savings), then Overview
corporate DMFTs are not of value. Capital gains in a corporation as of June 25, 2024 are subject Mark Smith age 65 and Judy Smith age 63 want to plan their philanthropy, both 
to a 66.67% inclusion, increasing tax and reducing the value of corporate DMFTs. short-term and long-term. They have four children, who are aged between 26 and 
35, and three grandchildren. Mark and Judy are hoping to make a few significant 
Uses and Limitations of DMFTs major donations in the next year. While they will consider long-term testamentary 
DMFTs are clearly a great way to make a donation, but their main limitation is in the numbers. gifts, they want the majority of their estates to pass to their children.
For a $700,000 tax return, one might buy $250,000 of shares, which might yield a $100,000 
donation. This enables a gift to be paid with DMFTs over a number of years to reflect annual limits.
Shareholding
Mark owns all 100 of the Common shares of the company MJ, 1.5 million Class A preferred 
EXAMPLE 2: shares, redeemable for $1 each ($100 PUC and $100 ACB), and 750,000 Class B preferred 
shares, also redeemable for $1 each ($1 PUC and $750,000 ACB). Mark’s annual salary is 
John Sample from Example 1 has agreed to fund a $500,000 life insurance policy to benefit a $700,000, while Judy’s is $250,000. 
Qualified Donee. The premiums are $15,000 a year for 10 years, at which point it is fully paid-up.
John’s first payment to the charity to support the premiums will be with charity flow through MJ owns $1,000,000 of marketable securities ($643,000 ACB) and all the issued shares of 
proceeds. He hopes to continue to take advantage of this mechanism for the ten-year pay period. two companies: Opco and Realco. MJ owns 2,000,000 preferred shares of Opco. MJ has 
$94,000 in Refundable Dividend Tax on Hand (RDTOH).
If so, the after-tax cost of the $150,000 of premiums will be 4.95%, or $7,425. To reiterate a $7,425 
cost, which will ultimately benefit a Qualified Donee by $500,000!
Opco
In 1995 Mark started a company called Opco, which produces tools for Canadian retailers. 
Opco earns around $700,000 a year, all of which is active business income. A competitor has 
The after-tax cost of a DMFT gift can be very low, but the donor has to finance the purchase. offered Mark $10 million for all the shares of Opco and the sale is planned for the end of this 
The purchase happens immediately, but for individuals, the tax savings come when they file year or the beginning of the next. 
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58 CANADIAN GIFT PLANNING HANDBOOK November 2024 59
Realco 
Realco is a company that holds real estate. It currently has 53 apartment units with a cost MARK AND JUDY’S SECURITIES
of $200,000, UCC of $95,000, and FMV of $1 million. It also holds land with an ACB of 
$200,000 and FMV of $1.2 million, which is up for sale. Realco’s income is taxed as property Common Shares Quantity Market Price Cost Market Value
income, and its RDTOH is $85,000. 
ARC Resources LTD 500 16.70 6,756 8,350
Family Obligations Altagas LTD 4000 30.90 126,578 123,600
Mark and Judy’s four children live in Montreal. None of them are involved in the business and 
though they all work, they are not wealthy. Mark and Judy’s eldest grandchild is disabled, so Agnico Eagle Mines LTD 4000 36.37 119,876 145,480
they help with his expenses. Agrium Inc 300 123.67 29,653 37,101
Mark’s older brother Steve age 72, unmarried and childless, used to work at the company. He Alimentation Couche-Tard 8000 60.91 357,002 487,280
lives off of $90,000 of pension income and $20,000 of investment income. He has $1 million 
ATCO LTD-CL I NON-VTG 240 35.70 12,456 8,568
of securities with an ACB of $600,000 and winters in Florida. Steve complains that his cash 
flow is tight; not only are his taxes high, but he is paying $10,000 annual premiums on a ‘term Brookfield Asset 500 43.65 14,156 21,825
to 100’ $500,000 life insurance policy. His current mortality is 17 years and he is thinking of 
giving up the policy. Bank of Montreal 5000 78.08 163,968 390,400
Bank of Nova Scotia 4000 55.97 123,876 223,880
Financial Assets BCE INC COM NEW 1000 53.46 45,679 53,460
Consider the details of the donor’s finances. Which assets could be the source of a gift? Total 1,000,000 1,499,944
PERSONAL BALANCE SHEET Formulating a Plan
Assets Mark Judy How do we decide the best plan for Mark and Judy? First, determine what their taxable 
incomes are and their approximate taxes payable. The next step, is to perform an estate plan 
MJ Shares $13,200,000 analysis by looking at their assets and determining the tax payable if Mark and Judy were 
Securities ($1 million ACB each) $1,500,000 $1,500,000 to pass away. Finally, taking their taxable income and the estate plan analysis into account, 
select the gift planning products that are the best for Mark, Judy, and Steve. 
