Creation of a charitable annuity

A charitable annuity may be used to generate a higher return than that provided by most fixed-rate investment vehicles, while allowing the donor to receive a sizable tax receipt for the donation. A credit can be used during the tax year the donation was made or carried forward, in part or in whole, over five (5) years. The tax treatment of a charitable annuity favours donors aged 70 or over who are in a lower tax bracket; depending on the donor’s age, the annuity can be entirely non-taxable.

The donor makes a one-time donation to the Foundation (MHIF), with the understanding that the Foundation, through a reputable insurance company, will provide the donor with a fixed income (the annuity) for a specified period or for the rest of his or her life, with the possibility of a guaranteed payment period.

The insurance company administers the annuity and issues payments directly to the donor.

The donor obtains an income tax receipt from the MHIF for the difference (minimum of 20%) between the total amount received and the cost of purchasing the annuity. (Example: an amount of $200,000 received from the donor is used to purchase an annuity at a cost of $160,000; a charitable donation receipt for $40,000 is issued to the donor who, if he or she so chooses, could use the tax deduction for the year in which the annuity is received and/or at any time over the next five (5) years.

Benefits
The charitable annuity offers some distinct benefits that make it a very attractive option for anyone considering a planned donation.

• Unlike traditional investment vehicles, the revenue from an annuity can be guaranteed for life. 
• The annuity is free of administration or investment management fees. 
• The donor is taxed only on the interest portion of each annuity payment received (depending on the donor’s age at the time that the annuity is contracted, the entire annuity could be non-taxable). 
• This type of annuity allows donors to make a donation during their lifetime rather than after their death. 
• The donor immediately receives a charitable donations receipt.

Disadvantage to consider
The annuity is irrevocable, so the donor must ensure that the capital invested will not be required for other purposes.