Charitable giving via life insurance: complete guide 2026

Option A: Transfer policy to a registered charity

The donor transfers ownership of an existing life insurance policy to a registered charity. The charity becomes the policyholder and beneficiary. At the time of transfer, the charity issues a tax receipt for the fair market value (FMV) of the policy.

If the donor continues paying premiums after the transfer, each premium payment is considered a donation and qualifies for an annual tax receipt. At the donor's death, the death benefit is paid directly to the charity.

Note: transferring a policy with a cash surrender value exceeding the adjusted cost base (ACB) may trigger a taxable gain for the donor. The charitable donation tax credit generally offsets this gain, but the calculation should be done. Reference: s. 118.1 ITA.

Option B: Name a charity as beneficiary

The donor retains ownership of the policy but designates a registered charity as beneficiary (in whole or in part). Premiums do not qualify for tax receipts since the donor remains the policy owner.

At death, the death benefit is paid to the charity. The deceased's estate receives a charitable donation tax receipt equal to the death benefit amount. This tax credit can be claimed in the year of death and the preceding year, with a limit of 100% of net income (instead of the usual 75%).

This option is particularly useful for reducing tax on the deemed disposition of assets at death (RRSP/RRIF, unrealized capital gains, etc.).

Option C: Corporate donation via CDA

The corporation owns a life insurance policy on the shareholder's life. At death, the death benefit is paid to the corporation. The amount exceeding the policy's ACB is credited to the CDA (Capital Dividend Account).

The corporation can then make a donation to a registered charity. This donation qualifies for a corporate charitable deduction under s. 110.1 ITA. If the donation comes from the CDA, the tax-free nature is preserved.

This option combines the multiplier effect of corporate life insurance with the charitable donation deduction. The result is a substantial donation at minimal net cost to the corporation and its shareholders.

Comparison of the three options

Option A (transfer): immediate tax benefit at transfer + annual receipts for premiums. Donor loses control of the policy. Ideal for policies no longer needed for family protection.

Option B (beneficiary): donor retains full control. No tax receipt during lifetime. Significant tax credit at death to reduce final tax bill. Ideal for estate planning combined with philanthropy.

Option C (corporate): premiums paid by the corporation (more cost-efficient). Corporate deduction for the donation. Ideal for business owners with corporate surplus and philanthropic goals.

Limits and considerations

The charitable donation tax credit is limited to 75% of net income in the year of the donation. In the year of death and the preceding year, this limit increases to 100% of net income. Excess donations can be carried forward for 5 years.

For corporate donations, the limit is 75% of the corporation's net income. The donation must be made to a registered charity with the CRA. Foreign organizations are generally not eligible unless specifically designated.

Frequently asked questions