PLAN YOUR CHARITABLE DONATIONS BEFORE YEAR END

 
To be able to claim a tax credit for charitable donations on your 2015 tax return you need to make your donations by December 31, 2015. Donations made to charities in Canada are eligible for a charitable donation tax credit. The first $200 of your donations is eligible for a tax credit equivalent to 15% of the donation amount. Depending on your province of residence you can also claim a provincial tax credit of 4% to 20% of the donated amount. On average this amounts to a 25% tax credit, which means that you save $50 on a $200 charitable donation.

If your donations exceed $200, then you will receive a 29% federal tax credit and will be eligible for a provincial tax credit of 11% to 24%, resulting in an average refund of 45% of your donation.

Since you receive a tax credit that reduces the amount of taxes that you owe, rather than deduction from income, when you make a charitable donation, the tax savings are the same no matter what tax bracket you may be in.

If you cannot use your tax credits in the year of your donation, you can carry forward your donations for five years. While during your lifetime, you can claim charitable donations up to 75% of your net income, the tax credits are more generous after your death. In the year of your death, you can claim donations of up to 100% of your net income and can carry back any excess donations to offset 100% of your income in the preceding year. If you make a donation through your will it will be treated as if it was made immediately before your death and can be deducted on your final return. Plus you will have the ability to carry back any excess donations to offset 100% of your previous year’s income as well.

First-time Donor’s Super Credit

The 2013 federal budget proposed a temporary one-time credit for first-time donors on up to $1,000 of monetary donations, in an attempt to encourage charitable giving by new donors. If a donor, or his/her spouse or common-law partner, did not claim a charitable donation tax credit or this new credit in any taxation year after 2007, the donor would be considered a first-time donor and would be eligible for this new tax credit.

The new 25% super credit will be added to the existing charitable donation tax credit, resulting in a tax credit rate of 40% on the first $200 of donations and 54% on the next $800. The new credit applies to donations made after March 21, 2013 and before 2018. The maximum limit of $1,000 applies to both individuals and couples, so that there is no doubling of the credit for couples.

To maximize the tax credit, donors may want to carry forward and not claim smaller donations until the $1,000 threshold is reached as this is a one-time credit.

  • ** This advantage isn’t applicable to Quebec, where notarial wills don’t need to be probated, and holograph wills and wills made in the presence of witnesses have minimal probate fees.

Pull quotes

“Even in a low interest environment like today, life annuities can provide the highest level of guaranteed income for as long as you live, in the most tax effective manner.”

“With the higher income generated by a life annuity you can protect yourself against longevity risk, or the risk of outliving your money.”

“The new Small Business Job Credit (SBJC) will save small business owners over $500 million over the next two years.”

“Since you receive a tax credit that reduces the amount of taxes that you owe, rather than deduction from income, when you make a charitable donation, the tax savings are the same no matter what tax bracket you may be in.”

Comments Off on PLAN YOUR CHARITABLE DONATIONS BEFORE YEAR END   |   Posted in Charitable Giving,Estate Planning,Latest News,Retirement Planning,Tax Planning March 30, 2015

Comments are closed.