RRSPs $1,200,000 $750,000
Residence in Montreal $4,000,000 There are several different products to consider when selecting the best gift planning strategy 
for the Smith family. Mark, Judy, or MJ could gift marketable securities to a Qualified Donee. 
Salary $700,000 $250,000 They could also gift real estate, make gifts of art, use life insurance as a long-term gift, purchase 
Dividends for MJ $100,000 CMFTs, gift private company shares, or establish a CRT. Each of these seven products will be 
considered below as we work through potential plans.
Kle painting (cost $50,000 in 2015) $200,000
Last to die insurance policy purchased February Analysis
2016; face value $100,000, term to 100, $7,000 First, establish taxable incomes and their associated rates. Mark has a large personal tax return 
premium, based on joint mortality of 24 years and has to pay the top marginal rate of 50% (assumed). Judy, who also earns a substantial 
income, has to pay 46% - and bear in mind that spouses can share charitable receipts (other 
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
60 CANADIAN GIFT PLANNING HANDBOOK November 2024 61
than Gifts in Kind for Quebec purposes). Steve is also taxed at 46%. MJ, which earns property 
income, is taxed at 50%, but does not earn substantial income unless there is a sale. Opco is 
MARK AND JUDY SECURITIES ANALYSIS
taxed at 27.5% at the high rate and 15% at the low; Realco, like MJ, has property income taxed Gain /
at 50%, and does not have substantial income unless there is a sale. Market MarketCommon Shares Quantity Cost Value Gain Value
ARC Resources LTD 500 6,756 8,350 1,594 0.190898
MARK AND JUDY’S ESTATE ANALYSIS Altagas LTD 4000 126,578 123,600 -2,978 -0.024090
Assets Value ACB Gain Amount Taxable Agnico Eagle Mines LTD 4000 119,876 145,480 25,604 0.175997
MJ Shares 13,200,000 750,000 12,450,000 8,255,000 Agrium Inc 300 29,653 37,101 7,448 0.200749
RRSPs 2,250,000 2,250,000 Alimentation Couche-Tard 8000 357,002 1 487,280 13,0278 0.267358
Securities 3,000,000 2,000,000 1,000,000 666,667 ATCO LTD-CL I NON-VTG 240 2,456  8,568 -3,888  -0.453780
Residence 4,000,000 Brookfield Asset 500 14,156 21,825 7,669 0.351386
Taxable Income 11,171,667 Bank of Montreal 5000 163,968 390,400 226,432 0.580000
Tax 5,587,333 Bank of Nova Scotia 4000 123,876 223,880 100,004 0.446686
Total Estate 22,450,000 BCE INC COM NEW 1000 45,679 53,460 7,781 0.145548
Net Value 16,862,667 Total 1,000,000 1,499,944 499,944
MJ SECURITIES ANALYSIS
STEVE’S ESTATE ANALYSIS Gain /
Market Market
Assets Value ACB Gain Amount Taxable Common Shares Quantity Cost Value Gain Value
Securities 1,000,000 600,000 400,000 225,000 ARC Resources LTD 500 6,756 8,350 1,594 0.190898
Insurance 500,000 Altagas LTD 4000 126,578 123,600 -2,978 -0.024090
Tax Recovery 40,000 Agnico Eagle Mines LTD 4000 119,876 145,480 25,604 0.175997
Estate 1,540,000 Agrium Inc 300 29,653 37,101 7,448 0.200749
Charity 1,540,000 (1,540,000) ATCO LTD-CL I NON-VTG 240 12,456 8,568 -3,888 -0.453780
Brookfield Asset 500 14,156 21,825 7,669 0.351386
Based on this analysis, consider estate planning or life insurance for Mark and Judy and life Bank of Montreal 5000 163,968 390,400 226,432 0.580000
income plans for Steve.
