Principal Residence

If it is your desire to leave a significant planned gift to charity, your principal residence might provide a good opportunity. Often, at the time of the second passing, of a married couple, their principal residence isn't of any use to their children as they have their own homes. Ultimately, left with this situation, the children are forced to sell the home, at considerable cost, delay, inconvenience and perhaps at a poor time to be selling homes. Under these circumstances, if you have a significant philanthropic goal, gifting your principal residence could be a consideration.

Depending on your tax planning goals, there are two ways that your principal residence can be left to charity.

The principal residence could be gifted now, with the couple retaining use of the property until such time as their death. In this situation, a charitable tax receipt would be received now representing the actuarial present value of the property. The charitable tax receipt could be used to reduce current tax obligations. For instance, if title to your $200,000 principal residence was transferred to the charity of your choice today an actuarial valuation of $85,000 may be determined generating charitable tax credit of approximately $38,000 that could be used to eliminate taxes due today.

Alternatively, the principal residence could be left to charity as part of your estate. A charitable tax receipt would be issued to your estate in respect of the fair market value of the donated residence. As the disposition of your principal residence attracts no capital gains tax, the full amount of the charitable tax receipt would be available to eliminate other taxes owing on the final tax return. For instance, a home with a fair market value of $300,000 would generate a charitable tax credit of about $138,000 which could be used to eliminate the terminal taxes due on the $250,000 in your RRSPs that are being left to your children.

If you are planning to leave your principal residence to charity, please contact us and we'll evaluate which approach works best for your tax situation. We'll also work with you and your chosen charity to ensure that your philanthropic wishes are carried out to your satisfaction.

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