Almost four out of every five Canadians donated an average of $259 each to non-profit and voluntary organizations. Accordingly, the percentage of donors intending to claim a tax credit for their donation increased with the amount of money donated. Among donors who gave over $200 , 76% indicate that they or someone in their household intended to claim a tax credit. Nearly 20% of those state that the income tax credit was the prime motivation for their donation.
Nearly 65% of donors to international organizations intended to claim a tax credit.
The percentage of donors claiming tax credits increased with household income - from
a low of 22% with household incomes of less than $20,000 to a high of 67% among donors with household incomes of $100,000 or more.
All told, responsible donations, first and foremost provide much needed support to charity, while also time enabling Canadians to take advantage of the applicable tax incentives.
The Canadian Government is Encouraging Canadians to Donate
Many taxpayers are not aware of how the Government of Canada actually encourages Canadians to financially support registered charities. In 1996, the Federal Government increased the total amount of charitable gifts eligible for a tax credit in a particular taxation year from 20% to 75% of the individual’s net income for that year.
Tax credits have a larger impact in lowering final tax obligations than tax deductions. Computed
after gross income tax is determined, tax credits allow tax payers to subtract a given amount directly from taxes at the HIGHEST allowable marginal tax rate.
In contrast, a tax deduction is used to reduce taxable income. Therefore, the value of the deduction will be based on the marginal tax rate applied to the individual’s taxable income.
Tax planning: Integral to your financial Well-Being
when integrated into your overall personal or corporate financial plan, tax minimization programs can be extremely effective.
Although there are risks associated with even the best tax minimization programs, the bigger risk stems from not properly planning your (tax) affairs.
Why part with more in tax than required?
By age 65, the average Canadian will pay about $500,000 in income tax, yet only have about $5,000 in their savings accounts. Everyone understands the importance of managing and building personal wealth, but with a large portion on one’s earnings going to tax, having the funds available for investment purposes is often a challenge.
Effective tax planning coupled with the use of well-structured tax minimization programs is a means of freeing-up capital (cash) that may not otherwise be available to the individual.
Consider using the cash saved on taxes as a source of funds for wise investments or debt reduction.
Your accountant or financial advisor should be consulted to help you build a sound financial plan best suited to your individual requirements.
Important to know
The Canadian government has established a clear set of guidelines for making gifts of money or other property to registered Canadian charities. Complete details are readily available through the Canada Revenue Agency.
Gifts and Income Tax
- If you make a gift of money or other property to certain institutions (e.g. registered Canadian charity), you may be able to claim federal and provincial or territorial non-refundable tax credits when you file your return, provided that you receive an official receipt from the institution.
- A gift in kind is a donation of property other than cash. Once you have chosen a qualified charity, and have determined that it is willing to accept your gift in kind, you or the charity must have the property appraised to determine it fair market value. Under proposed legislation,
for a gift of property made to a qualified charity, the fair market value will be deemed to the lesser of the property’s:
- Fair market value otherwise determined (e.g. appraised value)
or
- Its cost at the time the gift was made
- The eligible amount of your gift is based on the fair market value of the property on the date you legally transferred the ownership to the designated institution
- If you acquire property and gift it within 3 years, the gift amount will be restricted to the cost of the property.
- You do not have to claim, on your current year’s tax return, the eligible amount of gifts/donations made in that year. You may choose to carry forward your donation and claim them for any of the next five years.