Bank of Nova Scotia 4000 123,876 223,880 100,004 0.446686
Looking at the securities for Mark, Judy, and MJ, the investment with the greatest gain are BCE INC COM NEW 1000 45,679 53,460 7,781 0.145548
the shares of Bank of Montreal. The highest Gain/Market Value, 58%, is also with the Bank of 
Montreal. Now that we have identified the Bank of Montreal securities as a good target for a Total 642,998 1,012,664 369,666
charitable gift, we have to consider the following questions. What is the actual net cost of the 
potential gift and who should make the gift?
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
62 CANADIAN GIFT PLANNING HANDBOOK November 2024 63
Marketable Securities from Mark On the other hand, if Mark can donate his Kle to 
Mark’s best marketable securities to gift are his Bank of Montreal shares. If he gifts $100,000 PURCHASE OF POLICY a museum, it would become Canadian Cultural 
shares with an ACB of $42,000, his gain will be $58,000. To calculate the cost of donation, he FOR MARK AND JUDY Property. In that case, his charitable receipt can 
will get 50% tax credit, which will give him $50,000. His capital gain savings will be $19,333 be used against 100% of his income and can be 
(66.67% x $58,000 x 50%), giving him a total savings of $69,333. His cost of donation, then, is Year Premium PV at 3% carried forward ten years; in addition, donations of 
$30,667 for the $100,000 gift, or 30.667%. Canadian Cultural Property receive a capital gains 
1 $25,000 $25,000
exemption and an exemption under 248(35) of 
Marketable Securities from MJ 2 $25,000 $24,272 The Act. It would be most tax effective for Mark, 
Once again, the best option to gift is the Bank of Montreal shares. Similarly, if MJ gifts $100,000 3 $25,000 $23,565 therefore, to donate the Kle to a museum.
shares with an ACB of $42,000, the capital gain will be $58,000. To calculate this cost of 
donation: MJ will get a 50% tax deduction, or $50,000, with capital gain savings of $19,333. 4 $25,000 $22,879 Gift + Insurance Estate Planning
The total savings would come out as $69,333, but Mark will also receive extra money from MJ’s 5 $25,000 $22,212 Turning towards the longer term, how should 
CDA. Assume the dividend tax is at 45%. A normal dividend of $38,666 would provide Mark Mark and Judy approach their estate planning? 
with $21,266, saving him $17,400, but MJ would have received a dividend refund giving extra 6 $25,000 $21,565 Purchasing a life insurance policy (chapter 4) 
savings of $14,820. Mark’s total savings would be $71,913 so the cost of donation would be 7 $25,000 $20,937 could enable them to make a substantial gift at 
$28,087 or 28.08%. Assuming he can benefit from the capital dividends, donating marketable death while replacing a considerable amount of 
securities from MJ is an excellent option for Mark. 8 $25,000 $20,327 money to pass on to their children. 
