There are many reasons why Canadians give to charity, but receiving a charitable tax benefit has never been especially high on the list. In fact, according to a recent Statistics Canada survey, getting an income tax credit finished dead last behind more altruistic reasons such as ‘compassion towards people in need’, ‘personally believing in a cause’ and ‘making a contribution to community’.
This desire to ‘do good’ without any financial reward might help explain why the number of Canadians taking advantage of charitable tax credits plummeted from 29.5 to 21.9 per cent from 1990 to 2013, and why under six million people claim the federal Charitable Donation Tax Credit each year despite the fact that about 24 million of us (about 85% of Canadians) make an annual financial donation to charity (StatsCan).
Whether this trend is a result of conscious decision or a simple lack of awareness on how tax credits work, it’s important for Canadians to understand that claiming their charitable donations only results in having more money to contribute to society in the long run. Here are four tips to help you save on your taxes and give more generously:
Federal and provincial tax incentives add up
When you make a charitable donation in Canada you get both federal and provincial tax credits, with combined incentives of up to 53 per cent available. On the federal level, you’ll receive a 15 per cent non-refundable tax credit for the first $200 you donate then 29 per cent for all donations beyond the $200 threshold. On top of that, each province offers its own tax incentives that vary depending on where you live. To calculate your own charitable tax credit, use this CanadaHelps tax calculator.
First-time donors can super-size their tax credit
If you or your common-law partner have never donated to a CRA-approved charity or claimed a charitable donation tax credit since 2007, you are eligible for the First-Time Donor’s Super Credit. This is an extra non-refundable federal tax credit of 25 per cent on financial donations up to $1,000 that you can only use once prior to the 2018 tax season.
So, using the CanadaHelps tax calculator, if you live in Alberta and donate $1,000 to charity, you’d normally get $452 back, but with this added 25 percent your tax credit grows to $702— that’s an extra $250. Essentially, this means it’s costing you only $298 to donate $1,000 to your preferred charity. Depending on your budget and what you’re comfortable giving, you could then reinvest the more than $700 in tax savings towards another charitable donation.
Donate securities and don’t pay capital gains tax
Since the elimination of the capital gains tax on securities donations in 2006, a donation of securities or mutual fund shares has been the most tax-efficient way to support your community and reduce your tax bill. Upon selling a mutual fund or security, normally you’d be assessed a capital gains tax on the value-increase of your investment over the price paid at purchase. And if you sold your investments and then donated the cash, you would receive the tax credit for the donation but would still have to pay tax on the gain – money that could have gone to a cause you care about.
However, if you donate the securities directly to your charities of choice, you will receive a tax receipt for the full fair market value of your investment at the time of donation and pay no capital gains tax on the increase in value. If you own a large number of securities and aren’t prepared to donate the full value, you can also give a portion and cash-out the rest. Through CanadaHelps.org, Canada’s platform for donating and fundraising online, you can give to any one of 86,000 registered charities, big or small, and it’s as easy as filling out an online form and then authorizing your broker. You can even split your securities gift across multiple charities with no extra cost or paperwork.
Remember to get a charitable tax receipt
When you donate to any registered Canadian charity online through CanadaHelps.org, you’ll receive an instant tax receipt or one roll-up tax receipt for all your donations come tax time.
But, remember, no matter how you choose to give, the most important thing is that you’re maximizing your donations to make the biggest possible impact on the world around you. These ideas of course are just some of the ways you can save on your taxes and give more generously. For more information on how to increase your giving capacity, consider speaking to a financial advisor.