Mr. Green died on February 15th. In his will, he left the church a general bequest of $100,000. Since he died so early in the year, his taxable income in the year of death was only $15,000. His net income for the previous year was $50,000 of which he gave $5,000 to the church and to other charities. In Mr. Green’s final tax return, the executor can only claim $15,000 of the $100,000 donation receipt. The executor can then amend Mr. Green’s previous year’s tax return and claim the tax credit on an additional $45,000 in donations. Since the 100% donation limit was reached in both years, however, there is $40,000 worth of donations ($100,000 – $15,000 – $45,000 = $40,000) that cannot be claimed.
Mrs. Lake, a widow, left $100,000 to the church and the remainder of her estate to her two children. In Mrs. Lake’s case, the entire bequest amount was applied against her taxable income, which was over $100,000. The combined tax credit is 45 percent, which resulted in tax savings of $45,000. If she had left the $100,000 to her children instead of giving it to the church, taxes would have consumed $45,000, leaving the children with only $55,000, just $10,000 more than they would have received if their mother had not made her charitable bequest. In effect, $5,000 less for each of Mrs. Lake’s two children meant $100,000 available for the church’s ministry! (Special note: Tax credits vary depending on the province of residence.)