9 $25,000 $19,735
Gift of Real Estate A possible scenario: First, MJ purchases a $1 
10 $25,000 $19,160
Next, consider the real estate that Realco is planning to sell as the source of a potential gift million policy on a last-to-die basis. Next, Mark 
(chapter 11). Under current tax laws, however, there would be no capital gains exemption in this 11 $25,000 $18,602 and Judy leave $1 million to a Qualified Donee, 
situation, so the gift of real estate would have no positive effect for Mark and he should look to also on a last-to-die basis, in their wills. After 
12 $25,000 $18,061
other assets for his philanthropy. the second death, the corporation will receive $1 
13 $25,000 $17,534 million tax-free from the life insurance proceeds 
Gift of Mark and Judy’s Principal Residence 14 $25,000 $17,024 and remit $1 million to the estate, which will fully 
What about Mark and Judy’s principal residence? Consider making a gift of residual value pay off the planned gift to the Qualified Donee. 
(chapter 7) of their home in Montreal, which is currently valued at $4 million. Assuming the 15 $25,000 $16,528 The final tax return of the deceased will be able 
couple’s joint mortality is 24 years, the residual value of the gift will be $1,967,734 ($4 million 16 $25,000 $16,047 to use a $1 million tax receipt from charity, saving 
current value, at a 3% discount rate for 24 years). Mark and Judy will receive a $1,967,734 tax $500,000 of tax. 
receipt and because it is their principal residence, its donation will produce no taxable gain. 17 $25,000 $15,579
Although the donation of a principal residence is unusual, if they decide to undertake it the 18 $25,000 $15,125 How much will the purchase of the life insurance 
donation will clearly give them large tax savings. cost overall? As the table to the left shows, after 
19 $25,000 $14,685 Mark and Judy’s 24 year predicted mortality, 
Gift of Art 20 $25,000 $14,257 the sum of their premiums at present value will 
Mark owns a Kle painting, which he purchased in 2019 and now hates, but it has gone up in be $436,090. If Mark and Judy choose not to 
21 $25,000 $13,842
value. To make a gift of art (chapter 12), Mark could give the painting to the charity with an aim purchase life insurance, the corporation would 
for them to sell the piece for cash. In Quebec, his receipt will be determined by the proceeds of 22 $25,000 $13,439 transfer to the estate at a 25% tax rate, leaving 
the disposition by the charity, but otherwise he will need a third party evaluation for the receipt. 23 $25,000 $13,047 the estate with $311,550 After 24 years at 3%, 
Normally the disposition of the art by the charity would create a capital gain, but subsection the $500,000 of estate savings Mark and Judy 
248(35) of The Act stipulates that if the taxpayer acquired the property less than three years 24 $25,000 $12,667 will get from their charitable receipt represents 
before the gift was made, the value of the gift is considered the lesser of the FMV or the ACB. Total $436,090 $245,967 at present value. The net cost of 
creating $1,000,000 of charity, then, is $65,583. If 
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
64 CANADIAN GIFT PLANNING HANDBOOK November 2024 65
the cash is transferred as marketable securities Caveats notwithstanding, however, if these shares are available, they can reduce the cost of 
with 50% ACB, the tax savings at death of DONATING STEVE’S POLICY giving to 1% to 20%. Hundreds of millions of dollars of gifts have been successfully given this 
$145,837 (50% x $250,000 x 50% + 66.67% x way with full governmental awareness and review. Mark and Judy should be aware of the full 
$250,000 x 50%) will have a present value of Year Premium PV at 3% picture before agreeing to give DMFT and consult with their tax advisor. Still, these shares 
$71,742. The net benefit of the donation, then, have huge potential for savings and should be considered seriously.
will be $6,159. This represents an incredible 1 $10,000 $10,000 
giving opportunity for Mark and Judy. 2 $10,000  $9,709 Gifting Private Company Shares
MJ is planning to sell its $2,000,000 preferred shares of Opco. Should MJ gift these shares 
3 $10,000  $9,426 
Gift of Existing Policy 51 to charity instead? If MJ uses an insurance policy to provide for Mark’s children, MJ will save 
Think back to Steve’s life insurance policy, 4 $10,000  $9,151 $1,000,000 in cash flow and can continue the estate freeze process. 
which he hopes to sell. What if he gifted his 
5 $10,000  $8,885 
policy instead (chapter 4)? Steve, who is 72 and Consider: MJ subscribes for $2,000,000 of preferred shares of Realco. MJ then gifts those 
has a 17-year mortality, owns a $500,000 policy 6 $10,000  $8,626 shares to charity, who now own $2,000,000 of Realco’s preferred shares, and Realco buys an 
and pays $10,000 premiums, term to 100. 7 $10,000  $8,375 insurance policy. The charity receives a $2,000,000 gift and MJ receives $1,000,000 in tax 
savings. 
