The holiday season is upon us. Do you have your Christmas gift list ready?
Personally, it seems like everyone on my list is getting increasingly more difficult to shop for. I am not blameless here myself, as I too am picky and tend to just shop for items I need as they come up (rather than make a Christmas list).
Before you grab that default candle, bottle of wine or Starbucks gift card, why not give a gift that is more meaningful, and also keeps giving?
What is this unicorn of a gift? Charitable donations. Donating to a loved ones favourite charity or cause that they are connected to not only makes a positive impact for the organization you are supporting; this gift can also create a ripple effect to keep giving.
How?
In Canada, if you donate to a registered charity, you will be entitled to a non-refundable tax credit, which can reduce your taxes payable.
There are two tiers for tax credits when it comes to charitable giving. For the first $200 of your charitable donations, you will receive a 15% federal tax credit. It doesn’t stop there as you would also receive a provincial tax credit. I will use the example of Ontario, where the tax credit rate is 5.05%. Therefore, if you live in Ontario, you would receive a combined tax credit of 20.05% on your first $200 of charitable donations.
To illustrate, if you donated $200 to your favourite charity, you would be entitled to receive up to $40.10 as a non-refundable tax credit.
A 20% return on doing something good is really sweet! However, it gets better…
If your donations add up to more than $200, the portion of your donations in excess of $200 has an even larger tax credit. Federally, you would receive 29%, and, provincially (Ontario) 11.16% for a combined tax credit of 40.16%! This is a significant return, which means that not only are you helping out these charitable organizations, but you are also getting a return of 40% on your donation. For example, if you donated $500 in the year, you would receive $40.10 on the first $200, and $120.48 on the next $300, for a total of $160.58 in tax credits. To compute your tax credit, you can check out the Canada Revenue Agency’s charitable donation tax credit calculator.
To maximize your tax credit, you can carry forward your charitable donations for up to 5 years. How does this maximize your credit? By pooling your donations together and taking the credit once every five years, it minimizes the lower credit you would receive on the first $200, as you would only have the lower credit once. For example, if you donated $200 every year for 5 years, you would receive a tax credit of $40.10 per year for a combined total of $200.50. However, if you waited until year 5 to claim the tax credit, you would be entitled to a tax credit of $361.38 (which is an extra $160.88!). This reduction in your tax bill can provide for extra funds to keep giving. If you just donated the $361.38 you received back, you would continue to get tax credits, which you can again donate.
If you don’t have cash to give, you can also donate publicly traded shares that have appreciated in value. This can be a tax-efficient way of making a donation as you would get a tax credit based on the fair value of the shares, and you also would not have to report a capital gain on the shares (so a double tax win!).
It is evident that there are several benefits to charitable giving, both for the donor and recipient. Why not try something different this year, and make charitable giving a priority on your gift list.
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