Charities and non-profit groups work on behalf of Canadians to provide the services and support that contribute to quality of life in our communities. We need to increase Canada’s donor base to ensure organizations working across the country and around the world can meet the growing demands of the individuals, families and communities they serve.

A recent Ottawa newspaper article has raised a troubling issue: Canadians, among some of the most privileged in the world, give a relatively small mount of income; on average 1.2%, to charities when compared to our American neighbours who donate a full 2% of income.   However, we have to factor in the difference in tax rates to see a clear picture. Americans pay considerably less taxes then we do, and after paying federal, provincial, municipal, sales and property taxes, people just do not have the money left over to donate to charity.   Or do they……?

With federal and provincial tax credits, charitable giving can actually be a tax reducing financial strategy.  The current federal charitable tax credit works like this: 15% on the first $200 donated and 29% on the remainder. The Ontario provincial credit for 2009 is 9.44% on the first $200 and 17.41% on amounts above.  So if you’re in a lower tax bracket, this can actually reduce your taxes owed at year end.  And with the ability to combine total donations with your spouse or common law partner, it’s even easier to get over that $200 mark. Just remember you can only claim up to 75% of your income from the year.

Ways to Give

There are several ways to donate, let’s take a quick look at a few of the more common choices:

Cash gifts – Probably the easiest way to support a charity. Most charities issue receipts for amounts $10 and over. The Income Tax Act allows you to carry forward donations in excess of the annual limit to any of the five following years.

Donations of securities – Gifts of qualifying securities (stocks, mutual funds, etc…) are not subject to capital gains tax.  You can donate securities that have built up capital gains, pay no tax, yet receive a tax receipt for the full value of the donation.  (This is a great tax strategy, but fairly complicated. If your interested send me an email and I would be glad to explain this in full.)

Through a will – Charitable donations made through a will are made in the year of death and the estate claims the tax credit on the final return.  A life insurance policy is a great way to carry this out. (Just be careful, a downside to estate made donations is the probate fees)

Tax Strategies

Here are some tax strategies to maximize your tax credit return.  For those of you that may be donating less than $200/year, try combing your totals with your spouse or common law partner.  Another option is to carry forward your donations for up to five years (remember the key is to get those donations over the $200 mark for the year of claim to maximize those credits)

For those of you who are donating higher amounts, you may want to donate stocks or mutual funds instead of cash.  Donating stocks to charity will result in 0% capital gains and a tax credit for the market value. If you have a large capital gain in your portfolio and you want to sell, you can donate a portion of your gain to charity to reduce your capital gains tax to zero.   (There is a formula to calculate the exact amounts required, which is a little over the scope of this material, but again, if anyone is interested, send me an email and I would be more then happy to explain it in full detail)

In conclusion, the need for donations is always present, but especially in the winter months.  So why not make a difference in your community, feel great about helping out and save your self some tax money in the process.  Find a charity that you feel deserves your donation, and help them help others this holiday season.

Adam Myers

Financial Advisor, Ottawa ON

Professionals for Independent Planning