Real Estate

A gift of real estate can enable a donor to make a bigger charitable difference than they thought possible. If given as a bequest it can reduce estate taxes and minimize or eliminate a burden placed on heirs.

Charitable gifts of real estate range from personal residences and vacation homes to rental properties, farmland, and commercially developed land.

A donor may also choose to give the gift immediately if they realize they no longer require a property, or they may consider retaining the use of the property during their lifetime and leaving the property to their chosen charity in the form of a Charitable Remainder Trust and claiming a tax credit for the charitable portion of the gift.

Gift Examples (and CRA links)

Benefits to the Donor

  • Donation receipt for fair market value of property
  • Capital gains tax on 50% of gain (except for gifts of principal residence or ecologically sensitive land) is offset by donation receipt

Most Appropriate for

  • Donors who no longer wish to retain vacation or investment properties

Important 2017 tax change to gifts of secondary property

Example

Mr. and Mrs. Marconi rarely use the cottage they purchased thirty years ago for $60,000. They had considered selling it but decided instead to contribute it to a charity with which they have long been supporters. An appraisal of the property determines its current fair market value to be $300,000. Their net income from other sources is $150,000 per year, and both their combined tax rate and their combined tax credit are assumed to be 45%.

Tax on Gain
Capital gain recognized ($300,000 – $60,000) 240,000
Taxable gain (50% of $240,000) 120,000
Tax on gain 54,000
Tax Credit
Donation receipt 300,000
Tax credit 135,000
Net Tax Savings
Tax credit 135,000
Tax on gain – 54,000
Net tax savings 81,000

For illustration purposes a combined tax rate of 45% was used. Please note that combined tax rates vary across the provinces. 2015 tax table.

Note to reader: The purpose of this publication is to provide general information, not to render legal advice. In addition any changes in the tax structure may affect the examples listed in this information. Your client should consult their own lawyer or other professional advisor about the applicability of this information to their situation.

Additional Resources

Gifts of Real Estate – Client info sheet
(add your own label or stamp to customize it for your clients)

Capital gain tax exemption for farms and privately owned businesses

There is a capital gain exemption for sales and gifts of Qualified Small Business Corporation (“QSBC”) shares, qualified farm property, and qualified fishing property. The exemption level, which is indexed for inflation, is $813,600 in 2015.

The exemption can flow through partnerships, trusts, and certain other investment vehicles. It is available to individuals while resident in Canada but not to non-resident persons.

To qualify, farm property must have been “used in the course of carrying on the business of farming in Canada” by the individual or a member of his or her immediate family, and the QSBC shares must be in a corporation incorporated or resident in Canada, which is not controlled directly or indirectly, by one or more non-resident persons, or one or more public corporations.

Also, the gain in respect to the disposition of one’s principal residence continues to be exempt from taxation. Donors to whom these exemptions apply should be reminded to consider them when making a gift. Amounts deducted under section 110.6 reduce the total amount of taxable income and, consequently, the maximum contribution limit for the year.

Source: “Planned Giving for Canadians: 3rd Edition 2015 Update”

Donor Story

Sandra and Cliff Stewart owned a summer home and had no heirs interested in inheriting it. At first, the Stewarts planned to sell the home and give the proceeds to charity. But after talking with their local community foundation, they realized that giving the home directly to the foundation would create the biggest, most effective gift, while providing the greatest benefits to them as donors.

“It was a great option – we could give our house to charity through the foundation and start any type of fund, not to mention the tax benefits,” says Sandra. The Stewarts learned they could also retain use of the home for their lifetime.

“This way,” Cliff explains, “we can spend our summers enjoying the home for the rest of our lives. And after our lifetime, the community foundation will use the proceeds to make grants from the Sandra and Cliff Stewart Fund.”