Need advice on the best way to contribute to a good cause while benefitting from tax credits?
Donate to a good cause and save on taxes
November 28, 2024
By Susan Yellin and Sun Life Staff
Did you know that there are tax strategies for maximizing your tax credits on donations? The more you give, the less tax you pay! It’s a great way to motivate you to give even more generously to the causes you care about.
Remember that every donation – however small – is significant for most charities. Even a small amount can transform the life of a person in need.
Do donations qualify for tax credits?
Your charitable donations will net you two 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. So, the total federal tax credit would be $262. Each province also provides its own tax credits on top of the federal tax credit.
Can tax credits be claimed for spousal donations?
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.
Can donations be carried forward?
According to Wolfe, some tax return programs automatically indicate whether you need to claim the tax credit for the current year. Where applicable, they also show credits carried forward to future years.
Further reading: Are you paying more tax than you need to?
According to Wolfe, some tax return programs automatically indicate whether you need to claim the tax credit for the current year. Where applicable, they also show credits carried forward to future years.
Can I leave a life insurance policy as a donation?
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. This donation will help lower your final tax bill.
Alternatively, you can transfer the ownership of an insurance policy to a charity of your choosing. In that case, you continue to pay the premiums, but you are basically giving up control of the policy. However, you can claim the premiums as an ongoing, annual tax credit.
What about gifts of publicly traded shares
When donating certain types of property to a qualified donee, you might be eligible for a 0% inclusion rate on any resulting capital gain. For example, this would apply to:
- a share of the capital stock of a mutual fund corporation
- a unit of a mutual fund trust
- a segregated fund contract
In other words, there are no capital gains to pay.
Either way, it’s important to let your lawyer or notary, your advisor, your executor and the charity itself all know that you have taken this action, so your money will reach its intended recipient.
