Sharing with others feels good, and it feels even better when you do it strategically, allowing you to give more with less. How is that possible, you ask? Well, the generous government of Canada offers different tax benefits to individuals and business owners for donating a part of their wealth. In this guide, we’ve discussed four benefits you can get out of charity donations in Canada in 2021. Let’s dive right in:
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Up to 33% Tax Credit:
The tax credit is the amount of money you can directly deduct from your overall income tax. So, if you make a charitable donation, you can get 15% of the tax credit on your first $200 donation under federal laws. Furthermore, donations made over the $200 mark will result in a 29% tax credit. The credit on your taxes can even go up to 33% under certain conditions.
Besides this, you may also be entitled to get an additional tax credit of anywhere from 4% to up to 24% depending on the provincial laws. So, for instance, if you are living in Ontario and you give out $200 to a charity registered by the Canadian Government, 15% of that will be $30. Plus, an additional 5.05% of provincial credit will be around $10, so your total credit will become $40.
You Get Tax Credit For Life Insurance Donation:
If you opt for donating a life insurance policy to a registered charity of your choice, you can get a tax credit as well. However, the charity should own life insurance. Meaning you need to open it in the name of the charity. This way, you will get a tax credit for the premiums you pay for the policy.
But if the policy is in your name and the charity is listed as the beneficiary, then you won’t get a tax credit in your lifetime. Instead, your estate will receive the credit after the death benefit is paid to the charity. You can find many good charitable organizations and also receive help with estate planning and life insurance here https://wealthinsurance.com/services/planned-giving.html.
Your Business Income Tax Credit:
Whether you are in a partnership or sole proprietorship, if you file the income tax return via T1, you can claim the charitable gifts and deductions of up to a whopping 75% on your net income. One exception to this is when the taxpayer passes away. For the year of demise and the year before that, the tax deduction limit on their income will be 100% of the net income.
Remember, you cannot claim donations made to the charity to create or escalate the loss. However, any unused charitable donations can be further carried out and used five years after the donation.
You Can Save 50% on Capital Gain Tax on Securities:
If you donate your securities to a charity, you can save up to 50% of tax levied on capital gains, which means not paying any capital gain taxes at all. However, do not sell the securities and pay the charity with that amount.
Because then you will have to pay 50% capital gain tax on the cash amount so it will be like first paying tax to the government by selling the securities and then paying more tax when donating the cash amount you get from selling them.
Instead, donate the security directly to the charitable organization and save a tax amount of 50% on the capital gains.
Frequently Asked Questions:
How Do I Show The Amount I Donated on a Tax Report?
This is easy; you just need to put the amount under your respective charitable donations section on the tax form you file, depending on whether you are a business or an individual. However, get the donation receipt from the registered charitable organization you’ve donated to. This can be shown for verification purposes if needed after your tax report is filed.
Can I Get Benefit Out of Paying to a U.S Charity?
Yes, you can. The tax treaty between the U.S and Canada allows the residents for a deduction on the donations they made to the U.S charities. However, this deduction can only be applied to the income coming from the U.S. If this is the case, you can claim up to 75% of your income from a U.S based business on your tax return in Canada.
What’s a Gift in Kind?
It usually refers to the assets you donate instead of cash, particularly capital property, personal-use property, and depreciable property. Things like residual interest, any kind of right, a share, business inventory, and a license.
Who Can Qualify for Donation Tax Credit in Canada?
The Charitable Donations Tax Credit is available to anyone donating to a qualifying donee. The donation is basically a gift for which you do not get anything in return from the charitable organization. The donation can be money or a non-cash property like the ones we discussed above. Keep in mind, if you get something in return for your charity, like passes to a show, then the market value of those tickets will have to be subtracted from the donated amount, and tax credit will be claimed on what remains. Read more about qualified donations here.
What’s Considered as Qualifying Donne?
Any charity registered by the government of Canada is considered a qualifying donee. It can be a municipality, an amateur athletic association, a housing corporation, province, territory, U.N, and its agencies, and more. Make sure to get a receipt, and ensure the issuing donee is legally allowed to do so. There’s a searchable database of registered charities on the government website that you can get help from to find out if the organization you’re donating to is even a registered donee or not.
Sharing your wealth with those in need is certainly rewarding, and the Government of Canada goes several extra steps to ensure donors get some relaxation with their taxes. This is a great way, a win-win situation where you get to donate to your favourite charities but also get a tax credit on that amount, which means making more difference with less.