Charitable Donations

Although you are primarily concerned with planning and enjoying your retirement years, considering estate plans and other issues are also an important part of a comprehensive financial plan. Making a charitable donation can be a very satisfying way to share your good financial fortunes with deserving causes and those less fortunate. Donating can also provide tax advantages to you and your family, either while you are alive or in your estate plans. The federal and provincial governments appreciate that it is good social policy to provide tax advantage to those willing to make donations to worthy causes so they have a number of policies in place that encourage charitable giving.

Eligible Charities

Although saving money on tax may not be the primary incentive to contribute to a particular cause, you want to be confident that the intended recipients of your donation will actually benefit. Unfortunately, various schemes have been created that appear to represent legitimate charities but are in fact fraudulent. Canada Revenue Agency (CRA) has information that helps you determine the status of a charity of interest:

The Charitable Donation Tax Credit

The charitable donation tax credit has two levels as well as maximums allowed in a particular tax year. The first $200 of eligible donations will reduce tax payable at a rate of 15% of the donation amount. Any amount donated over the first $200 per year reduces tax payable at a rate of 29%. The amount of credits claimed can generally not exceed 75% of net income in the year the credit is being claimed. The credits cannot be carried forward but the donation itself can be spread out over up to five years. Please speak to your advisor for more details.

Enhanced Charitable Donation Tax Credit

The 2013 Federal Budget included an enhanced Federal Tax Credit for first time charitable donors. First time donors are those who have never claimed a charitable donation tax credit or those (or their spouses) who have not made a claim subsequent to the 2007 tax year. Please speak to your Advisor for more details.

Making a Charitable Donation

There are different ways to make charitable donations which will have different tax/financial effects. For example, you can donate to an eligible charity or to the government. You can donate cash, life insurance or property. Property can include gifts of eligible securities. If you donate securities (such as stocks or bonds) you will receive a tax credit for the fair market value of the donation and you do not have to pay capital gains tax on any increase in value from when you bought the security to when you donate it. This is clearly preferable to selling the security and donating the cash since capital gains taxes would have to be paid. Your advisor can provide more details

There are also advantages with respect to ordering of gifts. Your advisor will have much more specific information in regards to the details of charitable donations and the best approach for you.