The theme of Thanksgiving is to be grateful for what you have, and it’s also a time to give back to others, if your budget can manage it. While donating to charity is a really admirable cause, take heed – it’s important to ensure your donation both fits your world views and your financial plan. Here’s what you need to know about donating at this time of year, and the impact it can have on your taxes.
Use Your Donation Tax Credit
When you file your taxes, you can get some of the money back that you’ve given to charity via a non-refundable tax credit (meaning it reduces the tax you owe but if you owe nothing, there’s no refund). It’s actually a somewhat complex formula (check out the CRA’s breakdown here). But generally speaking, on the first $200 you give, you get a tax credit worth 15 per cent for the federal portion, and an additional five – 20 percent, depending on the province you live in (find a chart of the credit rates here). But if you live in Ontario (where the provincial rate is 5.05 per cent) and gave $150, you will have a tax credit of $30.08 ($22.50 + $7.58).
The rates are higher for your donation tax credit once they exceed $200 (a whopping 29 per cent federal rate and a high of 24 per cent for those in Quebec). You can claim up to 75 per cent of your income.
As well, you don’t have to simply follow the calendar year when you claim. You can collect up your charitable donations over as long as five years — so you can collect up your receipts over a few years and claim them when you need the tax credit.
File Your Receipts Properly
Be sure the organization you donated to is an official charity and has issued you a proper receipt for your donation. You must attach your receipts to your tax return.
Be Strategic About Charitable Spending
If you want to give back, keep your eye on these tax benefits when you donate. Things like offering canned food to a food bank doesn’t offer you a receipt — but writing a cheque to a bank does. Agreeing to giving $5 or so at the grocery checkout counter to a charity undergoing a promotion that day also doesn’t offer you a tax benefit.
Give when you can, where you can. And if it makes sense and you give a lot, try to have your generosity fit into your tax planning too.