Donating to charity benefits society in many ways — it helps those in need, supports research and education and raises awareness of important issues. But did you know that there are ways to stretch your donation dollar further?
It feels good to join like-minded people and support a cause with your gift of time and money (or both) — but you can make an even bigger impact by giving strategically and including charitable giving in your financial planning.
Planning helps you take advantage of government tax incentives, set up a legacy fund and increase your donations beyond your personal capacity.
How you can use tax incentives to help charities
When you donate, the Canadian government provides you with a non-refundable tax credit of 15% on the first $200 donated at the federal level — so if you donate $200, you’ll get a tax credit of $30.
On amounts over $200, the total tax credit could be up to 33 percent of the amount donated, depending on your taxable income. That means a donation of $1,000 could generate you a tax credit of $294 ($30 on the first $200, plus an additional $264 on the remaining $800).
And you may be entitled to an additional credit of up to 24 percent, depending on which province you call home (check out Charitable donation tax credit rates). In Ontario, for example, you would get an additional $99.38 in tax credits (5.05% on the first $200, and 11.16% on the remaining $800).
So, here’s where it gets interesting…
You can either give the charity $1,000 and have it only cost you $606.62 ($1,000 minus the 393.38 in tax credits) or you can funnel the tax credit back to the charity and give them a donation of $1,393.38 — and all it cost you is the initial $1,000.
Donating to charity through life insurance
There are a number of other ways you can support causes that are important to you, such as including them in your life insurance policy — you’ll be able to create a legacy while enjoying some tax benefits as well.
There are three ways to go about this:
- Add the charity to your current life insurance policy as a beneficiary — This is a good option if you have a policy in place and your family doesn’t need the proceeds for financial stability. At the time of your death, the charity would receive the cash payout and your estate would receive a tax benefit.
- Transfer ownership of an existing policy to the charity — In this scenario, you relinquish control of the policy and would receive a tax benefit for the cash value of the policy. You would continue to pay the premiums and receive tax receipts for the amount of your payments. There would be no tax benefit to your estate at the time of death.
- Take out a new policy in the name of the charity — You’ll receive a tax receipt for the policy and any premiums you pay.
It’s preferable to name the charity as a beneficiary of your life insurance policy (rather than listing them in your will) to avoid probate fees.
Imagine being able to give your favourite charity a donation worth thousands of dollars — without taking away from the value of your estate.
You can also donate securities...
Another way to maximize your donation dollar is to donate securities, such as stocks and bonds.
Say you had a stock that has appreciated or increased in value by $1,000. If you were to cash the stock in, you would realize a capital gain of $1,000, of which $500 (50%) would be added to your taxable income.
However, if you were to transfer the stocks directly to the charity, there would be no taxable gains tax, plus you’d be eligible to receive the charitable giving tax credit for the full amount — and you would be free to add the tax savings to your donation.
It’s a lot to wrap your head around...
There are other ways you can contribute to worthy causes and make a big impact and create a lasting legacy...and the government is offering great incentives for you to do so.
If you’d like your financial plan to include charitable giving, but aren’t quite sure which would be best for your situation, you can reach us by email, phone or by filling out our online form.
If you were planning on giving to a worthy cause anyway, taking advantage of the Charitable Donation Tax Credit is a great way to maximize your donation — and we can help you.
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