When you donate more than $20 – $25, depending on the policies of the registered charity, you receive a tax credit (not a deduction) that positively affects your income. Generally speaking, you can receive a charitable tax credit up to 75 per cent of your net income while you’re living, and 100 per cent of your net income the year of your death.
How it all works
What makes giving so powerful is that when you apply the charitable tax receipt to your taxable income, it is worth between 25 per cent (if you give less than $200) up to 45 per cent (if the value is over $200) depending on the province you live in. The receipt should have the charity’s name and registration number, your name, date, serial number of the receipt itself (similar to an invoice number), amount donated, the CRA website address and be signed on behalf of the organization.
In some provinces, the higher your income, the greater the tax credit. Using the CRA’s online Charitable donation tax credit calculator is a handy way to calculate your total tax credit based on the province you reside.
There are a few strings attached to getting the charitable receipt in the first place. You can’t have received something in return, like dinner at a fundraising gala or tickets to a ball game, and if you do, you have to deduct that value from your gift before the credit can be applied. And, if you’re still thinking the First-Time Donor’s Super Credit is around, sadly it expired in 2017.
Combining and carrying forward
If you have a spouse or file your taxes jointly with a common law partner, you can combine your donations and claim them against the person with the higher income so that you maximize your charitable tax credit. Or, if your taxable income is low, perhaps because you’re taking advantage of other credits or deductions in a certain tax year, you can, and should, carry the credit forward for up to five years.
If your car is on its last tires, and you’re thinking of selling it for a couple of thousand dollars on Kijiji, you may want to consider donating it to an organization like Kars4Kids. They’ll issue you a tax receipt for the “fair market value” of the vehicle. This also applies to other major gifts of significant value such as appliances and furniture, gently used, of course.
Gifts of clothing and small household items are generally not receiptable, but local charities really value these donations. So if you’re decluttering your closet or your home, support people need what you no longer do.
New rules encourage the donation of securities – stocks, bonds, funds, etc.
If you own a security that has appreciated in value, there is now no capital gains tax on such gifts. This could be a substantial benefit, as you get the tax credit on the higher amount, but do not have to pay any tax on your gain. But not all charities accept this kind of donation, so check with the organization first.
Easy ways to fit giving into your budget
Donating monthly works giving right into your regular household budget. The charity can debit your bank account directly or can charge your credit card. If you aren’t carrying a balance on your credit card, and you collect points, paying for your donation on your points credit card is a triple win; you get a tax receipt, you collect points and you’re helping your cause in a sustained way.
Donations at work or through your pension plan, are also dead simple because they’re deducted right off your paycheque before you can spend the money. These credits are typically recorded on your T4 or T4A slips.
Large scale endowments to community foundations such as the Toronto Foundation are popular for families hoping to leave a legacy. However, donor advised funds (DAFs), set up through the TELUS Friendly Future Foundation, for example, are becoming popular because they allow the donor the same privileges as a private foundation with greater flexibility and fewer costs. In either case, families pool their money, because of tax advantages, and direct funds to the charities they care about. If this is something you and your family are interested in, it’s essential that you work with a professional advisor, often a senior fundraising professional or a lawyer, to coordinate your efforts.
Statistics Canada has plenty of research on the impact of giving in the community. But most findings align to a basic financial planning principle: plan ahead. If you plan ahead, chances are you will give more, and in a sustained way, and that has a greater impact on your community and the causes you care about. So, as you’re out shopping this holiday season, think about how you can be strategic with your charitable gifts, too.
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