Gift of registered retirement plans

RRSP's and RRIF's offer a creative approach to charitable giving.

End of life gift
Many Canadians have established RRSP's and upon reaching the age of 71, most convert these plans to a RRIF. Often there will be a significant balance in the fund upon death. Those who are survived by a spouse or children will want to ensure enough funds are left to provide for their family, and those without survivors, or who have other assets to leave to family, may consider leaving their RRIF to charity. With the exception of Quebec, a client may directly designate a charity as beneficiary without having to subject the gift to probate. The charity will issue a tax receipt for the value of the fund, offsetting the income tax owing on the transfer. The amount creditable on the final lifetime tax return is 100 percent of net income, so the donation tax credit will always offset the tax.

Amount of charitable gift from RRIF - $100,000
Amount included in taxable income - $100,000
Income tax payable (assuming 50% marginal tax rate) - $50,000
Donation tax credit - $50,000 
Net tax payable - $0


Lifetime gift
A lifetime gift from an RRSP or RRIF may be of interest to those who have other assets available to fund their retirement. Again the tax credit from the donation will offset the income tax owing on the withdrawal.

Note:  The plan carrier is required to withhold income taxes at source. Therefore the client will need to use other funds temporarily to replace the withholding tax when making the donation. These funds will be refunded when the annual tax return is submitted. For this reason the client may want to wait until near the end of the tax year to make the donation. There is no withholding tax levied on end of life RRIF or RRSP gifts.

Planning idea: tax-sheltered plans offer some creative approaches to charitable giving. One strategy could be to combine the withdrawal of funds from a tax-sheltered plan with the gift of publicly listed securities. This can be accomplished by contributing appreciated listed securities and then making a withdrawal from the RRIF equal to the value of the contributed securities. The credit from the gift of securities offsets the tax on the withdrawal from the plan, as mentioned above, the withholding tax issue would need to be addressed.

Gift of stock - $100,000
Tax credit from gift - $50,000
Tax on capital gain from stock - $0
Withdrawal from RRIF - $100,000
Tax on withdrawal of RRIF - $50,000
Net tax cost - $0
Cash available from RRIF withdrawal - $100,000

This example illustrates how your client can contribute to a favourite charity, dispose of stock with an uncertain future value, and generate $100,000 for a present purpose. Depending on the client's age, an annuity could be purchased providing guaranteed annual payments for life, entirely or significantly tax-free, and at a substantially higher rate than provided by fixed income investments. These payments could be used to support the education of grandchildren, provide for future nursing home costs, or make additional charitable donations.


Have questions? Contact us:

Charles O'Neil: 902 442 7196
Lori Scott: 902 442 7199
Katharine Berrington: 902 442 7146

Charles O'Neil, Katharine Berrington and Lori Scott image

Resources for your practice

Professional Advisors Guide
A guide for financial advisors - CAGP
Ten articles that will make a difference in your practice.

Survey and report
CAGP report link
Understanding advisors' approaches and clients' perspectives.

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