Charitable Tax Donations

How Much Tax Do You Save When You Donate?

Almost 2 weeks ago, Canada had a piece of its heart ripped out in a terrible accident.The bus crash that took 16 lives too soon and destroyed so many other has hit home for so many Canadians and people around the world.

I am an incredibly proud Canadian and it’s in our darkest times that my pride as a Canadian shines the brightest, because it’s when our true colours really shine. There has been an absolutely massive outpouring of support for The Humboldt Broncos and I believe it has been so massive, because deep down we are just one small hockey town spread across a very large nation.

The financial donations from companies and individuals have been so huge that I figured it would be a good time to explain charitable donation tax credits.

#HumboldtStrong

The first thing to note is that you have to make a donation to a registered and qualified charity in order to get a tax-credit, so in the case of the GoFund me page set up for The Humboldt Broncos, donations would not qualify, because those would be considered a gift. That makes the staggering amount of money raised even more impressive. 

In any given year, you can qualify for a donation up to 75% of your net income (income after tax and deductions), however in the year preceeding your death and the year of your death, you can donate up to 100% of your net income.

However, if you are donating Certified Cultural Property, or Environmentally Sensitive Land, you’re allowed to qualify for a donation up to 100% of your Net Income at any time. 

The Benefits of Being Married - Potentially the Only One (JK)

If you’re married you can use your tax credit against either spouses tax bill, regardless of who makes the donation. You can also claim amounts not claimed by either you or your spouse for up to 5 previous years. Below I will explain why it might make sense to delay claiming some of the amounts.

Each Province is Different

The first thing to figure out is how much your tax credit is going to be and this number is going to be different in every single Province. For this example, I am going to use Saskatchewan rates.

The Federal government gives donation tax credits and so do each province, so you have to add them up. Just like everything with the Canadian Tax code, they think it makes sense to make it as hard as possible for everyone to understand.

Let’s talk about someone from Saskatchewan who made a $1,000 donation to a charity in 2017.

There is a number to always keep note of, which is $200. Anything under $200 qualifies for a lower tax credit both federally and provincially and everything over $200 qualifies for a higher tax credit.

Since this person made a $1,000 donation, they will have $200 that qualifies for the lower credit and $800 at the higher rate.

The Federal Rates are:

  • 15% below $200
  • 29% above $200. (Unless you make over $200,000, then the higher rate is 33%)

The Saskatchewan Rates are:

  • 11% below $200
  • 15% above $200

So, let’s add this up:

Federal

$200 * 15% = $30
$800 * 29% = $232

Saskatchewan

$200 * 11% = $22
$800 * 15% = $120

TOTAL = $404

This is a $404 TAX CREDIT, which means that if they owe over $404 in taxes, their tax bill will be reduced by $404. However, if they don’t owe any taxes, this will not result in a tax return of $404. Clear as mud, right?

Below is a chart of all of the different rates for each Province. 

Provincial Tax Credit Rates

 

Some Tax Planning Tips:

Combining Donations With Your Spouse

Let's pretend we have a Saskatchewan couple who each donated $200 last year. If they were to each just claim their own, then the whole donation would be at the lower rate.

Each spouse would be eligible for a tax credit of $52. ($200*15% + $200*11%).
That's $104 for them as a couple.

If they were to combine them, it would be higher, because $200 would be at the lower rate and $200 would be at the higher rate.

$52 + ($200*29% + $200*15%) = $140

I know it's not that exciting, but this couple just saved $36 for changing one line on their tax return.

Delaying Donations

Let's now look at how it could make sense to delay claiming charitable donations. Let's use a person who donates $200/year to charity. If they live in Saskatchewan, they will get a $52 Tax Credit every year. See the math above. Over the course of 5-years, that would add up to $260 in Tax Credits.

Now, this same person could delay claiming these amounts for 5-years, so that it would appear that they made a $1,000 donation in the 5th year.

This math is also noted above and someone in Saskatchewan who made a $1,000 donation last year would have saved $404. By delaying this amount, they would have an extra $144 in their jeans. 

However, something we talked about a lot in our CFP class was the "Time Value of Money." Maybe it's worth more for you to have less at an earlier date.

Either way, I hope you learned something here. Thank you for reading and thank your for being so generous to deserving charities and people.