Being generous is good for your bank account as well as your spirit. Your charitable donations will net you 2 tax credits in Canada: One from the federal government and the other from the province where you live, says Les Wolfe, a chartered professional accountant in Dundas, Ontario.
So, let’s say you make a total of $1,000 in donations: The first $200 will give you a 15% federal tax credit, or $30; the remaining $800 will tack on another 29% credit, or $232, for a total federal tax credit of $262. Each province also provides its own tax credits on top of that.
There is also a “super credit” for 1st-time charitable donors. For donations made after March 20, 2013, qualifying 1st-time donors may receive an additional federal tax credit of 25% on the 1st $1,000 of monetary donations over and above the credits mentioned above.
Wolfe says you can claim not only your own donations, but also those of your spouse or common-law partner in any given year. The higher-earning spouse usually makes the claim to reduce his or her taxes.
As well, Wolfe says, you can carry forward your income tax credits. If, for example, your income is low for a given year and you don’t need to use your credits right away, you must report your donations, but you do not need to claim them as credits for up to 5 years. “You have to report them in the year you made the donation so Canada Revenue Agency has a record of them. You are not supposed to gather them up until it’s worth your while.” (For a simple explanation of the difference between a tax credit and a tax deduction, read Are you paying more tax than you need to?
Some tax programs, he says, will automatically indicate whether you need to take the credit that year and will show up as a carry-forward available in future years.
Another way to be charitable and save tax is to purchase a life insurance policy for yourself and make a charity the beneficiary. By doing this, you will not receive any tax credits for the premiums you pay during your lifetime, but a tax credit will be available for the year of your death, which can help lower your final tax bill.
Alternatively, you can transfer the ownership of an insurance policy to a charity of your choosing. By doing so, while you are still paying the premiums, you are basically giving up control of the policy. However, in this instance, you can claim the premiums as an ongoing, annual tax credit.
Either way, it’s important to let your lawyer and financial advisor, your executor and the charity itself all know that you have taken this action, so your money will reach its intended recipient.
Getting professional advice for estate and financial planning will help you ensure you have adequate funds not only to fulfill your final wishes, but also to enjoy a long and happy retirement for years before that time comes.