How it Works
You make a donation to a charitable organization, and they agree to pay you an annual annuity for a set period, thereby giving you guaranteed periodic income.
Value of the Gift
The value of the property donated to the charitable organization is the difference between the amount you pay them and the advantage you receive in exchange, i.e. acquisition cost of the annuity for the charitable organization. This amount entitles you to a charitable donation tax credit.
Example*:
You make a cash donation of $75,000 to a charitable organization in exchange for a monthly annuity of $500. Based on your age and life expectancy, the cost of the annuity is $51,400. The amount that entitles you to a tax credit is therefore $23,600 ($75,000 - $51,400).
To be eligible for the tax credit, the value of the gift made to an organization must be greater than the cost of the annuity.
Example*:
You make a cash donation of $75,000 to a charitable organization in exchange for a monthly annuity of $670. Based on your age and life expectancy, the cost of the annuity for the organization is $75,000. As the value of the gift ($75,000 in cash) is equal to the advantage you will receive (annuity worth $75,000) your gift has a value of zero and therefore you are not entitled to a tax credit.
*The data and the results in these examples are simulations only
Advantages
- A charitable gift annuity lets you make an immediate donation to a charitable organization of your choice while you receive a guaranteed fixed and stable income.
- The charitable organization to which you make the donation can issue an official receipt that entitles you to a tax credit in the year during which you made the gift.You can then claim this tax credit when you file your income tax return.
- You don't have to worry about managing this investment.
Getting Advice
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Note: This text is intended for information purposes only. In no event should it be considered as professional tax or legal advice.
Updated: January 2008
