Charitable Contributions: A Tax Guide
Did you know that an annual income of $32,000 puts you in the top 1% of global earners?
An income of $100,000 puts you in the top 0.1% of global earners.
Giving back is something very important to us and we know it’s very important to many of our clients. While tax credits may not be the primary reason for donating money to a cause, anything that encourages people to give back is one worth exploring. The holiday season has historically been a period where considerable donations are made. Here is a general guide for understanding the tax benefits of charitable contributions.
Individuals will receive a federal tax credit at the lowest federal tax rate (15%) on the first $200 donated to charity, and 29% on any remaining amount (33% if the donors taxable income is in excess of $210,371).
An individual can claim total donations of up to 75% of their net income. In some cases donations of capital property can increase this limit even further. Example of this are cultural property and ecologically sensitive land.
Donors can claim total donations up to 100% of their net income in the year of death and the preceding year, providing valuable estate planning flexibility.
Tax Savings can be expected to range between 40% and 50% (depending on the province and any applicable surtaxes) for every dollar donated over $200.
Donations can be used in the current year or carried forward up to 5 years.
Donations of publicly traded securities directly to a charity reduces the 50% capital gains inclusion rate to 0%. The result is that the tax credit is calculated on the market value of the shares and there is no tax to pay on the associated capital gains. If you’re planning on donating money, and you have non-registered assets with an unrealized capital gain, it may be prudent to use these assets to make your donation.
General Tips for Charitable Donations:
Make your charitable donations before the end of the year. Instead of waiting until the new year this will allows you to claim the donation much sooner and take advantage of the tax credit.
If you donated less than $200 in the tax year, it might be worthwhile to hold off on claiming a tax credit until a future tax year. This allows a taxpayer to defer their total claimed donations until it exceeds $200 to maximize the tax benefit.
Donations can be deferred up to 5 years.
Married and common-law couples can pool their donation receipts to maximize their tax credits. The higher-income partner should claim the charitable donations tax credit, as it helps to reduce surtaxes on federal and provincial taxes.
