Many of us wish to support charities that are important to us. In “doing good,” it can also work to your benefit in the form of a tax credit. Here are just a handful of options:
Cash Donations — Any donation to a qualifying charity results in a tax receipt that entitles the donor to a tax credit. The federal credit is 15 percent of the first $200 donated per year and 33 percent beyond this threshold.1 After taking provincial tax into account, the total benefit may exceed 40 to 50 percent, depending on province of residence. This credit can be pooled with your spouse to be claimed by whichever spouse can use it to their advantage. Moreover, donations can be carried forward for up to five years. Charitable donations are limited to 75 percent of net income in any year except upon death. Donations of up to 100 percent of net income are allowed for tax purposes in the year of death and the year preceding.
Donating Appreciated Securities — Gifting publicly-traded securities with accrued capital gains to a registered charity not only entitles you to a tax receipt for the fair market value, but also eliminates the associated capital gains tax. If you wish to do this for the 2021 tax year, let us know well in advance of the year end as donations must be made before December 31 and settlement times may vary.
In-Kind Gifts — You may consider donating personal property which a charity can then convert to cash. For example, by donating a used car to charity, you may be eligible to receive a tax receipt for its appraised value. Special tax rules may apply to in-kind gifts so check with a professional tax advisor on how to best handle the situation.
Private Foundations — Individuals with more substantial assets may consider establishing a private foundation as a vehicle for charitable activities. Money paid into the foundation may result in an immediate tax benefit while the foundation can direct future gifts as it sees fit. However, the ongoing cost of the foundation may be a disadvantage.
Donor-Advised Funds or Community Foundations — These may be cost-efficient alternatives to establishing a private foundation by eliminating certain legal and administrative costs, while still allowing you to direct donations and achieve tax benefits. With a donor-advised fund, the contribution will be deductible in the year it is made, but funds can be distributed in future years and you may be able to direct how funds are invested by the charity until their distribution.
If you require assistance, please contact the office. For larger gifts, seek the advice of a tax advisor as it relates to your situation.
- The federal donation tax credit rate for donations over $200 increases to 33 percent to the extent that an individual has taxable income that is taxed at 33 percent.