There is an expression that says, “charity begins at home” and while that is intended to suggest that one’s first concern should be one’s own family, the fact is that by helping others, you can also help your own household. Giving to charity is a great way to help those less fortunate than ourselves, and with the ability to make a tax claim based on your donations, everyone benefits. Make the most with these tax tips for your charitable donations.
WHICH CHARITIES QUALIFY FOR CLAIMS?
With so many worthy charities looking for financial assistance, you are sure to find one that speaks to you. If you want to be able to claim your donation at tax time, however, be aware that only contributions to registered charities will allow you to do so.
WHAT CAN BE CLAIMED?
You will often hear charities mention that donations to them are tax deductible. In fact, it is actually a credit and not a deduction, and the amount that you are able to claim isn’t necessarily the full amount that you are donating.
When calculating the amount of the claim, you must first consider whether you have received anything in return. One popular method for charities to gain donations is to offer some kind of thank-you gift. If this is the case, the actual amount that you can claim would be the amount of your donation minus the fair market value of the gift you receive. For example, if you make a donation of $200 and receive a gift valued at $25, your claimable amount would be $175.
Your claim is also limited by your income, so talk to a qualified Accountant for details. An amount of up to 75% of your net income is eligible to be claimed, though in the year of death and one year prior, the amount can be 100%. In addition, from 2013 to 2017, new donors are eligible for the First Time Donor’s Super Credit, which adds 25% to the rate used for the calculation of your credit, up to $1,000.
THE $200 RULE
In an effort to encourage more donations, the Federal and Provincial Governments have implemented a two-tiered system using $200 as the point of division. Add all your donations together and determine whether it exceeds $200. Anything up to that amount qualifies for a tax credit at the lowest tax rate, while a total greater than that amount will qualify for the highest tax rate.
By combining both the federal and provincial tax credits, your taxes can be reduced by approximately 20% of the total of donations up to $200. The exact amount will vary from province to province. The donations that are greater than $200 will save approximately 43%, again varying by province. A further benefit exists when your income is over $200,000 as you are eligible for an increased tax credit of approximately 47%.
KEEP YOUR RECEIPTS HANDY
Any receipts from the charitable organization should include their name and registration number, serial number, date, and amount donated. The receipt should also show the donor’s name and be signed by someone authorized to do so on the organization’s behalf. The website address of the CRA should also appear. And remember, you need to keep the receipts in the event that the CRA asks to see them at a later date.
COMBINE YOUR DONATIONS
Given that the credit is higher for amounts over $200, it is beneficial for spouses to combine their donations. Either spouse may claim the credit, as long as they are paying taxes. This allows for the maximization of your credit.
Also of benefit is the ability to carry forward some or all of your donations up to a maximum of five years. You may do this to take advantage of the higher credit for donations over $200, and you should also do this for donations over the 75% income limit.
OTHER TYPES OF DONATIONS
There are other types of donations from which you might benefit:
- Donations at work: Don’t forget about donations made at the workplace. This includes donations made through your pension and through other income such as investment income. These amounts should appear on your tax slips, if eligible.
- Stock donations: You may donate publicly traded securities such as stocks and bonds.
- In-kind donations: These are donations of items. This may include clothing, household goods, toys, and food. You can claim a credit for gifts of property. A donation of services cannot be claimed. To be eligible, you must have a receipt from the charity declaring the fair market value of these items.
Making charitable donations is a great way to offer assistance to others, but keep in mind that you can benefit as well. Plan ahead for your donation, possibly by setting aside a specific amount every two weeks, or every month. By increasing your donation, you are not only doing more to help others, you are maximizing your potential tax credit, and who wouldn’t want that?!?
***This blog is for information only and not to be used as tax advice or planning without first seeking professional advice. Information is also subject to change without notice.