The current value of his $500,000 plan, after 17 8 $10,000  $8,131 
years at 3.0%, is $302,508. As the table to the 9 $10,000  $7,894 If MJ gifts $2 million of preferred shares but receives $1 million in tax savings and the present 
right shows, the present value of his predicted value cost of insurance premiums is $402,882, the net cash cost for the donor will be $597,118. 
premium payments is $135,611, making that 10 $10,000  $7,664 The estate will receive a CDA benefit and get tax savings on the taxable dividend totaling 
the cost of his life insurance. The value of the 11 $10,000  $7,441 $218,638. In total, then, the net gain for the donor’s family, assuming a life expectancy of 25 
future insurance proceeds, established above, years and an interest of 4.5%, is $815,756.    
is $302,508. The net value of Steve’s plan, then, 12 $10,000  $7,224 
is $166,897. 13 $10,000  $7,014 When it comes time for the charity to give a receipt for $2 million on preferred shares, assuming 
 they were 4% cumulative, Realco could pay $80,000 in dividends to the charity and could 
14 $10,000  $6,810 
An actuary would need to perform a valuation, receive back a dividend refund of 38.33% or $30,664. The net annual cost of the philanthropy 
but the apparent value of Steve’s insurance 15 $10,000  $6,611 for Mark and Judy, then, is $49,336. When Mark and Judy die, the shares will be redeemed 
policy is $166,897. If Steve were to donate and the charity will receive $2 million. The insurance policy can back up the redemption. 16 $10,000  $6,419 
the policy, he would receive a tax receipt for 
that amount. How would this disposition be 17 $10,000  $6,232 There is one potential problem with this plan, though: are MJ’s shares Non Qualifying Securities 
taxed? His gain would be for proceeds over the Total $135,611 (chapter 10)? As the definition of a Non-Qualifying Security shows, because the donor (Mark) 
ACB; using subsection 248(9) of The Act, the is not arms-length with MJ, MJ shares would appear to be non-qualifying. There are, however, 
proceeds for a policy are considered to be the exceptions to the non-qualifying rule, and as a result, if Mark donates the preferred shares to 
cash surrender value. Steve creates no income, a public charity that he is arms-length with, he won’t have any problems. 
but Steve could shelter his tax bill for at least three years with his charitable receipt! From the 
perspective of the charity, they are receiving a gift of $166,897 – everyone wins. Say Mark chooses to donate shares that qualify for Capital Gains Exemption, which have a high 
ACB and low PUC. If he makes a gift of 100,000 Class B preferred shares to charity, MJ can 
Charitable Mining Flow-Throughs redeem the shares for cash the next day. Because of their high ACB, there will be no gain on the 
Should Mark and Judy consider DMFT (chapter 19) There are some risks involved in using this gift, and upon redemption by the charity there is a deemed dividend. MJ may receive a 38.33% 
strategy – that the mining company does not behave as it should, that the charity is associated with dividend refund and Mark will receive a 50% tax credit – in essence, he will get $88,333 back 
it, that it has to register as a tax shelter promoter, and that the donor must not be seen as selling or from his $100,000 gift! Gifting Class B preferred shares, then, is extremely beneficial for Mark.
vouching for it. Different charities may have different policies around accepting these gifts.
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
66 CANADIAN GIFT PLANNING HANDBOOK November 2024 67
Charitable Remainder Trust
Finally, consider Steve’s cash flow problems and the fact that he is childless. A Charitable 
Remainder Trust (chapter 6) is a perfect solution for him. If he transfers $100,000 to a CRT, he NOTE ON ALTERNATIVE 
will benefit from the trust for life, then the charity will benefit upon his death. He can use the 
charitable receipt now rather than letting it go unused, and since the present value of the gift MINIMUM TAX (“AMT”)
($100,000 at 3% for 17 years) is $60,501, he will receive a tax receipt for that amount and save 
$30,250. Steve can continue to do this every year with reduced installments, always leaving 
himself emergency money on hand. The 2023 and 2024 Federal Budgets proposed very significant changes to the AMT regime, all 
of which come into effect in 2024. The changes apply (amongst other things) to the AMT tax 
Is a CRT useful for Mark and Judy? If Mark transfers $100,000 BMO shares with an ACB of rate, the threshold income before tax applies, the treatment of capital gains on the donation 
$60,000 to a CRT, he will not get an exemption and the disposition will be taxable. He can of marketable securities (30% of untaxed gain added to AMT income) and other capital 
elect, however, under The Act, to consider the disposition anywhere between its ACB and its 
property, as well as the treatment of donations (only 80% of donation tax credit allowed for 
FMV, with the charitable receipt being the limiting factor. If he elects that the proceeds of the 
AMT purpose). 
disposition is $60,501, not $100,000, his capital gains become minimal.
Estate Planning for Disabled Grandchild As a result of these changes, many of the donation planning ideas presented in this Handbook, 
If a child or grandchild is physically or mentally infirm and is financially dependent, i.e. does which previously were not affected by AMT, may be so affected in 2024 and future years. 
not earn more than their personal exemptions, Mark can rollover tax-free RRSPs to their RRSP. Donors and their advisors will have to be much more sensitive to AMT in the future.
Mark and Judy, then, can set up a special needs trust in their wills to benefit their grandchild.
Summary 
In the end, what is the best way to utilize Mark and Judy’s assets, in both the short and the 
long term? Marketable securities are an excellent source of an immediate gift, particularly the 
BMO shares; Mark’s best option is to donate them from MJ and receive a CDA bump. While NOTE ON CAPITAL GAIN 
donating real estate is not an effective option for Mark and Judy, if they set up their principal 
residence as a gift of residual value, they will realize a large tax savings. Gifting the Kle to a INCLUSION RATE
museum will also provide them with considerable tax savings. Donating Class B preferred 
shares of MJ could also be an extremely effective gift.  
For longer term planning, Mark and Judy can look into buying insurance as part of their estate It is proposed that effective June 25, 2024, 66.67% of any capital gain will be taxable to 
plan. Using life insurance will allow them to give a huge sum to charity but not reduce the corporations. Previously, it was 50%.
inheritance to their children very much; they can consult Mark’s insurance broker to find the 
best policy. MFT shares are also a possibility for Mark and Judy. For individuals, the first $250,000 of total capital gains for the year will continue to be 
subject to a 50% inclusion rate. For any capital gains in excess of $250,000 in a year, the 
As for Steve, he could gift his life insurance policy to charity rather than simply giving it up, inlcusion rate will be 66.67%. In this handbook, when calculating the tax on any individual’s 
which will give him immediate tax benefits. He can also establish a CRT, which will enable capital gain it has been assumed that the individual had no capital gains other than what 
him to use receipts that would have gone unused at death to lessen his current tax burden. was illustrated in the example. 
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
68 CANADIAN GIFT PLANNING HANDBOOK November 2024 69
NOTES
NOTES
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
70 CANADIAN GIFT PLANNING HANDBOOK November 2024 71
NOTES NOTES
THE JEWISH COMMUNITY FOUNDATION OF MONTREAL
The Canadian Gift Planning Handbook
by Robert A Kleinman FCPA, Howard Berish FCPA
Updated November 2024
All rights reserved. This handbook may not be reproduced or published for distribution 
without the permission of the author. However, users may reproduce portions in the 
attempt to plan or secure a charitable donation